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Paycheck Protection Program Guidelines: New Interim Final Regulations

The Treasury Department and Small Business Administration (SBA) recently issued new Paycheck Protection Program (PPP) guidelines. This involves new interim final regulations on provisions made in the PPP loan forgiveness application. It does take the new law into account, separating the instructions from the application form. It also provides EZ forms that specific borrowers can use to request loan forgiveness.

Loosening of Rules

The guidelines provide significant loosening for the PPP loan forgiveness rules. They have extended the period during which a taxpayer may incur any qualified costs from eight weeks to 24 weeks. Businesses also can use as much as 40% of forgiveness for non-payroll expenses.

A New Safe Harbor

The guidelines have introduced a new safe harbor where taxpayers can use this to avoid a reduction in the loan forgiveness. The law has also extended the date for restoring hourly wage/annual salary and number of full-time employee levels to the pre-COVID level. Previously, it was June 30, 2020. Now, it is December 31, 2020.

Greater Clarification

The guidelines also clarify the definition of the owner-employee. It includes owners of S corporations, C corporations, LLCs, partnerships, and sole proprietors. The regulations include detailed information on amount of compensation paid to these owner-employees that can be allowed for the loan forgiveness.

Borrowers must represent that the loan forgiveness amount does not include compensation of more than either:

  • two-and-a-half months of 2019’s compensation for any partner, self-employed individual, or owner-employee. The IRS has capped this at $20,833 per individual if he or she uses a covered period of 24 weeks.
    or
  • eight weeks of 2019’s compensation for any partner, self-employed individual, or owner-employee. The limit is $15,385 per individual if he or she uses a covered period of eight weeks.

Necessary Documentation for Non-payroll Costs

Taxpayers must include documentation for non-payroll costs to verify services or an obligations’ existence on February 15, 2020. Documentation must also include all the qualified payments made during the Covered Period.

For mortgage interest, lender’s amortization schedules, canceled checks, lender’s account statements, and receipts can be used as supporting documents for the interest payments. For rent paid on real and/or personal properties, copies of current lease agreements, canceled checks, lessor’s account statements and receipts can be used as supporting documents for verification purpose. For utilities, taxpayers can use copy invoices, receipts, account statements, or canceled checks to document utility payments.

For documentation on number of FTC, the borrower will need to provide evidence showing the average number of FTC employees on payroll per week between February 15, 2019 and June 30, 2019, January 2, 2020 and February 29, 2020. For any seasonal employers, the documentation must cover any consecutive 12-week period between May 1, 2019, and September 15, 2019, whichever is used for the loan forgiveness reduction calculation.

The documentation that can be used for the above purposes includes:

  • Tax filings of payroll (Form 941 for example)
  • State quarterly individual and business reporting
  • Tax filings for unemployment insurance
  • Every borrower has to maintain but not submit for six years all records that relate to loan forgiveness. This documentation includes:
  • All documentation submitted with the application for a PPP loan
  • All documentation supporting borrower certifications regarding loan necessity and eligibility
  • All documentation to support the application for loan forgiveness
  • All documentation to demonstrate material compliance with the PPP loan requirement.

For more information about this article, please contact our tax professionals at taxalerts@windes.com or toll free at 844.4WINDES (844.494.6337).

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