The Definitive Guide to Paycheck Protection Program (PPP)

What Is Paycheck Protection Program?

The USA’s federal government signed the CARES act on March 27, 2020, into the law- a coronavirus relief bill direct at supporting small businesses across the current pandemic. One segment of the bill is the paycheck protection program – let we look deeper into it.

About Paycheck Protection Program

Paycheck Protection Program or PPP is a loan program that sprouted from Coronavirus Aid, Relief, and Economy Security (CARES) Act.
At first, it had a $350 billion budget and intended to provide cash flow encouragement to the American small scale businesses for eight weeks through 100 percent federally guaranteed loans.

In late April, this program was extended by Paycheck Protection Program and Health Care Enhancement Act, summing up an extra $310 billion in the subsidy.

At present, the Paycheck Protection Program Flexibility Act has made significant changes to the program by authorizing extra time to spend the funds and forgiving loans easily.

Highlights Of PPP

• All small scale businesses are eligible.
• The maturity rate of the loans are two with an interest rate of 1%.
• The loans made after June 5 have a duration of five years. You do not have to pay your loans out until either your loan forgiveness appeal is in process or ten months later your bridging period ends.
• No personal guarantees are required.
• No fees are there.
• The easily forgiven loan can later turn into a non-taxable grant.

Are You Eligible for the Program?

The Paycheck Protection Program loans tend to be more substantial than the SBA disaster loans. So the answer is most likely a yes. Small business owners, sole proprietors, and independent contractors can easily qualify.

• Sole proprietors: they will have to submit the schedule C amid their tax return file.
• Independent contractors: they will have to capitulate form 1099-MISC along with the schedule C
• Self-employed: they will have to lodge the payroll tax filings communicated to the internal revenue service.

What Can You Use the Funds For?

It is mandatory to use 60% of the loan for the payroll and the employee benefit expenses.

You can use the remaining 40 percent on:

• Paying out mortgage interests.
• Paying rents and lease.
• For utilities.

If you follow the guidelines, strictly you can write off your debts.

What Are Payroll Costs?

• Salaries, commission, wages, bonuses, and hazard pays.
• Employee benefits together with the costs for vacation, parental family, sick leaves, etc.
• A sole proprietor or an only contractor can use it to pay wages, commissions, income, etc. by self-employment, exceeding at $100,000 for each employee annually.

So basically, most of the payroll value are covered; however, some are not like:

• Reimbursing independent contractors.
• Shareholder’s distribution does not count as a payroll payment.

What Is the $100,000 Salary Limit?

If any of your employees or you exceed the amount of $100,000 per annum, you can only claim to $100,000, nothing over that; suppose an employee earns 120,000 annually, you can deduct 20,000 from his income the PPP. It is going to save $8,333.33 monthly payroll.

If you are self-employed and your annual income is exceeding $100,000, you will still be limited to $100,000, leaving your average monthly payment to be $8,333.33.

How Much Funding You Can Receive?

The maximum value you can receive is your average monthly payroll amount in 2019 multiplied by 2.5 up to $10 million by an SBA-approved moneylender.

For migrational employers, the standard monthly income calculation will be different. The moneylender shall use 12 weeks starting either on March 1, 2019, also terminating on June 30, 2019, or February 15, 2019.

If your business has just established and did not exist before June 30, 2019, the moneylender will inspect your expenditures in January and February 2020.

How Can You Apply for It?

The SBA does not allow loans itself but covers them instead. You can refer to SBA’s lender’s tool.

Sole proprietors can apply from April 3. Self-employed people can appeal from April 10. We encourage you to use it for the same as there is a funding limitation in this program. August 8 is the deadline for the submission of an application.

As a part of your appeal, you will have to answer a few questions for the verification, such as:

• Whether the economic precariousness causes the necessity for loans to carry out operational activities of the firm.
• What are you using the loan? To maintain employees, or to pay mortgages or similar expenses.
• You will not apply for another loan, along with the existing one under this program.
• Suppose you have the documents that verify the number of employees on the payroll. In that case, the amount of payroll expenses, payment of mortgage interests, charges that cover.
• Whether you recognize that the moneylender will compute the loan amount you are eligible for using the submitted tax documents.

What Financial Documents You Will Need?

You will have to provide payroll or bookkeeping records to prove your expenses, including:

• Payroll processor records.
• Form 1099-MISC records.
• Payroll tax filing.
• Schedule C for a sole proprietorship.

If you are a self-employed person and do not have an out and out schedule C for submission, you will most probably need to get subsequent bookkeeping to compute your net profit, and that is how your loan value will determine.

What If You Own More than a Business?

If an owner owns more than a business, it will become quite difficult for him to get relief funding as his company might not have separate finances.

If you do own more than one business, you have to keep your bookkeeping transactions done for each company separately. It will become essential when the time comes to prove your expenses during the loan forgiving process.

How to Get Your Loans Forgiven?

All your expenses can be excused in 24 weeks within your loan signing period, including the following ones:

• Payroll: wages, vacation, family, salary, etc. are limited to $100,000 per annum.
• Interests on mortgages: if you sign the mortgage before February 15, 2020.
• Rent: If you sign the lease agreement before February 15, 2020.
• Utilities: if the services started before February 15, 2020.

You will have to keep accurate records and bookkeeping as evidence of your expenses during the loan phase. You will need to have spent 60% of the funds on the payroll if you want to qualify to write-off all your debts.

The moneylender is obligated to decide within 60 days of the submission of your loan forgiveness.

Conditions for Loan Forgiveness

The Paycheck Protection Program aims to protect paychecks.

You have to commit to maintaining an average number of employees equivalent to full-time or above that monthly during the last year, and it is a must for you to spend 60% of the funds on the payroll.

The amount to forgive could deduct to:

• If there is a reduction in the proportion of the number of employees.
• If the wages are reduced by 25%.

If you hire employees again who you expelled at the starting of the period or restore any deduction in the salary of wages made at the starting phase, penalization for reducing the employees or wages will occur as long as you do it before December 31, 2020.

Rehiring – New Exemption

The employees you fired earlier might not wish to get back on payroll and reject your re-employment offer. In that case, you can exclude that employee while calculating forgiveness.

To qualify for this exemption, you need to:

• You must have an offer letter sent to the employee bona fides.
• The offering must include the same salary/wages and the number of hours they were on before expelling them.
• You need to have documentation declaring the rejection of the offer by the employee.

Important note: The employee who rejects the offer letter for re-employment can not continue unemployment benefits.

Is It Alright to Apply for Paycheck Protection Program Through More than One Moneylender?

Yes! It is alright to apply for PPP through more than one moneylender. Who-so-ever first receives your application will receive a number approved by SBA for your company known as PLP.

The SBA issues just one PLP per tax ID; hence, there is no chance you will approve for two PPP credits.

If your PPP loan approves, your application with the other moneylenders will automatically reject. Therefore, it is better to withdraw the application from the other moneylenders after your loan’s approval.

Can You Apply for PPP and Disaster Loans Together?

Yes, you can, but you can not apply it the same as the Paycheck Protection Program. While applying for an SBA disaster loan, you may request an interest-free $10,000 emergency grant.

How Can a Sole Proprietor Show His Salary If He Uses Owner Draw?

It depends on your self-employment income if you are a sole proprietor.

Precisely, this is going to be the net profit documented on your Schedule C.

Payroll expenses are limited to $100,000 for each individual. If you earn more than that, use $100,000 as your total revenue and $8,333.33 as your monthly revenue.