2020-20: Guidance issued on Paycheck Protection Program loan payroll cost computation - Spidell

2020-20: Guidance issued on Paycheck Protection Program loan payroll cost computation


The Small Business Administration issued FAQs on April 6 in response to demands from banks and borrowers to provide greater clarity as to what information is required for purposes of obtaining a Paycheck Protection Program loan. Many of these FAQs address how a business should determine its payroll costs.

Among other questions answered, the FAQs clarify that:

  • Businesses should not include payments made to independent contractors in their payroll costs;
  • The $100,000 per-employee compensation cap only applies to wages and salaries paid. Retirement and health care benefits, and state and local payroll taxes, are added in on top of the $100,000 salary limit for purposes of determining a business’s payroll costs with respect to an employee;
  • An employer may choose between two lookback periods for purposes of determining their average monthly payroll costs and number of employees:
    • 2019; or
    • The 12-month period prior to the date of application;
  • Payroll costs are not reduced by taxes imposed on an employee, and are required to be withheld by the employer such as income tax withholding and the employee’s share of FICA. However, you do not increase the payroll costs by the payroll tax paid by the employer. You will use gross wages. For example, an employee who earned $4,000 per month in gross wages, from which $500 in federal taxes were withheld, would count as $4,000 in payroll costs. There is no addition for the employer-side federal payroll taxes imposed on the $4,000. (Note: This guidance is contrary to previous guidance, and what was included in the act, so it possible we will see further clarification on this issue.);
  • If a borrower applied using guidance that had been previously released, they are not required to adjust their applications to reflect these changes. Borrowers and lenders may rely on the laws, rules, and guidance available at the time of the relevant application.

The FAQs are available at:

https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequenty-Asked-Questions.pdf

In addition, the SBA has produced a summary of the affiliation rules that apply to Paycheck Protection Program loans.

The SBA’s affiliation summary is available at:

www.sba.gov/sites/default/files/2020-04/Affiliation%20rules%20overview%20%28for%20public%29%20v2.pdf

These latest updates and more will be covered during Spidell’s CARES Act for Tax Pros Webinar scheduled for Wednesday, April 8, at 10 a.m. Click here and register now!

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