The Coronavirus Aid, Relief and Economic Security Act (CARES Act) provided $349 billion in loans, guarantees and investments to help businesses. One of the most popular forms of assistance for small businesses, the Paycheck Protection Program (PPP), made loans available to small businesses with no more than 500 employees and to those in certain industries with gross receipts less than a certain threshold. Administered by the Small Business Association (SBA) through local banks, PPP also made funds available to 501(c)(3) organizations, sole proprietors and independent contractors.

One of the most compelling aspects of PPP loans is the potential for businesses to get all or a portion of the loan forgiven so they don’t have to pay it back. However, there are stipulations involved. Borrowers must use the funds within a certain time frame and only for the purposes specified within the parameters of the PPP. The PPP will forgive loaned amounts to the business but will deny a deduction for those expenses associated with the loan. This can have a direct effect on the business owner of a flow-through business, like an S Corporation, sole proprietorship or partnership. Because the PPP was very popular, initial funding ran out in less than 1 month. Congress provided additional funding, expanded and updated the terms of the program, then closed applications as of August 8, 2020. 

If you are a small business owner and participated in the PPP, you can use the following checklist as a general guide for your 2020 year-end planning.

Recommended action steps

☐   Schedule time with your accountant or other tax professional to:

    • Review the impact PPP loan proceeds may have on your tax returns for 2020 and 2021, as applicable
    • Start the loan forgiveness application process – Applications must be submitted to your lender within 10 months following the end of your applicable “Coverage Period” (either 8 or 24 weeks following receipt of your PPP loan proceeds or December 31, 2020, if earlier). If you borrowed $50,000 or less, the SBA provides a simplified procedure for loan forgiveness.

  Gather the following documentation regarding utilization of Loan Proceeds:

NOTE: To be eligible for forgiveness, PPP Loan Proceeds must be exhausted during your Coverage Period according to PPP parameters. Generally, payroll costs must make up at least 60% of expenditures and the remaining 40% may be used for mortgage interest payments, rent payments and utilities. You’ll need to provide:

    • A list of all employees on payroll during your applicable Coverage Period with the dollar amount of attributable payroll costs (defined below)
    • Payroll records to show employees remained on payroll or were rehired after PPP loan proceeds were received, including a calculation of the average monthly number of full-time equivalent employees for the period February 15, 2019 through June 30, 2019 or January 1, 2020 through February 29, 2020 (as previously selected by you, the borrower) and the average monthly number of full-time equivalent employees during your Coverage Period
    • Payroll records showing restoration of pay by June 30, 2020 for any individual whose pay was reduced by 25% or more, where applicable
    • Evidence of contributions to qualified plans and healthcare plans for employees

NOTE: For borrowers who are self-employed, the forgiveness amount for owner’s compensation is limited to 8 weeks’ worth of 2019 net profit and does not include covered benefits. It also excludes any qualified sick leave equivalent amount for which a credit is claimed under section 7002 of the Families First Coronavirus Response Act (FFCRA) (Public Law 116-127) or qualified family leave equivalent amount for which a tax credit is claimed under section 7004 of the FFCRA (similar rule as applies to employers with respect to pay for time for which a tax credit is claimed under FFCRA).

    • Evidence of mortgage interest payments, rent payments and utilities paid during your Coverage Period
    • Copies of cancelled checks
    • Bank statements with ACH info
    • Utility bills
    • Mortgage statements
    • Lease agreement
    • Evidence of payroll costs, utilities, rent/lease payments and mortgage interest paid before February 15, 2020 to compare to what is paid or incurred during your Coverage Period to make sure it aligns
    • Copy of PPP Loan Application paperwork submitted to your lender
    • Where applicable, copy of Economic Injury Disaster (EIDL) loan if refinanced with PPP loan (be sure to identify how much was an advance that does not have to be repaid or is forgiven). If you used PPP to refinance an EIDL loan, only the funds used for payroll costs will be forgiven, so be prepared to provide documentation listed above for the EIDL loan, too.

NOTE: If you used PPP funds for purposes outside the parameters of the PPP, SBA will direct you to repay those amounts. Loans originated prior to June 5, 2020 are payable over 2 years and loans originated after June 5, 2020 are payable over 5 years, both at an interest rate of 1% with payments deferred for 6 months. No collateral or personal guarantees are required and neither the government nor your lender will charge any fees.

If you knowingly use the funds for unauthorized purposes, you may be subject to additional liability, such as charges for fraud. If one of your shareholders, members or partners used PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member or partner for the unauthorized use.

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This informational and educational article does not offer or constitute financial, legal, tax, or accounting advice.  Your unique needs, goals and circumstances require individualized attention of your own professional advisors. Equitable Financial Life Insurance Company and its affiliates do not provide tax, legal, or accounting advice or services.

Equitable is the brand name of the retirement and protection subsidiaries of Equitable Holdings, Inc., including Equitable Financial Life Insurance Company(Equitable Financial) (NY, NY), Equitable Financial Life Insurance Company of America (Equitable America), an AZ stock company with main administrative headquarters in Jersey City, NJ, and Equitable Distributors, LLC.  Equitable Advisors is the brand name of Equitable Advisors, LLC (member FINRA, SIPC) (Equitable Financial Advisors in MI and TN). 


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