SPECIAL REPORT: What Is Forgiven Under the Paycheck Protection Program Loans
A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 8-week period beginning on the date of the origination of the loan:
Payroll costs (see below for inclusions and exclusions)
Interest on a mortgage obligation incurred in the ordinary course of business
Rent on a leasing agreement
Payments on utilities (electricity, gas, water, transportation, telephone, or internet)
For borrowers with tipped employees, additional wages paid to those employees
Payroll Costs
The term ‘payroll costs’ for Employers INCLUDES:
Payments of any compensation (salary, wage, commission, or similar compensation)
Payment of cash tip or equivalent
Payment for vacation, parental, family, medical, or sick leave allowance for dismissal or separation
Payment required for the provisions of group health care benefits, including insurance premiums
Payment of any retirement benefit
Payment of State or local tax assessed on the compensation of employees
The term ‘payroll costs’ for Sole Proprietors, Independent Contracts, and Self-Employed Individuals INCLUDES:
The sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period
The term ‘payroll costs’ EXCLUDES:
The compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the period of February 15, 2020 to June 30, 2020
Payroll taxes, railroad retirement taxes, and income taxes
Any compensation of an employee whose principal place of residence is outside of the United States
Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act or qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act
Calculating Payroll Taxes
Sum of INCLUDED payroll costs – sum of EXCLUDED payroll costs = Payroll Costs
How is Forgiveness Reduced?
The amount of loan forgiveness calculated above is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees:
Payroll Tax Deferral:
The CARES Act will allow employers, to defer paying their portion of the Social Security payroll tax (6.2 percent) otherwise due with respect to wages accrued between March 27, 2020 and December 31, 2020. The deferred amounts will ultimately have to be paid to the U.S. Treasury in two installments. Half of the deferred amount of payroll taxes from 2020 will be due December 31, 2021, with the remaining half due December 31, 2022.
The above delay provisions apply to all employers regardless of size. However, employers who receive Small Business Act loans that are forgiven under the CARES Act are not eligible for this payroll tax deferral.
CONTACT:
Andrew J. Annes, Esquire
aannes@satclaw.com
mobile: (312) 246-3110
John W. Campbell, Jr., Esquire
jcampbell@satclaw.com
mobile: (312) 391-3126