PPP loan. How to use the PPP loan and calculate the forgiveness amount?
The Paycheck Protection Program (PPP) is a loan. As stated on the Small Business Development Administration (SBA) website: “The primary purpose of it is a direct incentive for small businesses to keep their workers on the payroll.” SBA will forgive loans if all employees retained on the payroll for 24 weeks, and you use it for payroll, rent, mortgage interest, or utilities. The bank or lending organization that you received funds will provide forgiveness paperwork. You can also find it on the SBA website.
If you use 100% for payroll cost, the whole loan amount eligible for forgiveness. The Payroll Protection Program Flexibility Act allows small business owners to use 60% of the loan for payroll and 40% for rent, mortgage interest, or utilities.
Payroll is the cost that includes salary, wages, sick pay, vacation pay, housing stipend, allowances, healthcare premium that were in place before Feb 15, 2020. During these 24 weeks, the average weekly compensation amount per employee should not exceed $1,923.
Remember to use an alternative pay period from the date you got the loan on your account. The federal payroll taxes’ critical fact is that the employee’s part is deductible from the loan amount for forgiveness. Still, the employer-side federal payroll taxes imposed on wages are excluded from payroll costs.
Payroll taxes due during these 24 weeks for the previous period is not eligible for the forgiveness amount. This may sound confusing, please, leave the comment below and I will contact you back for the clarification.
The small business owner should communicate in writing with the workers. You should state that the job place is meeting COVID 19 compliance, and it is safe to return to work. Your workers should respond in writing if they refuse to return to work. This way, you have a reasonable basis for hiring new staff. Payroll costs for a new hire included in the forgiveness amount if you can provide a reasonable explanation.
Entrepreneurs should use no more than 40% of PPP loans for rent, mortgage interest, or utilities in order to maximize the forgiveness amount. Only payments for the bills according to the agreements made before Feb 15, 2020. And excluding the past period accrued bills before the date you received the loan. Please, feel free to leave the comment below if you have any questions.
You cannot include prepayments for rent, mortgage interest, or utilities. If you use less than 40 % to cover the overhead expenses, the full amount excluded from the loan total. If you use more than 40%, partial forgiveness.
Note that the SBA Economic Injury Disaster Loan (EIDL) advanced grant is for the business to keep, but it will be taken out of the PPP forgiveness amount.
The remainder of the amount that is not used for payroll, rent, mortgage interest, or utilities will be considered a loan. After 24 weeks from the date, the loan was deposited to your bank account and is subject to one percent (1 %) annual rate. Small business owners have five years to pay it back, starting in May 2021.
Please, make sure to do your own research on the SBA website, local small business development centers, and find the details that apply to your business practice. If you need help, please, feel free to leave the comment with your questions. I will respond within 24 hours. You can also click here and make an appointment for the one on one FREE consultation.
