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PPP Loan Application Update

April 29, 2020

We had a great SmartTalk on April 16, 2020 providing an overview of the Families First Coronavirus Response Act and the Coronavirus ARES Act.  The recording can be found at “URL here”.  We discussed the aspects most affecting employers, employees and small business.  The government continues to release additional guidance and this week approved additional Payroll Protection Program Loan (PPP) funding.  The most recent FAQ can be found at https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf.

One of the most asked questions was how to compute the total PPP loan maximum.  Just prior to our presentation the IRS issued additional guidance which can be found at https://home.treasury.gov/system/files/136/How-to-Calculate-Loan-Amounts.pdf. The Service laid out a fairly succinct formula for figuring the loan amount for Corporations and other entity types.  The following is the corporate example.  See the guidance for other entities.

Step 1: Compute 2019 payroll costs by adding the following:
  • 2019 gross wages and tips paid to your employees whose principal place of residence is in the United States, which can be computed using 2019 IRS Form 941 Taxable Medicare wages & tips (line 5c-column 1) from each quarter plus any pre-tax employee contributions for health insurance or other fringe benefits excluded from Taxable Medicare wages & tips, subtracting any amounts paid to any individual employee in excess of $100,000 and any amounts paid to any employee whose principal place of residence is outside the U.S;
  • 2019 employer health insurance contributions (portion of IRS Form 1120 line 24 or IRS Form 1120-S line 18 attributable to health insurance);
  • 2019 employer retirement contributions (IRS Form 1120 line 23 or IRS Form 1120-S line 17); and
  • 2019 employer state and local taxes assessed on employee compensation, primarily state unemployment insurance tax (from state quarterly wage reporting forms).
Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1 by 12).
Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5.
Step 4: Add the outstanding amount of any EIDL made between January 31, 2020 and April 3, 2020 that you seek to refinance, less the amount of any advance under an EIDL COVID-19 loan (because it does not have to be repaid).

The general theme is Gross Pay plus the employer paid health benefits, pension benefits and state payroll taxes.  Other entities have various adjustments based on the way they compute their costs.  For instance, as a corporate owner may receive a salary and her pay is included in the payroll costs (up to $100k), the sole proprietor may add their self-employed earnings to the calculation (up to $100k). 

As it has been said many times, this a fluid process and changes occur almost weekly.  With the new funding, get with your Bank and apply if the PPP Loan proceeds will assist you in maintaining your staff and the viability of your business.


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