To help you navigate through the new SBA Loan opportunities and the tax provisions resulting from this and the CARES Act, we have provided you with a list of Frequently Asked Questions.
SBA Loans
Q: Can I get the $10,000 EIDL Advance, the EIDL Loan and the PPP Loan?
A: Yes, if you use the funds differently from the EIDL and the PPP. This is just the short answer, there are stipulations based on the timing of the loans.
Q: How do you calculate a full-time equivalent FTE? What dates do/can I use?
A: A full-time employee is an individual who works an average of at least 30 hours per week. A full-time equivalent employee is determined by adding the hours of part-time employees on a monthly basis and dividing by 120 [IRC Section 4980H(c)(2)(E)]. Until guidance is received otherwise, we suggest using this computation to determine the FTEs for those employees who work fewer than 30 hours per week. Employees working at least 30 hours per week are counted as 1 full-time employee. You use the 8 weeks during your forgiveness period for the numerator, and you can use either 2/15/19 – 6/30/19 or 1/1/20-2/29/20. If you are seasonal, you should use 2/15/19 – 6/30-19.
Q: Can self -employed people get a PPP Loan?
A: Yes, if they had net income and/or employees on payroll. They need to apply as self-employed and use their 2019 schedule C and employee payroll to calculate how much they are eligible for. A Schedule C with no employees and a net loss for 2019, would not be eligible for a PPP loan.
Q: How does the loan forgiveness work with the PPP Loan?
A: The PPP loan forgiveness is based upon the 8-week period beginning with the first disbursement of the loan into your bank account. The following expenses can be used in the forgiveness computation: payroll costs (gross wages, commission, tips, vacation pay and state and local taxes), employer paid group health care benefits and employer paid retirement benefits, mortgage interest payments, rent, and utility payments. The mortgage, rent agreements, and utility agreements must have been in place before February 15, 2020.
After computing the total spent during the 8-week period on the above approved costs, there may be reductions. Non-payroll costs are limited to 25% of the forgiveness amount.
The maximum forgiveness of the loan is reduced based upon employee retention and average pay.
The maximum loan forgiveness amount is multiplied by a fraction that measures employee retention based on the average number of full-time equivalent employees (FTEs). The borrower chooses which denominator to use. The numerator of both fractions is the average number of FTEs employed during the 8-week period. The denominator is either:
- The monthly average FTEs for February 15, 2019, through June 30, 2019; or
- The monthly average FTEs for January 1, 2020, through February 29, 2020.
In addition, the maximum loan forgiveness amount is further decreased if any employee who makes less than $100,000 has declined by more than 25% during the 8-week period, relative to the most recent completed quarter (this should be the first quarter of 2020, unless seasonal). Employees who earned an annualized pay of more than $100,000 during any single 2019 pay period can have a reduction and not affect the forgiveness.
If you had a reduction of employees during the period of February 15, 2020 through April 26, 2020, you can rehire those employees no later than June 30, 2020. The FTE calculation for the number in the numerator will treat those rehired employees as if they were included in the FTE for the entire 8-week period. Please note that while a delayed rehire date won’t cause issues with the employee retention fraction; it may cause you to spend less than the required 75% threshold on payroll costs. This would result in a reduction in the amount of loan forgiven.
Both the average reduction in FTE and reduction in pay must be restored to eliminate the reduction in loan forgiveness.
We have a calculator on the COVID 19 resource page that will calculate each of these limitations for you. We encourage you to use that calculator and check back for future versions. We are still expecting significant guidance on the forgiveness calculations from the SBA.
Q: How do you calculate the average monthly payroll costs?
A: We have a calculator on the COVID 19 resource page that can assist with that calculation.
Q: How do you apply for a PPP loan?
A: Contact your bank, and they will get you the documents needed to apply.
Q: How do you apply for an EIDL loan or an EIDL grant?
A: Watch the SBA.gov website. They currently are not accepting applications.
Q: Is S Corp distributions included in the payroll costs?
A: No
Q: When is additional funding going to be available?
A: April 23rd more funding was approved for both PPP loans and EIDL loans
Q: I applied for the EIDL – when will I be hearing from them?
A: They are far behind. The suggested time to hear from them is 4 weeks if you applied early.
Q: Can I pay my 2019 retirement match with my PPP funds during the 8 weeks?
A: We are waiting on guidance for this. We suggest this should not be paid by the PPP funds and that the PPP funds be used for the 2020 retirement match during the 8-week period instead.
Q: Can I bring on my independent contractors as employees for the 8-week period?
A: This is more of a question for an employment attorney. If you bring them on as an employee because they meet the IRS test of an employee vs contractor then you should keep them on as employees going forward.
Q: When does the 8-week period start?
A: The date your first disbursement of your PPP loan is received in your bank account.
Q: Can I include my guaranteed payments or draws from a partnership as payroll costs?
A: Yes, the guaranteed payments are included as payroll costs for the partnership. The partners cannot apply separately for the PPP loan based on their self employment income on the k-1 or their guaranteed payments. It can only be applied for at the partnership level.
Q: What union benefits can I include?
A: The group health care costs and employer portion of retirement benefits.
Q: Can I use the funds to hire new employees if I do not bring my current employees back to work and let them stay on unemployment?
A: Yes, you can hire new employees.
Q: How do I prove that I got back to the FTE count by June 30 if I did not get to full FTE during the 8-week period?
A: Payroll records should support the FTE calculations at the various points in time, including June 30th.
Q: What do I do if I got the funds for the PPP but cannot open my business?
A: The purpose of the PPP is to retain workers and maintain payroll. To the extent you can, you should hire back your employees and find as many jobs and duties you can that benefit your business. There are a lot of strategies that can be done with this, please contact your CPA or reach out to us for further guidance. You can check out our webinar from April 24th which addresses some of the strategies around this.
Q: What if I do not have a signed lease agreement?
A: You cannot include your rent expenses as allowed forgivable costs.
Q: I have a home office – can I use my home utilities?
A: No, the agreement needs to be in the business name.
Q: I got the $10,000 EIDL advance after I got the PPP – can I keep those funds and use them for working capital?
A: Yes, and be sure to NOT use them for the same cost you use the PPP for.
Q: I got approved for an EIDL and PPP – can I use the EIDL funds for payroll after the 8-week PPP period?
A: We are waiting for further guidance on this but believe this will be an ok use.
Q: Can I include my dental, life, AD&D and Aflac premiums I pay for employees if they are all group plans?
A: We are waiting for further guidance but believe currently it is just for group health plans.
Q: Can I give myself a raise during the 8-week period to increase my payroll costs?
A: This is not advisable currently. Further guidance may change this response but we would caution against related party increases in pay.
Q: Can I give bonuses during this 8-week period to increase my payroll costs?
A: If you document what the bonuses are for and have a business purpose. Examples might be sign on bonuses for employees to incentivize them to come back due to making more on unemployment or providing a bonus due to an increased risk of getting COVID-19.
Q: Can I use my PPP to pay off my line of credit and then reimburse from my line of credit for the approved costs?
A: You cannot use the PPP funds to pay off your line of credit. You should keep the funds in a separate bank account for the reimbursement.
Q: My bank will not open a short term 8-week account for me, what do I do?
A: Ask them to open one again for you. Let them know the payroll costs are not 100% forgiven. You really want to have a separate bank account only to hold funds. You only need the ability to transfer funds. It is not necessary to purchase checks or get a debit card. The payroll costs will still continue being run through the same bank account you have always used.
Q: Can I put my PPP funds into a savings account?
A: Yes
Q: Can I use my EIDL funds to purchase equipment?
A: Per the SBA.gov website, the funds may be used for fixed debts, payroll, accounts payable and other bills that cannot be paid due to the COVID-10 impact on the business. Equipment is not in the list.
Q: Can I use my EIDL funds to expand my business operations?
A: Per the SBA.gov website, the funds may be used for fixed debts, payroll, accounts payable and other bills that cannot be paid due to the COVID-10 impact on the business. Business expansion is not in the approved list.
Q: Do I need to have an impact statement?
A: It is not required, but we highly recommend you create one and maintain it in your records in case they decide this is a document they are going to require at the time of forgiveness calculations. It is just a good business practice to keep good documentation.
Q: What certifications am I making when applying for the PPP?
A: Please see the loan applications for all of the certification you are making:
https://www.sba.gov/sites/default/files/2020-04/PPP%20Borrower%20Application%20Form.pdf
Q: What certifications am I making when applying for the EIDL?
A: You have been affected negatively by the COVID-10 pandemic and have a temporary loss in revenue.
Q: How should I be accounting for and what do I need to keep for backup when applying for forgiveness?
A: We recommend using our calculator to assist with tracking each payroll run to calculate the forgiveable costs. Keeping receipts and lease agreements for the utilities and rent expense is advisable.
Q: Can I pay back rent or prepay my rent to include the costs in my 25%?
Q: What portion of the PPP can be used for things other than payroll and what are those costs that can be A: Further guidance is needed, but the law requires costs to be incurred and paid so it doesn’t appear you can prepay any costs or pay for costs that was incurred prior to the 8 weeks.
included?
A: Up to 25% of the PPP loan can be used for other costs: rent, mortgage interest and utilities as long as you had signed contracts before February 15, 2020. You can also use it for interest on other debt obligations received before February 15, 2020, but this portion cannot be forgiven.
Q: Can I stay on unemployment or have my employees stay on unemployment once I get the PPP loan funds?
A: As the owner(s), you cannot stay on unemployment, and the reason for the PPP loan is to bring your employees back to restore their wages. If you are paying them with the PPP funds, they cannot stay on unemployment.
Q: When does interest start accruing on the PPP loan if I do not get it forgiven or part of it is not forgiven?
A: It starts accruing the day it is disbursed to you. If a portion of the loan is forgiven the associated accrued interest is also forgiven.
Q: When do I have to start making payments for the EIDL or the PPP that is not forgiven?
A: For the EIDL, there is a typically a 12 mont deferment for making payments. For the PPP, there is a 6-month deferment for making payments. Interest will accrue on both loans.
Q: What if I am seasonal? What dates do I have to use to calculate my FTEs?
A: You will calculate your FTE’s during your 8-week period like every other business, but your numerator will be the calculation from the time period of 2/15/19 – 6/30/19.
Q: Am I limited to the $100K wage for the forgiveness period as well?
A: Yes, the maximum gross wages to an individual during the 8 weeks is $15,385 which is the pro rated $100k wage level.
Q: If my funds are in a separate account, how do I reimburse myself and support what the reimbursement is?
A: You will calculate the allowed payroll costs from each payroll report including wages (be sure to limit all employees over $100,000 annually), state and local taxes and any employer paid group health or retirement benefits. Once you have this total, you will transfer the funds from your PPP account to the account you pay your payroll from. For group health or retirement benefits paid outside of your payroll provider, you will keep a copy of the payroll report showing the employees portion withheld and a copy of the invoice or statement showing the employer portion for the group health benefits or retirement benefits. For rent expense, you will keep a copy of your signed and executed lease as well as a cancelled check. For utilities, you will keep a copy of the signed utility agreement, the invoice for the services and the cancelled check. For mortgage interest, you will keep a signed copy of the mortgage loan document, the loan statement and a cancelled check or proof of automatic payment.
Q: I ran my first payroll; can you help me with highlighting what I can include in the forgiveness?
A: If you want to have us assist with how to calculate the approved costs from your payroll report, please contact us. You will include your gross wages, state and local taxes and employer portion of group health and employer paid retirement benefits. We have also laid out a template in our loan forgiveness calculator that can assist you in tracking these payroll costs.
Q: Employees and the owner who make more than $100K, can I reduce them to $100K during this 8-week period if we do not have much work to do and be ok?
A: Yes, you can reduce the pay for those who make over $100,000 to the $100,000.
Q: What happens if I reduce the hours or pay of employees who make less than $100K?
A: Your loan forgiveness amount will be reduced.
Q: I am a business owner and have not been able to get unemployment, can I use the PPP funds to pay myself for the last month I have been unemployed?
A: You can pay yourself with PPP funds but we do not advise paying anyone back pay.
Q: I have employees who cannot work due to the Governor’s orders; should I still pay them all with the PPP funds since I received them before we can go back to work?
A: Our webinar from April 24th addresses these types of situations and can help you come up with a strategy.
Q: I read that ULINE gave their employees a temporary $5 per hour raise to keep them incentivized to stay at work rather than get paid more on unemployment. Can I do the same thing with my employees during this 8-week PPP period and be ok?
A: Yes.
Q: I have an SBA loan for my mortgage. The government is now paying that for 6 months for me, so I do not have the interest to cover for my 25% calculation for forgiveness. Can I use the PPP money to pay down other loans or lines of credit?
A: You can use PPP money to pay interest on other debt, but those payments will not lead to forgiveness so we would recommend targeting payroll or the other forgiveable costs instead.
Q: I applied for the PPP with Wells Fargo and have not heard back; can I apply for unemployment in the meantime? And, how do I cancel my application with Wells Fargo to be able to apply elsewhere?
A: Yes you can apply for unemployment if not being paid currently. Try and contact your banker and ask about the application status. Many were help up after the PPP funding ran out, but APril 24th they should start processing applications again.
Q: My employees make more when working then when on unemployment, can I give them a bonus when we get our PPP funds to make up that difference?
A: We do feel that a rehire bonus or a raise is an appropriate use of the PPP funds to incentivize the workers to come back to work.
Q: Can I use the EIDL money to improve my salon?
A: No, it needs to be used for fixed debts, payroll, accounts payable and other bills that cannot be paid due to the COVID-10 impact on the business.
Q: If I reimburse for April rent now from my PPP but have enough payroll costs to cover the PPP amount, can I transfer the rent amount back and use it for payroll only?
A: Yes, you will want to submit as many eligible payroll costs as you can for the forgiveness.
Tax Provisions
Q: Do I get the $500 stimulus for my child who is a college student?
A: No. The $500 stimulus credit for children only applies to children under age 17, so a dependent who is in college won’t qualify. Further anyone like a college student who is eligible to be claimed as a dependent by someone else is not eligible to receive their own $1,200 stimulus credit. We have a short video on the COVID 19 resource page that goes in depth into the stimulus qualifications.
Q: Do elderly taxpayers who are on social security but are not normally required to file a tax return need to file in order to get the stimulus?
A: No. The IRS came out with guidance on April 1st that they would be taking the records from the social security administration to send checks to those people who haven’t been filing a tax return. No need to file a tax return if a taxpayer is receiving social security and they don’t otherwise have a filing requirement. For other individuals who were not required to file a tax return but should qualify they can go onto the www.irs.gov website and add their information so they can receive the stimulus money.
Q: How do I know if the IRS has my direct deposit information?
A: You will need to look at your 2018 or 2019 return to see if there was direct deposit information included. You can go onto the www.irs.gov website to check the status or add direct deposit information, but this system is not working well. Please only check one time per day so you do not lock yourself out.
Q: When will I get my stimulus check?
A: We do not know the timing, but we do know they have started sending the refunds the week of April 15th to people with direct deposit information. Watch your bank account (if they have your banking information) or your mailbox over the next couple of months.
Q: What date are they using for the tax returns being filed for 2018 or 2019?
A: April 3 appears to be the date for the 2019 filing. If filed after that, they will be using 2018 return for the advance payments.
Q: When are tax returns and payments due?
A: IRS and MN pushed back the deadlines to file and to pay from April 15th to July 15th. An extension could be filed on July 15th if more time is required to prepare an accurate return. At that point by July 15th an extension payment would be needed if any tax liability exists. A few exceptions on the deadline apply for MN for trusts and C Corps.
Q: What about 1st half property tax payments for MN?
A: So far there has been no delay or deferral of 1st half property tax payments. Stay tuned, we think it’s been discussed, but nothing has happened yet.
Q: I have paid a lot of tax in the last three years and think this year will be a loss, when can I get my carryback and refunds back?
A: Net operating loss rules have been expanded to allow a 5 year carryback of losses that occur in 2018, 2019, or 2020.
If you have other questions regarding these topics or for any assistance, please contact anyone on our Boyum Barenscheer Leadership Team.