We were notified late Sunday about some new IRS and SBA rules that will effect a great number of small business owners who applied for and took advantage of the PPP Loan.
The IRS is changing the rule for who can qualify to receive the PPP Money. If you fall into the “I guess I didn’t qualify to use the money”, then you have until Thursday, May 14th to give the money back to your bank and cancel the loan. The IRS is not messing around.
The IRS is going thru every business and evaluating if your business could have used your own money or have gotten a bank loan to keep your business running in the time period of your PPP Loan.
Please remember the PPP spending period is from the day the bank releases the money to you – that’s day 1 thru day 56 – that’s calendar days, not business days.
Did you have income to cover your expenses? Could you have gotten by without the PPP money? If so, PLEASE give the money back.
The bank and the IRS will be looking at your income for the first 6 months of 2019 vs 2020 and comparing both month to month this year, and months in 2020 vs the same months last year to see how your business was doing and if you needed the PPP Loan or not.
They will be taking your cash as of the PPP application date and any additional funds available less bills due (your monthly expenses) to see if you had money to cover payroll. Business owners are facing jail time over this. Please be sure you can defend yourself on whether or not you truly qualified for the loan or not because the banks will not back you up.
If you did qualify for PPP but there were problems in appropriating the funds – pay attention!
If your employees do not come back on payroll you might be able to ask the bank, “what if…?”, as long as they are back on payroll by June 30th, however there is still some confusion about this point. We are still working to find out more information on this matter and hope to know more by the end of the month (or sooner).
If you have asked your employees to come back onto payroll and they refuse because they want to continue to receive unemployment benefits, we are recommending you document this conversation, and potentially even have the employee sign a statement to matter. The IRS and the State unemployment will be going around and asking this of each employer and employee.
The employee may have to return the unemployment money paid out after the notice of return to payroll from you and will not receive any additional unemployment. When, NOT IF, the Unemployment Office asks you about the timing of the receipt of PPP funding and when you called your employees to come back onto payroll, you will be required to provide any/all information to them.
Remember, the IRS is giving you money to pay your employees to stay home, or you’re paying for replacement work for employees who were unable or afraid to work with COVID-19, or you were allocating some money to help you pay business property rent. At the end of the day, the majority of the allocation needed to be for payroll related challenges that arose due to COVID-19.
There is some Good News
If you are giving the money back, (not using any of the PPP Loan), there are some different payroll credits coming out you can apply for if you are still paying your employees. These credits will start with the second quarter payroll and is intended for companies who did not take the PPP Loan.
The credit will waive the company part of payroll taxes which would be 7 – 10% of your gross wages. And there is the Employee Retention Credit (ERC) which takes the Month financials vs previous year of month financials and factors this a formula whereas up to 50% of the wages can be applied to the credit. This is for quarters 2, 3 and 4.
What qualifies as forgiven funds for the PPP Loan as of 5/10/20?
More detail will be coming out on this at the end of the month, but here’s what we do know:
- The minimum of 75% of the loan on payroll, Gross Payroll Wages, Health Insurance, Retirement. Same number of employees as Feb 15th. You can not hire a family member to total the number of employees needed but maybe you know of someone that hasn’t gotten unemployment yet and can be employed for those 8 weeks. Check with your hair stylist.
- UP to 25% of the loan can be used on rent, utilities. There is talk about interest on loans that are secured by the business (LOC secured by Inventory or Accounts Receivable) and vehicle and equipment being forgiven.
- If you paid rent to yourself on your 2019 taxes you can apply that rent to the forgiveness part.
- Schedule C applications – you will apply 75.3% of the loan for forgiveness as your payroll. You do not need to back this up with anything. As far of the rent and equipment part there is talk about what you deducted on your 2019 taxes being forgiven. There’s also talk the mileage and gas receipts for the 56 days may be forgiven, so keep detail track of your mileage and keep your gas receipts.
- Be prepared to pay a minimum of 1.5% of the loan back with interest starting the day you received the money. It doesn’t look like there is a way to get the loan 100% forgiven.
- Cell phone bills – If you are making payments on a phone that may need to get subtracted from the phone bill amount.
Have more questions?
Here is a common FAQ from the SBA site with additional insight.