Organizations who received a Paycheck Protection Program (PPP) loans should look to maximize their loan forgiveness. The following outlines five key steps for PPP Loan forgiveness; look over these steps now to prepare for maximum loan forgiveness:
Step 1: Track total eligible costs incurred and paid during the 8-week period following the loan funding.
- Payroll costs
- Compensation to employees including salary, wages, commissions or similar compensation.
- Cash tips or the equivalent
- Payment for leave
- Allowance for separation or dismissal
- Payments for employee benefits
- Group health care coverage
- Insurance premiums
- Retirement contributions
- Payment of state and local taxes assessed on the compensation of employees.
- Mortgage interest on real or personal property for mortgages in effect prior to 2/15/2020
- Rent under a leasing agreement for agreements in effect prior to 2/15/2020
- Includes payment for electricity, gas, water, transportation, telephone, or internet access.
- Service must have been established prior to 2/15/2020
- Any EIDL to be refinanced (at the discretion of the borrower)
Step 2: Calculate payroll costs for forgiveness floor.
- 75% of eligible costs are to be used on payroll
- If less than 75%, the forgiveness is reduced by the amount under 75%
Step 3: Calculate any % decrease in FTEs from 8-week covered period.
- For example: A 15% drop in FTEs results in a 15% decrease in the amount of the loan forgiveness.
Step 4: Calculate any reduction in payroll > 25% of prior quarter.
- For any employee who did not receive, during any single pay period during 2019, wages/salary at an annualized rate of pay more than $100K and also employees whose primary place of residency is outside the US.
- Was their payroll during the cover period more than 25% less that it was the previous full quarter? Reduce forgivable amount by the reduction that exceeds 25%.
Step 5: Calculate any adjustment because FTEs and salary/wages were restored by June 30.
- If “restore” criteria are met, steps 3 and 4 are ignored.
Misuse of Funds
Use of funds for purposes other than those listed above may incur additional financial liabilities and criminal penalties including, but not necessarily limited to:
- The taxpayer will be required to repay misused funds.
- If funds are knowingly used for unauthorized purposes, the borrower could be subject to additional liability such as fraud charges.
Additional points to consider:
- Independent Contractors are NOT included when tracking payroll cost!
- Check with your payroll provider; many have developed PPP-compliant reports to track both payroll and benefits.
- Strong accounting processes and accurate coding of expenses is paramount.
- A separate PPP bank account may assist in tracking costs.
- Retaining documentation to support all payments made with PPP funds.
- Setting up separate account codes within your general ledger to track expenses paid with PPP funds.
Helping You with PPP Loan Forgiveness
McConnell & Jones’ Business Solutions Team offers high-level outsourced accounting and bookkeeping services to businesses and nonprofits throughout the country. Our services are designed to assist with all back-office reporting needs including reporting and documentation related to PPP Loan Forgiveness. Our team is managed remotely, and our engagements are completed virtual through cloud-based tools and fully encrypted software which protects your information and promotes transparency.
Some of the tasks we can assist with include:
- Financial Monitoring and Measurement
- Account Reconciliation
- Process Development / Improvement
- Internal Management Reports
- Financial Modeling
- Cash Flow Analysis
- Budgeting / Forecasting
- Financial Statement Preparation
Contact Our Team:
Thomas Jones, CPA
Tax and Small Business