Q. Assuming I properly received PPP funds, what can I spend it on?
A. The allowable uses of PPP loan funds are as follows:
-
75% of the PPP loan funds must be used for payroll costs for U.S.
resident employees (salaries are capped at $100,000 per employee),
-
The remaining 25% may be spent on:
-
Costs related to the continuation of group health care benefits
during periods of paid sick, medical or family leave (other than
qualified family or sick leave wages for which a credit is allowed under
Sections 7001 or 7003 of the Families First Coronavirus Response Act),
and insurance premiums
-
Payment of interest on any mortgage obligation (but not on any prepayment of principal)
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Rent
-
Utilities
-
Interest on any other debt incurred before Feb. 15, 2020
-
Costs related to the continuation of group health care benefits
during periods of paid sick, medical or family leave (other than
qualified family or sick leave wages for which a credit is allowed under
Sections 7001 or 7003 of the Families First Coronavirus Response Act),
and insurance premiums
Q. If a use is allowable, does that mean my loan is forgiven?
A. Not necessarily. Debt forgiveness hinges on a
number of factors and a more limited set of uses. See the related
questions below.
Q. What if I use the loan, in whole or in part, for a purpose that is not an allowable purpose?
A. You should not use
the loan for purposes that are not allowable uses. It creates the
possibility that you could face civil and criminal penalties for fraud
if the government believes you knowingly used the loan for uses that are
not allowable.
Q. What are the terms of my PPP loan?
A. PPP loans have a term of two
years, bear interest at 1% per annum and require no principal payments
for the first six months, although interest accrues.
Q. What uses are allowable in order to receive debt forgiveness?
A. The following amounts
incurred and paid during the eight-week period beginning on the date on
which you first received an installment of PPP money:
-
You must spend 75% of your PPP loans on payroll costs
-
Payroll costs for U.S.-resident employees, consist of
-
Salary, wage, commission or similar compensation (up to $100,000 per employee)
-
Cash tips or equivalent
-
Payment for vacation, parental, family, medical, or sick leave (other
than qualified family or sick leave wages for which a credit is allowed
under Sections 7001 or 7003 of the Families First Coronavirus Response
Act)Allowance for dismissal or separation
-
Payment required for the provision of group health care benefits, including insurance premiums
-
Payment of any retirement benefit
-
Payment of state or local tax assessed on the compensation of employees
-
Salary, wage, commission or similar compensation (up to $100,000 per employee)
-
Payment of interest on a mortgage entered into prior to Feb. 15, 2020 (but not on principal prepayments),
-
Any rent payment under a rental agreement or lease entered into prior to Feb. 15, 2020
-
Utilities (for which service commenced prior to Feb. 15, 2020, consisting of:
-
Electricity
-
Gas
-
Water
-
Transportation1
-
Telephone
-
Internet access
-
Electricity
Q. If I use my PPP loan only for forgivable purposes, will it all be forgiven?
A. Not necessarily. If, during the eight-week
period from when you receive your first installment of your PPP loan,
your full-time equivalent (FTE) count is lower than (i) your average FTE
count during the period Feb. 15, 2019 through June 30, 2019, or2 (ii)
your average FTE count during the period Jan. 1, 2020 through Feb. 29,
2020, then your forgiveness may be adversely impacted unless you rehire a
sufficient number of employees for any changes you made between
February 15, 2020 and April 26, 2020 to equal the average FTEs of your
chosen measurement period before June 30, 2020. Also, for employees who
made less than $100,000 in 2019, if you reduce salaries during the
eight-week period by more than 25% (as compared to the last full fiscal
quarter prior to the eight-week period), your forgiveness may be reduced
by the amount of salary reduction in excess of 25%, unless the salary
is restored for any changes you made between February 15, 2020 and April
26, 2020 by June 30, 2020. Also see the question below.
Q. What is this 75% rule I keep hearing about?
A. In order to be eligible for forgiveness, and
consistent with requirements for the use of PPP loan proceeds, you must
have spent 75% of your PPP loan on payroll costs, and not more than 25%
of the amount you are requesting for forgiveness can be for things other
than payroll cost. Absent additional guidance, if you did not spend 75%
of the PPP loans on payroll costs, you may not be eligible for
forgiveness.
Q. What happens if my whole loan is not forgiven?
A. The remaining amount is converted to a term
loan bearing 1% interest. The interest accrued during the first six
months of the loan that accrued on that amount also will be owed.
Q. If my whole loan is forgiven, what about the accrued interest?
A. The interest is also forgiven.
Q. What will I need to file or report to obtain the forgiveness?
A. You will need to apply with your bank after the
end of the eight-week period (or after June 30, 2020 if you are relying
on the hire back provisions). The SBA and/or Treasury Department will
specify the application form in future guidance. You will be required to
submit items such as Form 941 tax filings, payroll runs and checks, or
records of wires showing your payments for each forgivable expense you
plan to submit. We are therefore recommending that you keep the loan
proceeds in a segregated account to facilitate confirming the use of the
PPP loan proceeds.
Q. Are these the final rules on forgiveness?
A. No. Further guidance from the SBA and/or the
Treasury Department on forgiveness is forthcoming and may include
changes or further details on these rules in addition to clarifying the
forgiveness application process.
Q. Will I owe taxes on the amount of my PPP loan that is forgiven?
A. No. The forgiveness of a PPP loan is not treated as a taxable cancellation of debt for U.S. federal income tax purposes.
1 The meaning of transportation is unclear.
The current thinking is it means transportation of waste (removal). This
may be clarified in future guidance.
2 The borrower can choose which period it wants to use.
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