So,You Got a PPP, Now What?
By PATRICK BEST, ESQ.
Many small businesses in the area have received their Paycheck Protection Program (PPP) loans through the Small Business Administration (SBA). This program provides much needed relief for small businesses in the area that are struggling due to the COVID-19 pandemic.
Unfortunately, the PPP largely remains a mystery for these business owners and there is quite a bit of confusion as to what can be paid with this money and how this PPP "loan" can be forgiven to become a PPP "grant".
Here are the answers to the questions we receive frequently about the PPP.
Is the PPP a loan or a grant?
Well, it's both. The PPP is a forgivable loan. It is a loan that is reduced by qualified expenses over an eight-week period (starting with the loan origination date). Any amount that is forgiven becomes a tax-free grant! If the full amount is not forgiven, it becomes a low-interest loan.
How Much of the Loan Is Forgiven?
Principal amounts used for payroll, mortgage interest, rent, and utility payments during an eight-week period (starting with the loan origination date) between February 15, 2020, and June 30, 2020, will be forgiven.
If the full principal is forgiven, you are not liable for the interest accrued over that eight-week period—and, as an added bonus, the canceled amounts are not considered taxable income.
Keep in mind that because the loan forgiveness is not taxable, you are not permitted to deduct your business expenses paid with the loan. In other words, no double dipping!
Warning: Payroll Cuts Affect Loan Forgiveness
Because the whole point of the PPP is to help keep workers employed at their current level of pay, the loan forgiveness amount decreases if you lay folks off or reduce their wages.
1. If you keep all your workers at their current rates of pay, you are eligible for 100 percent loan forgiveness.
2. If you reduce your workforce, your loan forgiveness will be reduced by the percentage decrease in employees.
Example: Last year, you had 10 workers. This year, you have nine. Your loan forgiveness will be reduced by 10 percent.
3. If you reduce by more than 25 percent (as compared to the most recent full quarter before the covered period) the pay of a worker making less than $100,000 annually, your loan forgiveness decreases by the amount in excess of 25 percent.
Example: Last quarter, John was earning $60,000 on an annual basis. You still have Jim on the payroll but have reduced his salary to $40,000 annually. Jim's pay has decreased by 33.3 percent, so the amount of your PPP loan forgiven is reduced by the excess 8.3 percent.
What if I already laid off workers?
That's ok. PPP gives you the ability hire back laid off workers! If you hire back those workers by June 30, 2020, you remain eligible for full loan forgiveness.
When Are Payments Due?
Any non-forgiven amounts are subject to the terms negotiated by you and the lender, but the maximum terms of the loan are capped at 10 years and 4 percent interest.
Also, payments are deferred for at least six months and up to one year from the loan origination date.
Patrick “PJ” Best is one of the areas foremost Tax Resolution Attorneys. He represents taxpayers who owe the IRS, but simply cannot afford to pay. He also consults with business owners, showing them how to save on their tax liabilities. Contact him at firstname.lastname@example.org.