By Alan R. Sasserath, CPA, MS
We hope everyone is well during these frustrating and sometimes tense times as we work through the requirements regarding the Paycheck Protection Program Loans (“PPPL”). Yesterday, the Treasury Department issued an FAQ answering a lot of the questions regarding PPPL’s.
Here are a few of the key questions:
Question 7: The CARES Act excludes from the definition of payroll costs any employee compensation in excess of an annual salary of $100,000. Does that exclusion apply to all employee benefits of monetary value?
Answer: No. The exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to non-cash benefits, including:
– employer contributions to defined-benefit or defined-contribution retirement plans;
– payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums; and
– payment of state and local taxes assessed on compensation of employees.
Question 15: Should payments that an eligible borrower made to an independent contractor or sole proprietor be included in calculations of the eligible borrower’s payroll costs?
Answer: No. Any amounts that an eligible borrower has paid to an independent contractor or sole proprietor should be excluded from the eligible business’s payroll costs. However, an independent contractor or sole proprietor will itself be eligible for a loan under the PPP, if it satisfies the applicable requirements.
Question 16: How should a borrower account for federal taxes when determining its payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan, and the amount of a loan that may be forgiven?
Answer: Under the Act, payroll costs are calculated on a gross basis without regard to (i.e., not including subtractions or additions based on) federal taxes imposed or withheld, such as the employee’s and employer’s share of Federal Insurance Contributions Act (FICA) and income taxes required to be withheld from employees. As a result, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do not include the employer’s share of payroll tax. For example, an employee who earned $4,000 per month in gross wages, from which $500 in federal taxes was withheld, would count as $4,000 in payroll costs. The employee would receive $3,500, and $500 would be paid to the federal government. However, the employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from payroll costs under the statute.2
Here is a link to the full FAQ.
If you are keeping track, our worksheet 2.0 previously sent is the one most aligned with this computation, however, to make matters easier for yourself, you can use the attached Bank of America Worksheet sent to one of our clients late yesterday and put a zero on the line marked with an “*”.
Click here for that BoA worksheet.
Hopefully, this is the final guidance necessary for the banks to start funding the loans.
As always, please let us know if we can be of any assistance.
Stay safe and healthy.