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Congratulations if you were one of the lucky ones to receive a Payroll Protection Program (PPP) loan!
Remember, under Section 1106 of the CARES Act, as clarified by the Treasury Interim Final Rule issued on April 2, 2020, up to the full amount of your PPP loan can be forgiven based on your compliance with certain loan requirements.
Below is a simple step checklist to assist you in staying in compliance with the terms of the PPP and qualifying for maximum loan forgiveness.
- Are you using the loan for Covered Costs with at least 75% going specifically to Payroll?
- Are you paying those Covered Costs for liabilities that occur during the Covered Period?
- Are you keeping detailed records of the Covered Costs whether they are Payroll or non-Payroll and when those costs accrued?
- Are you keeping detailed records of your full-time equivalent employee count for the Covered Period as well as the pre-Covered Period?
- Are you planning on rehiring any employees by June 30, 2020 and if so keeping track of the records for such hire?
- Are you keeping your full-time equivalent employee wages at least at 75% of their rate during the last full quarter prior to the Covered Period?
- Are you keeping detailed records tracking compensation rates to make sure you don’t dip below the 75% rate?
- Are you tracking your full-time equivalent employee for wages that annualize to more than $100,000 and only considering the pro-rated portion that is within $100,000 in determining Payroll Costs?
- Are you keeping all your records together so that they are easily accessible when you need to complete your loan forgiveness application and provide supporting documentation?
The Covered Period is the 8-week period starting from the loan’s origination date.
The Covered Costs include:
- Payroll: at least 75% of total payments.
- Up to the $100,000 of an employee’s annualized compensation prorated for the covered period.
- Vacation, parental, family, medical, or sick leave
Note: excluding leave for which the employer receives credits under the Families First Coronavirus Relief Act (FFCRA).
- Health care benefits, including insurance premiums
- Retirement benefits
- State or local tax assessed on the compensation of employees
Non-Payroll: up to 25% of total payments.
- Lease or rent payments in force prior to February 15, 2020
- Utility payments in force prior to February 15, 2020
- Mortgage Interest payments in force prior to February 15, 2020
If you received a PPP loan or are planning to seek one, navigating the loan forgiveness rules to plan your payroll through this unprecedented Coronavirus pandemic is critical to ensure maximum loan forgiveness.
All is not lost for those who cannot maintain compliance. Many of the compliance rules allow for a pro-rated reduction of the forgivable amount of the loan based on the borrower’s compliance level. For a more in depth discussion of the various PPP compliance rules regarding forgiveness, including the formulas for calculating forgiveness rates, see our prior article on the PPP and what you should know to ensure maximum loan forgiveness.
If your organization needs assistance in determining if you qualify for ERC, contact us to go over step-by-step instructions for how to take advantage of the ERC, including calculating your potential ERC refund, optimizing an ERC strategy that accounts for PPP loan forgiveness, and maximizing your potential credit, all while minimizing your IRS audit risk.