The U.S. Small Business Administration issued a new interim final rule (IFR) Tuesday that supplements the guidance for the Paycheck Protection Program (PPP) included in the first interim final rule for the PPP issued on April 2 and FAQs that are being updated periodically.
The IFR clarifies how self-employed borrowers who file a Form 1040 Schedule C should calculate the maximum PPP loan amount. Per the IFR, the 2019 Form 1040 Schedule C is required to be provided with the PPP loan application.
Guidance is also provided on how PPP loans may be used and how loan forgiveness will be calculated. Several key changes related to the forgiveness calculation relate to owner related compensation and benefits. We will provide additional information on how these changes impact borrowers as soon as possible.
Due to the limited availability of funds, we suggest Schedule C filers complete their 2019 tax returns as soon as possible despite the postponement of the April 15th deadline.
The SBA also stated it will issue additional guidance for those individuals with self-employment income who: (1) were not in operation in 2019 but who were in operation on Feb. 15, 2020, and (2) will file a Form 1040 Schedule C for 2020.
Additionally, the new guidance directs that the self-employment income of partners in a partnership may be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by or on behalf of the partnership (or LLC filing taxes as a partnership). Individual partners may not submit a separate PPP loan application as a self-employed individual.
The guidance also addresses the eligibility issues of certain business concerns and requirements for certain pledges of PPP loans.
The Paycheck Protection Program is part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act. The Act allocated $349 billion for forgivable loans under the PPP for small businesses damaged by the COVID-19 pandemic. Funds can be used to cover costs including payroll, rent, utilities, and mortgage interest. As of 4/13/2020 over one million loans were approved for over $247 billion dollars by over 4,500 different lenders. Over 70% of the loans approved were for less than $150,000. Click HERE for additional details released by the SBA.
The application process opened April 3, 2020 and businesses and organizations are beginning to see approvals and funding intended to mitigate the economic impact of government mandated isolation and shut down orders as a result of the COVID-19 epidemic. The cash infusion is welcome relief for cash strapped businesses impacted directly or indirectly by orders to cease or substantially reduce operations as part of the government effort to slow the spread of the coronavirus.
However, major concerns exist that threaten the viability of many impacted businesses. We have written to the SBA and Treasury to request action on these issues. CLICK HERE to read that letter and share it with your representatives.
We are happy to discuss any questions or comments you may have. Our team is working and available to review with you. Please contact our office at 610-544-5900 or firstname.lastname@example.org .
We are in this together,
Brinker Simpson & Company, LLC
Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, & cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).