The independent contractor or sole proprietor will itself be eligible for a PP Loan, if it satisfies the applicable requirements

NOTE-The Paycheck Protection Program Flexibility Act of 2020 amends the CARES Act and this article updates the information below>> click here to read more.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) established the Paycheck Protection Program (“PPP”). The CARES Act provides the general framework for the loans available to businesses under the PPP and on the Small Business Administration (“SBA”) issued its Interim Final Rule (13 CFR Part 120) (the “Rule”). On the Department of the Treasury issued additional guidance (“Treasury Guidance”) supplementing the Rule and providing additional guidance and clarification. The Treasury Guidance is located here. The primary issues addressed in the Treasury Guidance are as follows:

The Treasury Guidance clarifies that the exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to non-cash benefits, including:

1. employer contributions to defined-benefit or defined-contribution retirement plans;
2. payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums; and
3. payment of state and local taxes assessed on compensation of employees.

Businesses can calculate their aggregate Payroll Costs using data either from (1) the previous 12 months or (2) calendar year 2019. For seasonal businesses, the applicant may use average monthly payroll for the period between . An applicant that was not in business from may use the average monthly http://paydayloansohio.net/cities/waterville payroll costs for the period . Borrowers e time periods to determine their number of employees, for the purposes of applying an employee-based size standard. Alternatively, borrowers may elect to use SBA’s usual calculation: the average number of employees per pay period in the 12 completed calendar months prior to the date of the loan application (or the average number of employees for each of the pay periods that the business has been operational, if it has not been operational for 12 months).

When will the proceeds of a PPP Loan be disbursed by the lender to the business?

No. Any amounts that business paid to an independent contractor or sole proprietor should be excluded from the calculation of Payroll Costs.

Payroll Costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but do not include the employer’s share of payroll tax. The Treasury Guidance provided the following example: an employee who earned $4,000 per month in gross wages, from which $500 in federal taxes was withheld, would count as $4,000 in Payroll Costs. However, the employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from Payroll Costs under the statute.

Yes, payroll documentation provided by the payroll company that indicates the amount of wages and payroll taxes reported to the IRS will be considered acceptable PPP Loan payroll documentation. Relevant information from a Schedule R (Form 941), Allocation Schedule for Aggregate Form 941 Filers, attached to the payroll company’s Form 941, Employer’s Quarterly Federal Tax Return, should be used if it is available; otherwise, the business should obtain a statement from the payroll company documenting the amount of wages and payroll taxes.

The amount of forgiveness of a PPP Loan depends on the borrower’s payroll costs and other allowable expenses paid over an eight-week period; when does that eight-week period begin?

How are federal taxes treated when determining Payroll Costs for purposes of the maximum loan amount, allowable uses of a PPP Loan, and the amount of a PPP Loan that may be forgiven?

The eight-week period begins on the date the lender makes the first disbursement of the PPP Loan to the borrower.

The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval.

Finally, the Treasury Guidance confirmed that if a business applied for a PPP Loan prior to the release of the Treasury Guidance, the business is not required to update or resubmit its application considering the Treasury Guidance. The business is entitled to rely on the laws, rules, and guidance available at the time of its application. However, if an application was submitted and has not yet been processed, the business may want to revise the application taking into account the Treasury Guidance.