Top six issues for calculating the PPP forgiveness Payroll Cost

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by Marc Parham, Small Business Expert, CAPBuilder Network Group,,

This article goes over the some of the most important questions about applying for forgiveness under the PPP funding program. There are many more questions but these are the top six questions.

What will the forgiveness cover?

PPP loans covers payroll costs, including costs for employee vacation, parental, family, medical, and sick leave. However, the CARES Act excludes qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116-127).

How will the Self-employed calculate forgiveness?

The Treasury issued a new Interim Final Rule addressing the requirements for the self-employed when applying for the PPP loan.

Notable takeaway: if you are self-employed and haven’t filed your 2019 taxes, you need to fill out a 1040 Schedule C and turn it in with your PPP application. Line 31 from the Schedule C should be used in your payroll costs calculation.

What are Eligible nonpayroll cost?

An eligible nonpayroll cost must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period. Eligible nonpayroll costs cannot exceed 40% of the total forgiveness amount. Count nonpayroll costs that were both paid and incurred only once.

How will the Sole proprietors calculation work?

Sole proprietors are eligible to include their income in the payroll costs. This typically based on either their paid salary or a proportional amount of the income reported on Schedule C in your personal tax return. No matter what, the salary/draw you include in the loan calculation is capped at an equivalent of $100,000 per annum.

What are the acceptable Payroll costs?

Payroll costs include all forms of cash compensation paid to employees, including tips, commissions, bonuses, and hazard pay. However, there is still no clarification as to caps on these amounts, other than the $100,000 on an annualized basis.

What type of Documentation is needed?

Employ good third-party documentation. For example, support payroll costs using an outside payroll provider report coupled with a bank statement reflecting the funds coming out of your account.

Make sure you fully understand how to apply for forgiveness! Hire a professional if needed. The most important area will be the documentation that you will use to support your request.

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