Posted by UNIVERSAL ACCOUNTING & FINANCIAL SERVICES INC.

New SBA PPP Rules to Clarify Loan Forgiveness

New SBA PPP Rules to Clarify Loan Forgiveness

The U.S. Small Business Administration, which manages the Payroll Protection Program (PPP), began accepting loan applications on August 10. Just two weeks later, the agency and the Treasury Department launched further pandemic loan disbursement guidelines to keep workers on the payroll.

If you're an owner and think you've been clear on how to apply for the PPP loan forgiveness, this week, the SBA released another interim final rule that adds even more complexity to the forgiveness areas. Some of the new provisions may work for you or against you, depending on the type of business and how you have used your funds.

Typically, PPP loans are repayable if your business has used at least 60% of the loan for qualifying staff costs over 24 weeks. Non-wage costs, including mortgage interest, business rents, and utilities, are also eligible for forgiveness, but the new rules change some eligibility requirements. Here is what has changed.


Some Owner Employees May See More Salary Forgiveness

The new guidelines state that an employee-owner in a C or S company with a stake of less than 5% will not be subject to the employee-owner compensation rule, limiting the amount of loan repayment to the employee's compensation owner and employees.

Before the change, the owner-employee compensation rule provided that anyone with interest in a business, no matter how small, who had taken out a PPP loan was entitled to less than $20,833 or 20.833% of compensation in 2019 or $ 15,385 or 15.385% if the borrower has elected to use an eight week coverage period.

The updated guide means that if you have less than a 5% stake in your business, you are now entitled to higher salary forgiveness of up to $ 46,154 per person for 24 weeks. Covered benefits, such as health care costs, pension contributions, and payroll taxes for government employees paid by the employer, would also be eligible for forgiveness.


No Forgiveness for Tenants or Home Office Expenses

If you rent part of the office, you will not be forgiven for the part of the rent the tenant pays. For example, if you sublet part of the office and pay one-third of the total monthly rent, you will only be entitled to two-thirds of the rent you pay.

The reverse is also true. If you sublet your office space, you are only entitled to a discount for the business portion of the total monthly amount. If you pay part of the bills for that space, you will only receive a pardon for that part of your pay. And home office expenses can only be forgiven based on the prorated amount you claimed as a deduction on your 2019 tax return or the amount you intend to claim on your 2020 tax returns.


Paying Mortgage Interest: It Isn't Straightforward.

The revised guidelines also include changes to the forgiveness rules for businesses that own the building where they pay rent. It works like this: if company A owns a stake in company B, which owns the building, company A will now be considered "related" to company B.

This makes Company A eligible for the forgiveness only for the portion of the rent or lease payments to Company B equal to or less than the amount of mortgage interest that Company B pays for the property. Another thing to note: this only applies when the lease and mortgage contract was signed before February 15, 2020.

This rule also means that if Company A pays the mortgage on Company B's property or if Company B owns the building directly, with no mortgage or mortgage interest, Company A will not receive a pardon. This is a possible penalty for those who expected a discount for that part of the loan.


Bottom Line 

With this new set of rules, employee-owners may not be eligible for the PPP loan repayment as they initially thought. New guidelines continue to be implemented regarding the PPP loan application process and calculate your business eligibility. You must be aware of the new rules and regulations to ensure that your documentation is up to date when you request forgiveness.


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