Important Updates Regarding Paycheck Protection Program (PPP) Loan
We are continuing to provide updates so you are as informed as possible about the forgiveness portion of the Paycheck Protection Program (PPP) loan. There have been two very important recent releases regarding the PPP that will be highlighted in this email, one by the US Treasury, and one by the IRS.
IMPORTANT INFORMATION REGARDING RE-HIRING OF EMPLOYEES
The amount of your loan eligible for forgiveness can be reduced if your FTE during the covered period is less than your FTE in one of two previous periods (see full FAQ document for additional information). For those companies that have had to release employees, a key requirement of maximizing forgiveness is re-hiring employees back on staff during the covered period.
On May 3, 2020 – the US Treasury updated their FAQ Document to include question #40, which discusses employees who reject offers for re-employment:
40. Question: Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?
Answer: No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.
IMPORTANT INFORMATION FROM THE IRS REGARDING EXPENSES PAID WITH PPP LOAN FUNDS
Please note – the Bank is not able to provide tax advice and strongly encourages you to discuss this information with your tax advisor.
New guidance issued by the IRS last week confirmed that any loan amounts forgiven under the CARES Act will be excluded from taxable gross income. However, the guidance also stated that no deduction will be allowed for an expense if the payment of the expense results in forgiveness of a covered loan under the CARES Act.
The American Banker’s Association believes this could have an adverse after-tax impact on PPP borrowers by effectively eliminating the deductibility of payroll and other expenses that qualify for forgiveness under the PPP.