If you are like most businesses, the PPP Loan and its forgiveness potential drew you in immediately. You might have even experienced an expedient cash deposit. It was probably an invigorating first few days of euphoria around the office. Now, like most others you are realizing that your business does not fit neatly inside the 56-day box of forgiveness and you are probably scratching your head at the true outcome, let alone how to fill out the application to report this.
Is it starts to get messy as soon as an employee quits, goes on maternity leave, you were forced to ask them to leave permanently based on their performance or someone wants part-time hours up-ending your fine-tuned FTE calculations. Then there are those businesses who tried to hire back employees who were already laid off, but the employee declined. Even though these situations are beyond your control they are not perfectly in line with the purpose of the plan; to keep everyone employed.
So what is a business owner to do?
From how we interpret the SBA rules, and we must mention they are ever changing, it is all about percentages.
First when considering logic based on the application as we all knew it to be, simple forgiveness percentages were easy to figure. If your business had payroll with all the trimmings of $100,000/month then $200,000 would be forgiven over those 2 months of service. And if employee-agedeon hit and cut your payroll by 50%, you would probably be planning on forgiveness of $100,000 instead. However, the forgiveness percentages are not figured as holistically as that.
The forgiveness formula drills down to the number of specific employees and if their wages were reduced by more than 25% during qualifying dates. When this happens, your final forgivable amount may become less. See page 7 of the Loan Forgiveness Application.
Ready for the good news?
- There are exceptions to eliminate using this Reduction formula. Hiring. If you were able to fill the FTE space with a new hire, then it will not reduce your loan forgiveness.
- Likewise, if you attempted to re-hire someone you laid off and they turned you down for unemployment, you may have some recourse.
- Your mortgage and mortgage interest, rent and utilities (named as electricity, gas, water, transportation, telephone and internet access) are also factored into the forgivable amount, not to exceed 25% of your total forgiven amount.
- In addition, there is Safe Harbor. If you had proactively laid off your staff BEFORE PPP had ink; when all was uncertain and you are able to rehire to your previous employee levels by June 30th, then forgiveness will not be reduced either.
Bottom line the application to forgiveness is based on a multitude of percentages, formulas and what ifs. However, if you are still scratching your head then consult with your CPA. Your Accountant should be aware of your PPP award to make your tax planning transition smoothly.
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