Yesterday, the U.S. Small Business Administration (SBA) addressed 23 frequently asked questions (FAQs) related to forgiveness on Paycheck Protection Program loans (PPP loans). The FAQs highlight some of the questions we have all been grappling with since the June 2020 revised forgiveness application was released by the SBA. Here are a few of the highlights from the newest FAQs.
Clarification is provided on when the PPP Loan Forgiveness Application Form 3508EZ (EZ) should be utilized. Specifically, sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form should use the EZ form.
Borrowers cannot include accelerated payments for health insurance or retirement plan benefits. Only items that are paid and incurred within the covered period are eligible for forgiveness.
The amount of owner compensation that is eligible for loan forgiveness is defined:
– 2.5/12 of 2019 cash compensation as defined for all other employees;
– 2.5/12 of 2019 retirement plan contributions which do not count towards the $20,833 cap; and
– No health benefits for owners of 2% or more (includes family attribution).
Self-employed individuals (Schedule C or Schedule F):
– 2.5/12 of 2019 net profit as reported on IRS Form 1040 Schedule C line 31 or 1040 Schedule F line 34.
– Separate payments for health insurance, retirement or state and local taxes are not eligible for forgiveness as these are paid out of net self-employment income.
– 2.5/12 of 2019 net earnings from self-employment that is subject to SE tax; computed from 2019 K-1 box 14a reduced by 179 expense and unreimbursed partnership expenses.
– Separate payments for health insurance, retirement or state and local taxes are not eligible for additional loan forgiveness.
As suspected, “transportation” fees which are eligible for forgiveness are narrowly defined as transportation utility fees assessed by state and local governments.
To read the full listing of FAQs click here.
For the AICPA’s interpretation of the most recent FAQs click here.