The Treasury Department has released FAQs providing further clarification on Paycheck Protection Program loans. Please review this overview carefully to determine if the changes impact your loan. Additionally, be sure to consult the official Treasury Department FAQs page.
Here are some helpful cliff notes regarding Paycheck Protection Program Loan:
- The SBA has highlighted other methods for businesses to qualify as a small business under the PPP, if they are unable to meet the 500 and under threshold. A business may be eligible if it meets the SBA employee-based or revenue-based size standard for its industry which you can review here. A business may also be eligible by meeting both tests for the “alternative size standard” which is (1) maximum tangible net worth of not more than 15 million as of March 27, 2020 and (2) the average net income after Federal income taxes (excluding carry-over losses) for the two fiscal years prior to the loan application was not more than 5 Million.
- The $100,000 limit is clarified. The cap is only to be applied to the cash compensation of each employee and NOT to the other employer costs such as health, retirement benefits, or state and local taxes. When running your “CARES Act” report in isolved, it is important that you select the option for “Compensation Only” to get this result. Both options were previously available due to the lack of clarification regarding this calculation.
- Borrowers have the choice of calculating their Payroll Costs, as defined by the CARES Act, using calendar year 2019 or the previous 12 months. For seasonal businesses, the employer may use average monthly payroll for the period between February 15, 2019 (or March 1, 2019) and June 30, 2019.
- In determining head count for the SBA size test, employers may use the average employment over the same time periods used for their Payroll Cost calculation or the last 12 months. Employers should only provide the average headcount for the months the employer was in business during the selected measurement period.
- Federal payroll taxes and withholding taxes should be ignored when calculating gross wages. The IRS provides a specific calculation example under Section 16. of the FAQ for calculating gross wages. The isolved “CARES Act” report aligns with the gross wage calculation provided by the Department of Treasury.
The update further states that companies who already filed their application for PPP loan are not required to update or amend their application. However, if an employer may benefit from this new guidance and your loan has not processed, you may contact your lender to determine if you are able to amend your application.
Additional Tax Relief Options Available under the CARES Act
Much of the nation’s focus for the past week and a half has been the interpretation of the popular Paycheck Protection Program Loans. What about the businesses who do not qualify for the PPP Loan? What if you qualify, but determine that the PPP Loan with its current loan forgiveness limitations may not be the best option?
If you are still weighing your options, you should be aware of some additional Payroll Tax Relief that is also available under the CARES Act. CTR provided summaries of this relief last week in our initial CARES Act Summary, but we believe many companies may have missed these items or overlooked them.
Overview of Payroll Taxes
Before delving into the tax relief options, we would like to provide a brief overview of the types of Federal payroll taxes. Federal payroll taxes are divided into the four following categories: Federal Income, Medicare, Social Security, and Federal Unemployment. You will often hear the term “FICA.” FICA includes Social Security and Medicare. The employer tax amount for Social Security is 6.2%. The employer tax amount for Medicare is 1.45%.
CARES Act Payroll Tax Delay
The CARES Act enacted on March 27, 2020 allows employers to postpone payment of certain payroll taxes for wages paid beginning on March 27, 2020 through December 31, 2020. Deferred payment is available for the employer’s share of Social Security Tax. These deferred amounts can be paid in two installments. 50% is due on December 31, 2021 and the remaining 50% is due by December 31, 2022. If you would like to take advantage of this deferment option, please contact your support representative so that we may block the impound and payment of this tax for your upcoming payrolls. Please note, the CARES Act specifically states this option does not apply to employers that have had indebtedness forgiven under the Paycheck Protection Program.
Refundable Tax Credit
The CARES Act provides a fully refundable tax credit for up to 50% of qualified wages (including qualified health plan expenses). The credit applies to qualified wages paid after March 12, 2020 through January 1, 2021. The maximum amount of qualified wages taken into account for each employee for all calendar quarters is $10,000, so the maximum credit for qualified wages paid to any employee is $5,000.
Some additional key points are as follows. Please review the IRS FAQ for additional details. IRS FAQ
- To be eligible, an employer must have fully or partially suspended their business during any quarter of 2020 due to a government order due to COVID-19 or experienced a “significant decline” in gross receipts. The IRS FAQ provides examples as to what is deemed a significant decline in gross receipts
- If you employ more than 100 employees in 2019, qualified wages are the wages paid to an employee for the time that the employee is not providing services due to either (1) a full or partial suspension of operations by order of a governmental authority due to COVID-19, or (2) a significant decline in gross receipts. For these employers, qualified wages taken into account for an employee may not exceed what the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period of economic hardship. For employers who averaged 100 or fewer full-time employees in 2019, qualified wages are the wages paid to any employee during any period of economic hardship.
- The credit is allowed against the employer portion of social security taxes
- The IRS clarifies that an employer may not receive this Employee Retention Credit if the employer receives a Small Business Interruption Loan under the Paycheck Protection Program. The IRS states, “an Eligible Employer that receives a paycheck protection loan should not also claim Employee Retention Credits.”
Stay Updated on the Paycheck Protection Program with the CTR COVID-19 Information Center
We are here to help you navigate this unprecedented time. We will regularly provide updates on our website through our COVID-19 Information Center. Be sure to bookmark the page and check back often.