COVID-19 Resources: Tax and Accounting

At JAK, we’ve received this question a lot over the past few weeks. The good news is that, no, the PPP Loan does not increase your federal taxable income. Watch the video below for more details on MN legislation surrounding the PPP Loan.

• United States residing business with 500 or fewer employees
• Business must have been in operation on February 15, 2020 with employees or paid independent contractors
• Seasonal businesses considered to be in operation as of February 15, 2020 if the business was in operation for any 8-week period between May 1, 2019 and September 15, 2019
• Other details can be found here

The lesser of:

• *The average monthly payroll costs as defined by the SBA x 2.5
• $10 Million
• See the US Treasury guidance on how to calculate the maximum loan amount by business type.

*Note: If there is an outstanding amount of an EIDL made between Jan. 31st, 2020 and April 3rd, 2020, that can be added to the PPP amount

The interest rate will be 1 %. The maturity of the loan is 2 years. Payments are deferred for 6 months following the disbursement of the loan. Interest will accrue on the loan beginning with disbursement.

Borrowers should assess their economic need for a PPP loan under the standards established by the CARES Act and the PPP regulations in effect at the time of the loan application. Borrowers are considered to make this certification in good faith and by taking into account current business activity and also other sources of liquidity currently available.

Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith. Borrowers with loans greater than $2 million will be subject to review by SBA for compliance with the program requirements. See here for additional guidance from the US Treasury.

If you have questions or are uncertain about the need for a PPP loan, get in touch with one of our accountants. JAK is committed to helping businesses navigate the new challenges presented by COVID-19.

If a borrower applied for a PPP loan prior to the issuance of the interim final rule posted on April 24 and repays the loan in full by May 14, 2020 it will be deemed by SBA to have made the required certification in good faith. See here for additional guidance.

If your business had found itself in this situation, we encourage you to reach out to the expert accountants at JAK. We can assist you in navigating the PPP loan requirements.

Businesses should accumulate and report payroll costs based on the general guidelines as noted above. Additionally, guidance issued on April 14 states that payroll costs should also include the self-employment income of general active partners (subject to $100,000 compensation cap).

LLCs should follow the instructions that apply to their tax filing situation. For example, an LLC that is considered a disregarded entity should file an application as a self-employed person. If the LLC is electing to be taxed as a partnership, the guidance regarding partnerships/LLCs would apply in the calculation of payroll costs.

Payroll costs consist of compensation to employees including salary, wages, commissions or similar compensation; cash tips or the equivalent; payment for leave; allowance for separation or dismissal; payment for employee benefits including group health care coverage and insurance premiums; retirement contributions, payment of state and local taxes assessed on the compensation of employees.

The team at JAK can guide you in understanding how to determine payroll costs. Contacts us today!

• The compensation of an employee whose principal place of residence is outside of the U.S.
• The compensation of an individual employee in excess of an annual salary of $100,000

The $100,000 cap applies only to cash compensation not to non-cash compensation such as retirement plans or group health care.

• Borrowers can calculate payroll costs using data either from the previous 12 months or from the 2019 calendar year.
• For seasonal businesses, the applicant may use average monthly payroll for the period between February 15 or March 1, 2019.
• June 30, 2019 or any consecutive 12-week period between May 1, 2019 and September 15, 2019. A business that was not in operation for that period may use the average monthly payroll costs for the period January 1, 2020 to February 29, 2020.

Payroll costs do not include payments to independent contractors. Independent contractors have the opportunity to apply for PPP funding.

All employees paid during the period of time selected are included in payroll costs and to determine head count for eligibility purposes.

In FAQs released by the SBA, they recognize that the payroll for employees in this arrangement will not be reported on Form 941 s for the borrower. The employees’ gross salary and benefits would be included as part of payroll costs when calculating the loan amount. For documentation, the SBA suggests providing Schedule R from Form 941 (an allocation schedule for aggregate Form 941 filers) or a statement from the payroll provider or PEO.

The loan amount will be determined by the sum of the following:

2019 Form 1040 Schedule C line 31 net profit amount, limited to $100,000. If the Schedule C shows a net loss, then this amount is 0 Payroll costs as calculated above

Based on guidance provided, health insurance premiums and retirement contributions will be added to payroll costs for individuals with employees. For self-employed individuals with no employees, the loan amount is determined based on net profit from Form 1040 Schedule C .

Yes. Self-employed farmers (those reporting their net farm profit on Schedule F) should use Schedule F line 34 net farm profit to be used to determine their loan amount (rather than Schedule C line 31 net profit). Otherwise, the calculation of the loan amount is the determined in the same manner.

Payroll costs, health care benefits, mortgage interest payments, rent, utility, interest payments on debt incurred prior to February 15, 2020, and/or refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020.

The CARES Act defines utilities in Sec.1106(a)(5) as electricity, gas, water, transportation, telephone or internet access for service which began prior to February 15, 2020. Further guidance released added gas used when driving a business vehicle. Other common utilities such as garbage collection or security monitoring may also be classified as a utility, but a business should confirm with the lending institution.

The CARES Act uses the standard of “full-time equivalent employees” to determine whether loan forgiveness must be reduced in the measurement period.

• Owner compensation replacement (calculated based on 8/52 of 2019 net profit from Form 1040 Schedule C) Employee payroll costs (as defined by the interim rule)
• Business mortgage interest payments on real/personal property
• Business rent payments
• Business utility payments
• Interest payments on debt obligations incurred before February 15, 2020
• Refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020

Note: The individual must have claimed or be entitled to claim a deduction for the included expenses on 2019 Form 1040 Schedule C

The amount of the loan forgiveness will depend on the amount spent during the 8 week period on: Payroll costs as defined by the interim rule (does not include benefits for owners)
Owner compensation replacement (limited to 8/52 of 2019 net profit and excluding any qualified sick or family leave equivalent amount for which a credit was claimed under FFCRA)

• Interest payments on mortgage obligations for real/personal property incurred before February 15, 2020
• Rent payments on lease agreements in force before February 15, 2020
• Utility payments under service agreements dated before February 15, 2020

Note: For interest, rent and utility payments, the amounts must be deductible on Form 1040 Schedule C.

At least 75% of the loan proceeds must be used for payroll costs. If salaries decrease by more than 25% for any employee who made less than $100,000 annualized in 2019 OR if the number of FTEs decreases, the forgiveness amount will be reduced. A loan calculator to assist in the determination of the forgiveness amount will be coming soon.

A decrease in wages of more than 25% will decrease forgiveness and wages is capped at an annualized rate of $100,000 per employee. The current guidance does not prevent an increase in pay in the form of a short term pay increase, hazard pay or bonus.

Based on current guidance, the covered 8-week period starts when the loan is funded. If the borrower is not able to operate or is operating at a limited capacity when the PPP loan proceeds are received, the borrower may choose to pay employees who are not able to work. This choice may be made to help the borrower maximize loan forgiveness as current guidance states that not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs.

IRS Notice 2020-32 was issued on April 30, 2020 to state that no deduction is allowed for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a PPP loan. The AICPA recently submitted a letter of support for legislation that would clarify that the receipt and forgiveness of Coronavirus assistance through the PPP does not affect the deductibility of ordinary business expenses.

No, the forgiveness of the loan does not constitute federal taxable income. States are providing guidance on state taxability that will be included in the AICPA state tax guidance chart. ().

This has not been specifically addressed in guidance released as of April 29, 2020. Based upon guidance received to date, related party rents are allowed subject to the 25% limit for expenses other than payroll.

• Minnesota: July 15
• Federal: July 15
• Other states: Please see AICPA for updates 

• Minnesota: April 15
• Federal: July 15
• Other states: Please see AICPA for updates

• Minnesota: June 15
• Federal: July 15

• Minnesota: Unlimited
• Federal: Unlimited

You can file an extensions by 7/15. See additional clarification here.

• July 15^th amounts are due by the time prescribed by law for filing the return not including extensions (IRC 219(f)(3)) so when the time to file is changed the time for funding is changed.

• July 15^th without an extension.
• Extended due date with an extension.

The answer is no. Partner, Todd Koch explains in the video below.

Understanding how to reconcile the stimulus payment can be confusing. In the video below, Partner, Todd Koch explains what you need to know and if you are at risk of having to pay money back.

Due to COVID-19 tax filing and payment deadlines have shifted. We encourage you to check back to this page often for the latest news. For now, however, July 15th is the date when tax returns are due. Partner Todd Koch has the details in this video:

Even though the filing deadline has been extended, we strongly encourage clients to file now. Partner Todd Koch explains why below.

This is a great question, since the CARES Act has changed RMDs for 2020. It really depends on when you withdrew the money. Partner Todd Koch explains in the video below.