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SBA Interim Final Rule Provides Guidance on Forgiveness Regarding Payroll Costs

The Small Business Administration (SBA) released an Interim Final Rule (IFR) that includes changes to the third IFR on the Paycheck Protection Program (PPP). The most recent IFR, issued June 16, 2020, reflects modifications made by the Paycheck Protection Program Flexibility Act (PPPFA). Click HERE to read the Price Kong blog on those changes.

The PPPFA cut the minimum payroll allocation from 75% to 60%, allowing 40% of the loan distribution to be used on other eligible expenses. In addition, the “covered period” was extended from eight to twenty-four weeks. The covered period – the time frame in which a borrower has to use PPP funds for payroll and other eligible expenses – begins the day funds are disbursed. Borrowers that received PPP loans prior to June 5, 2020 have the option to use the eight-week covered period.

In terms of forgiveness, the guidance in the new IFR indicates that the eligible amounts will depend on the total spent during the covered period. Borrowers that elect to use the eight-week covered period have payroll costs, including salary, wages, and tips up to $100,000 of annualized pay per employee, capped at $15,385. For the twenty-four week covered period, the maximum is $46,154 per individual.

While employee payroll costs were tripled in accordance with the twenty-four week covered period, owner compensation replacement is limited to 2.5 months’ worth of 2019 net profit, with a maximum of $20,833. The cap applies to owners with self-employed income that file a Schedule C or F with their taxes. The IFR indicates that owners can certainly pay themselves more; however, any amounts above the cap will not be forgiven.

Price Kong is here to help you navigate the maze of PPP and PPPFA regulations for forgiveness, and assist with the application process.

We are also available to consult on other areas related to the CARES ACT, as well as tax and audit issues you may be facing. You can also access our COVID-19 Resource Center, which includes as-they-happen updates and links to important information on the SBA, Department of the Treasury, Department of Human and Health Services, Internal Revenue Service and other sources.

We look forward to helping you with any issues you may be facing. Please contact us if you have questions or concerns at 602.776.6300.