Frequently Asked Questions: Loans under "the PPP" & Tax Credits Available under the CARES Act
Author:
Nicole Bodoh, Esq.
April 8, 2020
My business has been somewhat impacted by the current COVID-19 crisis but we are not experiencing the kind of hardship that would make paying wages to our employees a real challenge. Can I still take out a Paycheck Protection Program (“PPP”) Loan?
No. An applicant for a PPP loan must be experiencing a real economic hardship as a result of the COVID-19 pandemic. The applicant must certify in the application (under penalty of perjury) that the current economic uncertainty makes the loan request necessary to support the ongoing operations of the applicant. An applicant who makes fraudulent certifications, or who misuses the proceeds of the loan could be subject to imprisonment for up to 30 years and a fine of up to $1,000,000.
For what expenses can I use the loan proceeds?
Payroll costs, costs relating to continuation of group health care benefits including insurance premiums, payments of sick, medical or family leave, certain mortgage interest payments (but not payments of mortgage principal), rent payments, certain utility payments, payments of interest on debt obligations incurred before February 15, 2020 and refinancings of loans made under the SBA EIDL loan programs between January 31, 2020 and April 3, 2020. At least 75% of the loan proceeds must be used for payroll costs.
How much of the loan can be forgiven?
The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest if the loan proceeds are used solely for forgivable purposes and employee and compensation levels are maintained. The forgivable purposes include payroll costs, payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, and utility payments under service agreements dated before February 15, 2020 over the eight-week period following the date of the loan. However, not more than twenty–five percent (25%) of the loan forgiveness amount may be attributable to non-payroll costs. Also, proceeds from any advance up to $10,000 on an EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.
Can I count payments made to independent contractors in calculating the amount of payroll expenses?
No. Independent contractors have the ability to apply for their own loan under the PPP and so employers may not include payments to them in calculating the amount of payroll.
Can I apply for a PPP loan even though I am taking the credit for Qualified Sick and Family Leave Wages under the Families First Coronavirus Response Act (the “FFCRA”)?
Yes. You can apply for the loan (assuming you are otherwise eligible) if you are taking the credit for paid sick and family leave under the FFCRA. Those amounts (regardless of whether the credits are actually taken) are excluded from the calculation of the maximum borrowing amount. However they do not disqualify an employer from taking the PPP loan.
Can I apply for a PPP loan and take the Employee Retention Tax Credit or delay paying payroll taxes under the Cares Act?
No, you cannot take the Employee Retention Tax Credit or delay paying payroll taxes under the Cares Act if you receive a PPP loan.
Can I receive both the FFCRA tax credits for mandatory sick pay and family leave and count the sick pay and family leave toward the Employee Retention Tax Credit?
No. Employers must “carve out” any leave payments made under the FFCRA from wages they count for credits under the Employee Retention Credit. The same wages may not be counted for both credits.
Do I need any documentation in order to take the credit for leave under FFCRA?
Yes. In addition to retaining the Forms 941 (Employer’s Quarterly Federal Tax Return) and Form 7200 (Advance of Employer Credits due to COVID-19) and any other related IRS filings, you are required to keep written documentation of an employee’s eligibility for FFCRA leave. The documentation must include, among other things, the name and relation of an individual for whom the employee is caring, the name of the school, place of care, or care provider that is unavailable due to COVID-19, as well as the employee’s written confirmation that no other person will provide care for the children during the period for which the employee is receiving family leave. You must also provide a statement or documentation supporting “special circumstances” requiring that you provide care for any child older than 14. You must also keep records demonstrating how you determined the amount of qualified sick and family leave paid to employees related to COVID-19.
Are there any differences in the timing of the applicable periods of the FFCRA and the CARES Act tax credits?
Yes. Employee Retention Credits apply to wages paid from March 12, 2020 to December 31, 2020. FFCRA credits apply to family and sick leave payments made from April 1, 2020 to December 31, 2020.
Can I apply for a loan and if I need more money apply for another loan under this program?
No. Borrowers who apply for a PPP loan are eligible to apply for just one loan. For that reason, you should consider applying for the maximum loan amount.
Can I sign the loan documents using electronic signatures or faxed or emailed signatures?
Yes. The Small Business Administration has issued guidance confirming that electronic signatures are acceptable.
Are the loans made on a first-come, first-served basis?
Yes, and for that reason you should apply for the loan as soon as possible.
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