In the current economic climate, many companies are looking for ways to take advantage of the various COVID relief funds available. It is possible for companies to use both the Expanded Employee Retention Credit (ERTC) and the Paycheck Protection Program (PPP) to help manage their finances during this difficult time. However, there are some important considerations to keep in mind when using both programs. Cherry Bekaert's tax team hosted a roundtable discussion on February 9 to discuss PPP loans and employee retention credits.
During the discussion, many interesting questions were raised, and we have compiled the answers from our panelists here.
Can I include other costs in my PPP loan application?Unfortunately, no. The calculation for the loan amount is based solely on payroll and payroll-related items. Other costs such as rent, mortgage interest, and utilities cannot be included in the loan amount.
Do banks request audited financial statements? We have only seen banks request signed internal financial statements. Audited financial statements are usually annual and not quarterly, so they are not typically requested.
Does the parent company count towards the employee count for ERC?Yes, the parent company becomes a subsidiary because it has control over the subsidiary. For ERC, only employees who provide services in the United States are considered in the count of full-time employees to determine the size of the employer.
Are state unemployment costs included in both PPP loan applications and forgiveness calculations? Yes, state unemployment costs paid by the employer are included in both the loan application and forgiveness calculations.
Can an entity receive a PPP loan and a grant from the SVO?Yes, but an entity that receives a PPP loan for the first time will have that loan deducted from its SVO grant. The SBA hasn't stated that the gross decline in revenues should be related to the pandemic, but you will need to evaluate the certifications found at the bottom of the application form to ensure that they apply to you.
What is considered gross income?Gross income includes all income, in any form, received or accumulated (according to the entity's accounting method) from any source, including those from the sale of products or services, interest, dividends, rents, royalties, fees or commissions, reduced in refunds and allocations.
Are licenses considered for wage reductions for PPP loan forgiveness? When showing a decrease in gross income, you use income reduction or cash receipts depending on how your books are stored. If books are held at accrual values, some non-cash receipts may be counted as part of gross income.
If a sole proprietor didn't include their salary in their original loan application, can they file a modified application?Yes, they can file a modified application. The 25% reduction applies to both PPP 1 loans and PPP 2 loans that are being requested now.
Most hotel companies qualify for Safe Harbor 1 in their waiver application as long as they have been affected by federal, state or local COVID restrictions.
For non-profit organizations (NFP), is it based on gross cash revenues?It depends on how your books are stored. For both PPP and ERC, this is a complex area so it depends on your combination of contract price types and how overheads or groups G&A are applied.
Do closed room operators need to pay an additional fee to attend performances?Yes, closed room operators require that a ticket or an additional fee be paid to attend performances that are promoted through advertisements in printed or electronic publications, on websites, by mass email or on social networks.
If I applied for loan forgiveness before new laws changed at the end of 2020 do I need to withdraw those salaries from my waiver request? You do not need to withdraw those salaries from your waiver request but you may need to change your support on your waiver request if you want to take advantage of ERC credits.
Is there a deadline for submitting an application for forgiveness of a PPP 1 loan?There is no deadline for submitting your loan forgiveness application but if you don't submit a loan forgiveness request within 10 months of the end of your period covered by your loan then you must start paying back principal and interest after that period.
Can I use an alternative coverage period for my PPP 1 waiver process?Yes you can use an alternative coverage period for PPP 1 waiver but not for PPP 2 waiver.
For organizations that repaid their PPP 1 loan before safe harbor date is it best option to reactivate old loan?Yes, if you repaid your PPP 1 loan before safe harbor date then reactivating your old loan would be your best option.
What can revenue from PPP loans be used for?
- Payroll costs including benefits.
- Interest on mortgages.
Revenue from PPP loans can only be used for these expenses and must be used within 24 weeks of receiving your funds or by December 31st 2020 whichever comes first. It is important to understand all aspects of both ERTC and PPP before taking advantage of them so that you can make sure you get all of the benefits available while avoiding any potential pitfalls.