Note: This guidance was sent as a client alert on April 8, 2020 and the information is current as of that date.
Paycheck Protection Program Loans – General Updates
Applications for the Paycheck Protection Program (PPP) Loans continue to only be available from a small number of banks. Many banks are now providing applications to clients in preparation of loan processing starting soon. We know many of you are concerned about the availability of funds and want to ensure that you obtain needed capital as soon as possible. Today, Treasury Secretary Mnuchin requested that Congress allocate an additional $250B in funds for the PPP Loan program. Based on initial feedback from Senators and Congresspeople, this seems like a popular idea, likely to pass. As of yesterday, $70B of available funds had been allocated. This means that the majority of funds are still available but may be exhausted more quickly than Senator Rubio predicted last week. We still don’t expect the fund to reach its cap within days, but it is possible that the cap will be reached within the next few weeks if an increase is not approved.
Paycheck Protection Program Loans – Guidance Updates
Additional guidance was issued late on April 6th that clarified the following:
- Independent contractors: 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.
- Federal taxes: 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.
- Time period: In general, borrowers can calculate their aggregate payroll costs using data either from the previous 12 months or from calendar year 2019. For seasonal businesses, the applicant may use average monthly payroll for the period between February 15, 2019, or March 1, 2019, and June 30, 2019. An applicant that was not in business from February 15, 2019 to June 30, 2019 may use the average monthly payroll costs for the period January 1, 2020 through February 29, 2020.
- Use of PEO’s: Applicants that use Professional Employer Organizations (PEOs) can provide payroll reports since they cannot produce individual entity payroll tax documents.
- Excess of $100k exclusion: The $100,000 salary limitation only applies to cash compensation and does not include health care, retirement benefits, and state and local taxes.
Paycheck Protection Program Loans – No Guidance Yet
- Guaranteed Payments: As of April 7th, we have no guidance on the treatment of Guaranteed Payments to partners for PPP Loan purposes. We suggest businesses with significant guaranteed payments consider waiting for additional guidance prior to applying for a PPP Loan.
- Self Employed (LLC or Sole Prop) with employees: As of April 7th, we have no guidance on the treatment of Self Employed (LLC or Sole Prop) with employees for PPP Loan purposes. We suggest businesses with significant guaranteed payments consider waiting for additional guidance prior to applying for a PPP Loan.
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