We’ve received a lot of questions the last couple days about PPP Loan Do’s and Don’ts. Here are some of the most common questions that we believe you all need to know about:
Can I include my 2019 1099-MISC contractor payments in my “Payroll Costs?”
Yes! The CARES Act has two subsections for the definition of Payroll Costs. The first subsection (aa) includes typical payroll costs like salaries, wages, commissions, health benefits, retirement matching. The lesser read (bb) subsection includes this language:
the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period;
In this blog post, Brooks Pierce interprets section (bb) the same way we do – that payments to independent contractors are included in the definition of Payroll Costs.
Can I include the employer portion Social Security/Medicare (FICA) in my Payroll Costs?
No. The CARES Act specifically excludes the employer matching of FICA from the definition of Payroll Costs. Don’t include it – there is a separate payroll tax credit that you will receive that will help you recover a portion of your employer matching FICA.
What if my payroll was higher in 2020 than in 2019?
Some banks are allowing employers to submit 2020 payroll documentation in addition to 2019. If your payroll for Jan-Mar 2020 was higher than Jan-Mar 2019, then you may also want to use the April 2019 – March 2020 one-year period for calculating Payroll Costs and provide the necessary support to your bank.
What should I expect to provide to my banker?
We have seen the application support forms from quite a few different banks. Based on that, we created a Checklist of Supporting Documents for PPP Loan Applications. Click the link below to download this form. Many banks are creating an online application portal, so we are advising clients have their supporting documents in pdf format and ready to upload when the portal opens.Supporting Documents
If max loan amount is less than $10,000 consider the EIDL
The SBA updated its online Economic Injury Disaster Loan (“EIDL”) application form. You can find it here. It takes about 15 minutes to complete and the only financial information you need is your prior year gross revenue, cost of goods sold, and lost rents (if none, ignore). If you have a business that has very low payroll, or had no payroll in 2019, you may want to consider the EIDL instead of the PPP loan. If your maximum loan from the PPP loan is less than $10,000, then the EIDL will likely provide more benefit for you. That said, we haven’t had a client receive this loan or grant (first $10,000 of the loan is forgivable) yet, so not sure how this program is actually going to work, but the SBA is promoting it constantly on its Twitter page.
Can you receive the PPP loan and the EIDL?
Yes, but the proceeds cannot be used for the same purposes. Since the PPP loan is for payroll costs, rents, mortgage interest, and utilities, you would need to have a different use for the EIDL.
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