Is the Paycheck Protection Program really free money?
as of April 1, 2020, 4:37pm
The short answer is YES! and no.
The amount of the loan that is eligible for forgiveness is equal to the amount the borrower spent on the following items during the 8‑week period beginning on the date of the origination of the loan (IE. the date the loan closes):
Payroll costs
Salary, wage, commission, or similar compensation (compensation over $100,000 annualized is excluded)
Cash tips or equivalent
Payment of vacation, parental, family, medical or sick leave
Allowance for dismissal or separation
group health care benefits, including insurance premiums
payment of retirement benefit
payment of state or local tax assessed on the compensation of the employee
Interest on the mortgage obligations incurred before the covered period
Rent or leasing agreement
Payments on utilities (electricity, gas, water, transportation, telephone or internet)
Due to high participation in the program, the government is advising that not more than 25% of the forgiveness amount be for non-payroll costs. Also, the forgiveness cannot exceed the principal.
Let me guess, your next thought is, “nothing is ever really free, this is going to really increase my taxes next year!” While we can’t say for sure yet, from all of our research, unlike most debt forgiveness income, it appears this forgiveness will be tax exempt.
However, there are definitely some things you need to be on top of to maximize your forgiveness.
DOCUMENTATION! You will need supporting documentation for all of the expenses paid via the Paycheck Protection Program. Now, more than ever, you need consistently clean books & financials, well-managed AP & AR processes and a secure way to store all of this sensitive information. We encourage you to reach out to a trusted advisor to make sure all of your ducks are indeed in a row.
No Double Dipping.… Part 1. You cannot use EIDL funds AND PPP funds for the same expenses. If so, you are at risk of losing the loan forgiveness, which is what you want in the first place.
No Double Dipping.…. Part 2. The refundable tax credit, formally named the “Employee Retention Credit for Closures Due to Covid-19”, is not available to those receiving assistance through the Paycheck Protection Program.
The amount of loan forgiveness calculated above is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees.
If you know your business needs these funds, but feel overwhelmed trying to navigate all the ins and outs, please connect with our team. We are offering a complimentary 15-minute conversation to help you feel more confident in your options now & in the future.
There are a number of incredible resources available to learn more about the Paycheck Protection Program. Here are a few we recommend:
We are working hard to keep our blog up to date as we all move through this incredibly tumultuous time. To check out any COVID-19-related content please visit: mackeyadvisors.com/category/covid-19/Please note that all of the above is our best information at this time. The final regulation on the CARES Act are still in process, so more information will follow.
Stay safe & healthy,
Sarah Grace
Chief Operating OfficerMACKEY