If you have not already submitted your PPP forgiveness application, we recommend waiting as we anticipate a revised version of the application will be released in the next few days. Maximize your PPP loan forgiveness by retaining your full-time and full-time … As such, PPP borrowers should carefully evaluate and calculate which qualified wages should be included as payroll costs on the loan forgiveness application in order to maximize the ERC, if … These amounts need to be paid or incurred during the 8 or 24 weeks. Liz operates her solo business as an S corporation. PPP loans exceeding $150,000 will require extensive documentation to verify your eligible expenses. What can be included in the PPP loan in terms of benefits – medical and dental? Qualifying employee retention tax credit wages will be included in this report if your company is opted into that program. What can be included in the PPP loan forgiveness amount? Include only payroll costs for employees whose principal place of residence is in the United States. Tip #5: Get Thorough About Your Utilities Costs So the non-payroll-costs include rent for real and personal property if you entered into the rental or lease agreement before February 15 th , 2020. 8 Tips and Warnings on PPP Loan Forgiveness ... hazard pay are eligible for loan forgiveness as payroll ... the pay period that included February 15, 2020. On March 1, 2021, the IRS issued much anticipated guidance related to the Employee Retention Credit (ERC) in Notice 2021-20.. Payroll costs exclude compensation over $100,000 earned by any one employee. The PPP helps small businesses with payroll and operating expenses. FICA and Medicare taxes) imposed on the gross payroll are not eligible payroll costs for the loan forgiveness calculation. Payroll costs, as defined by the SBA (the PPP Flexibility Act revision states at least 60% of loan proceeds must be used for payroll costs for a loan to be fully forgiven) Mortgage interest (for mortgages in existence on or before 2/15/20) Include only payroll costs for employees whose principal place of residence is in the United States. Payroll costs – The SBA defines payroll costs as gross wages of employees up to $100k per year, employer-paid health insurance, employer-paid retirement matching contributions, and employer-paid state and local taxes on payroll (ie: state unemployment). Eligible payroll costs include the following, if paid or incurred during the covered period: Payroll costs may include bonus and hazard pay, and may include salaries paid to furloughed employees. Your PPP loan funds can be used to cover payroll expenses so that you can keep your business staffed. Invoice, bank statement, or book of record establishing you were self-employed in 2019. In order to receive forgiveness for the entire PPP loan, however, the payroll portion must be at least 60% of the loan. We explained those benefits here. Borrowers may seek forgiveness for payroll costs for the eight weeks beginning on either: i. the date of disbursement of the borrower’s PPP loan proceeds (i.e., the start of the covered period); or ii. A 2020 invoice, bank statement, or book of record establishing you were in operation on February 15, 2020. 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. Loan forgiveness documentation for employers; Payroll tax reports: 2020 IRS Forms 941, state income and unemployment tax returns that include the 8 … Federal employment taxes imposed or withheld between February 15, 2020, and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees are not included in payroll costs for PPP. Include 2019 employer contributions to employee retirement plans, if any (IRS Form 1065). Specifically, the new guidelines state that an owner-employee in a C or S corporation … ☐ The Borrower is a self-employed individual, independent contractor, or sole proprietor 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 (SBA Form 2483). General Partners (filing tax … What payroll costs are eligible for PPP forgiveness? Employer contributions for health insurance are not eligible for additional forgiveness for S-corporation employees with at least a 2% stake in the business, including for employees who are family members of an at least 2% owner under the family attribution rules of 26 U.S.C. The borrower is a self-employed individual, independent contractor, or sole proprietor 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 (SBA Form 2483). Thus it would appear that borrowers will need to complete their 2019 tax forms before applying for forgiveness. Recommended Supporting Documents. Full-time and part-time employees are eligible to be included in the payroll costs. In this scenario, the minimum amount of payroll necessary to support loan forgiveness equals $130,000 ($200,000 - $70,000 = $130,000). These documents for PPP forgiveness could include: Payroll reports, federal payroll tax filings (Form 941), proof of benefits contributions for employees, and state tax filings, payroll, and unemployment insurance forms. For a deeper discussion of these items, see PPP Update #9. While employers couldn’t initially claim the ERTC if they received a PPP loan, they can now, but only on wages not included in PPP loan forgiveness. Payroll costs comprise health insurance, retirement benefits, and employer paid state and local unemployment compensation taxes. 75% Rule. You must use at least 75% of the PPP funds on payroll over the 8-week loan forgiveness period to avoid reducing the loan forgiveness amount. 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. Employer-Paid Qualified Retirement Plan Contributions. The information in this page is based on laws, rules, regulations, and related guidance with respect to the Paycheck Protection Program (PPP), including guidance issued by the U.S. Small Business Administration (SBA) on August 11, 2020.We will periodically update this information, so please check back often and consider bookmarking this page. Can we use the cost of […] Employer Social Security tax deferral. PPP Loan Forgiveness - Documentation. The actual amount of loan forgiveness will be determined based on eligible costs incurred and payments made during the 8-week period. The employee federal withholding is included in allowable payroll costs for the purposes of determining the amount to be forgiven. Similarly, compensation paid to temporary employees who are on a borrower's payroll constitutes payroll costs for purposes of PPP forgiveness. Further guidance on forgiveness is available from the Small Business Administration here. Severance payments. Maintain your staffing. 318, because those contributions are included in cash compensation. Hi Kit — Under CARES/PPP, payroll costs include: salary, wages, cash tips or equivalents, payment for regular leaves of absence, dismissal or separation compensation, group health insurance payments, retirement benefits payments, and some state/local payroll taxes. Please note, unlike the initial PPP loan application, there is no immediate rush to complete this process. Non-cash compensation for owners cannot be included in the payroll costs. You must use at least 60% of your loan to cover payroll costs to qualify for forgiveness. The Paycheck Protection Program (PPP) ended on May 31, 2021, however, existing borrowers may be eligible for PPP loan forgiveness. Q3: Can I spend all of the PPP loan proceeds on payroll costs? Sole proprietors, self-employed workers, independent contractors, and side gig workers are all eligible for this loan. What are employer matched taxes? 4. 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. That stance has changed under the Act. Payroll costs are considered incurred on the day that the employee’s pay is earned. Documentation verifying the average number of FTE employees on payroll as … The employer federal payroll taxes (i.e. FICA) are not. 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. Sole proprietors, self-employed workers, independent contractors, and side gig workers are all eligible for this loan. Note: This data is based on information published as of May 24, 2021 and included in an SBA press release dated June 1, 2021. Note that after-tax contributions by employees, for example those for health or disability insurance, are part of wages and, therefore, considered payroll costs. Step 2. PPPs, PEOs, Temps and Forgiveness. In other words, can we include the amount the employee pays and the Updated June 4, 2021. That’s because you don’t have any loan funds left to be taxed. This effectively removes owner related health insurance, retirement benefits and employer paid state and local unemployment compensation taxes from the definition of Payroll Costs. To comply with SBA certification requirements and other rules, borrowers must ensure that the payroll costs claimed in their PPP Loan Forgiveness Application, including employer state and local taxes assessed on employee compensation, are eligible for forgiveness, that those costs were used to retain employees, and that they have verified the payments. The Forgiveness FAQs address these important items: Can we include the full amount of the costs? Example 1: Employer A received a $200,000 PPP loan and reported $250,000 of eligible payroll costs on its PPP forgiveness application. Employer A must report a total of $200,000 of payroll costs and other eligible expenses, with a minimum of $120,000 of those costs being payroll costs, to receive full forgiveness of its PPP loan. Limitation on Owner’s Compensation – All eligible wages or self-employed income are limited to an annualized amount of $100,000. o Employer has $4,000 payroll tax deposit requirement. Lane Powell PC. Payroll Tax Deferral Expanded In addition to PPP loan changes, the bill allows all employers, even those with forgiven PPP loans, to defer the payment of 2020 employer’s Social Security taxes, with 50% of the deferred amount being payable by December 31, 2021, and the balance due by December 31, 2022. FICA and Medicare taxes) imposed on the gross payroll are not eligible payroll costs for the loan forgiveness calculation. IRS Form 1040 Schedule C (or F), for the year used to calculate the loan amount (2019 or 2020), should be submitted with your forgiveness application. Eligible Non-Payroll Costs are: o Interest payments on any business mortgage obligation on real or personal property (but not A recurring question about Paycheck Protection Program (PPP) loans is … That is, an employer cannot claim PPP loan forgiveness on the same funds used to pay qualifying wages when the employer also received the FFCRA or ERTC credit. Here’s the trickiest area of all of these payroll costs eligible for PPP loan forgiveness. Forgiveness is allowed for employee shareholder compensation including state unemployment and income taxes and corporate contributions to employee health insurance. Payroll costs paid in … Up to $349 billion dollars is available under the same terms to all borrowers. The PPP loan should have been reduced by the EIDL Advance and not the entire EIDL loan. Paid time off for vacation or sick leave. There are four categories of expenses that are forgivable. The employer is deemed to have made an election not to take into account $200,000 of the qualified wages for purposes of the ERC, which was the amount of qualified wages included in the payroll costs reported on the PPP Loan Forgiveness Application up to (but not exceeding) the minimum amount of payroll costs. You operate your solo busines as an S corporation. Payments to independent contractors cannot be included in the payroll costs. 1. Payroll Costs include Retirement Plan Contributions. Certain sole proprietor and independent contractor compensation. Here’s the trickiest area of all of these … The Social Security tax deferral is not a payroll tax credit. Payroll expenses include (but are not limited to) employee compensation, employer contributions to health care coverage and retirement plans, and payroll taxes. I reviewed an SBA webinar last month, and the SBA representative said that if our business (an S Corporation) had not yet paid its employers’ match yet for our 401K participants for 2019, and since we have extended our 2019 Corporate Tax Return until September 2020, the SBA representative said that the 2019 Employer Matching Contributions would be included in the PPP forgiveness amount towards … Under the CARES Act, employers can defer payments for the employer portion of their Social Security tax liability. Expenses eligible for forgiveness included expenses paid or incurred during the covered period. Use the gross payroll approach for both loan applications and forgiveness. Non-payroll costs. The maximum Social Security tax an employer will pay in 2020 is $8,5637.40. If the percentage is less than 60%, your maximum PPP forgiveness amount will be reduced. Avoid drastic pay cuts. The PPP helps small businesses with payroll and operating expenses. Otherwise, payroll costs … Tax filing Status. PPP loans were to pay for (1) payroll costs, (2) rent or mortgage payments, and (3) utilities payments. As 64% is greater than 60%, the individual’s maximum loan forgiveness amount is the total PPP amount or $25,000. The payroll costs used for PPP loan forgiveness cannot also be used for the ERC. To maximize loan forgiveness, the non-payroll expenses cannot exceed 40% of the PPP loan proceeds: All borrowers, regardless of PPP loan amount, must use 100% of the loan for eligible expenses for PPP loan forgiveness. To be eligible … Employers who receive a PPP loan cannot claim the Employee Retention Credit, regardless of if the PPP is forgiven or not. In mid-May the SBA published the PPP Loan Forgiveness Application (SBA Form 3508). Only state unemployment insurance and local employer taxes, such as Denver OPT, are included as allowable payroll costs. 6 eligible use Are payrol taxes eligible for loan forgiveness? AAFCPAs would like to make clients aware that the U.S. Treasury and Small Business Administration (SBA) released an interim final rule Monday, August 24th, addressing Paycheck Protection Program (PPP) forgiveness issues related to owner-employee compensation and the eligibility of non-payroll costs. Fifty percent of the deferred taxes that accumulated in 2020 must be paid by December 31, 2021, and 50% of … First Draw PPP loans qualify for full forgiveness if, during the 8-24 week covered period following loan disbursement:. Nonpayroll costs. Do employer contributions for group health plan coverage for employees qualify as payroll costs for PPP loan forgiveness? The payroll costs used for PPP loan forgiveness cannot also be used for the ERC. Known as the Paycheck Protection Program (PPP), the initiative provides 100% federally guaranteed loans to small businesses. Payroll tax filings. Forgiveness of PPP loans are included in gross receipts for the gross receipts test. When is the PPP loan forgiveness application due? These documents include, but may not be limited to: The number of employees on payroll. Payment of State or local tax assessed on the compensation of employees. Example Problem # 2: Total payroll costs … And, the SBA requires you to use the majority of your loan for payroll expenses. Also employer FICA should not be included. What payroll costs are eligible for PPP forgiveness? Article written by: Dustin Minton, CPA Director, Restaurant Services. Non-payroll costs include mortgage interest, rent or lease payments and utilities. Eligible payroll costs include the following, if paid or incurred during the covered period: Payroll costs may include bonus and hazard pay, and may include salaries paid to furloughed employees. PPP Loan Forgiveness. Employee pay rates. Documentation verifying the average number of FTE employees on payroll as … Note: We have gotten a LOT of question regarding the PPP loan for self employed people. For example, if a business gets a $20,000 PPP loan, they would need to spend at least $12,000—60% of the loan—on payroll. Payroll costs are to be calculated on a gross basis without regard to federal taxes imposed or withholds such as the employee and employers share of FICA and income taxes withheld from employees. 2019 employer state and local taxes assessed on employee compensation, primarily state unemployment insurance tax. For employees earning less than $100,000, loan forgiveness is reduced for any amount of employee salary cut more than 25%. Thus, if the borrower received a PPP loan of $1 million, the borrower must use at least $750,000 for payroll costs. Include 2019 employer state and local taxes assessed on employee compensation, primarily state unemployment insurance tax (from state quarterly wage reporting forms), if any. Group healthcare benefits. The amount of forgiveness of a PPP loan depends on the borrower’s payroll costs over a covered period. Loans are forgivable to the extent that employers maintain specified employment and wage levels (at least 60% of the forgiven amount must have been used for payroll cost). The Paycheck Protection Program (PPP) As part of the $2 trillion aid package unveiled in the Coronavirus Aid Relief & Economic Security (CARES) Act, $349 billion was dedicated to the Payment Protection Program (PPP). Typically, the PEO offering may include human resource consulting, safety and risk mitigation services, payroll processing, employer payroll tax filing, workers' compensation insurance, health benefits, employers' practice and liability insurance (EPLI), retirement vehicles (401 (k)), regulatory compliance assistance, workforce management technology and training and development. You may think that “Payroll Costs” are straightforward, but the formulas, tables, and worksheets behind that “Line 1” have a lot going on. Please note any contributions the owner makes, such as through payroll withholdings, would need to be excluded from the eligible amount.