CPA Bob

New PPP loan forgiveness guidelines and applications released (06-17-20)

A revised PPP loan forgiveness application and guidelines, and a new "EZ" loan forgiveness application, have been released to incorporate the changes made by the Paycheck Protection Program Flexibility Act and provide additional guidance.

The application and revised interim rules clarify that, for borrowers using the new 24-week loan forgiveness covered period, the maximum compensation eligible for loan forgiveness:

-Per employee is increased to $46,154 (24 ÷ 52 × $100,000) plus covered benefits such as health care, retirement contributions, and state payroll taxes; and
-For owners, is capped at 2.5 months of 2019 compensation, with a maximum of $20,833 (2.5 ÷ 12 × $100,000). Note: The application specifically lists self-employed individuals, general partners, and owner-employees, so it appears corporation owner-employees are included in this cap.

The new application instructions also clarify that:

--Eligible payroll costs do not include any employer health insurance contributions made on behalf of self-employed individuals, general partners, or S corporation owner-employees;
Employer retirement contributions made on behalf of a self-employed individual or general partner are also excluded from payroll costs; and
-Employer retirement contributions on behalf of owner-employees are capped at 2.5 months' worth of the 2019 contribution amount. This limit is included on the EZ application but is not included on the full forgiveness application or in the updated interim final rule, but it is possible it will be added in the future.

The new simplified EZ application is available to be used by borrowers who:

-Are self-employed and did not list any employees on their original loan application; or
-Have employees, but are not subject to any loan forgiveness reduction due to salary or full-time equivalent employee reductions.
-The revised interim rules and loan applications and instructions are available at:
https://home.treasury.gov/system/files/136/PPP-IFR--Revisions-to-the-Third-and-Sixth-Interim-Final-Rules.pdfhttps://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdfhttps://home.treasury.gov/system/files/136/PPP-Loan-Forgiveness-Application-Instructions_1_0.pdfhttps://home.treasury.gov/system/files/136/PPP-Forgiveness-Application-3508EZ.pdfhttps://home.treasury.gov/system/files/136/PPP-Loan-Forgiveness-Application-Form-EZ-Instructions.pdf

home.treasury.gov

NEW: PPP loan calculations for self-employed's and partnerships

The SBA has finally issued guidelines on calculating monthly payroll costs for Paycheck Protection Program loans for all entities, including self-employed taxpayers and partnerships.

Self-employed individuals:

Self-employed individuals with no employees determine their monthly payroll costs by dividing their Schedule C, line 31 net profit amount, up to a $100,000 maximum, by 12. If the line 31 net profit amount is zero, the individual is ineligible for a loan.

If the self-employed individual has employees, add the monthly employee payroll costs to the amount above. These payroll costs are based on the 2019 IRS Form 941 taxable Medicare wages and tips (line 5c, column 1), plus any excluded pre-tax employee contributions for health insurance or other fringe benefits, up to a $100,000 maximum per employee.

To this amount, add the following 2019 costs:
Employer contributions for employee health insurance (portion of Schedule C, line 14 attributable to health insurance); Employer contributions to employee retirement plans (Schedule C, line 19); and Employer state and local taxes assessed on employee compensation (UI, ETT, and SDI).

Partnerships:
The application for partnerships should be completed at the partnership level. Individual partners may not apply for separate PPP loans.

The maximum loan amount is based on 2.5 times the 2019 monthly self-employment earnings reported to U.S.-based general partners on the 2019 Schedule K-1, Box 14a, net earnings from self-employment tax, with a maximum of $100,000 per partner. If the 2019 K-1s have not yet been completed, they must be completed for purposes of the loan application.

This amount must be reduced by any claimed IRC §179 expense, unreimbursed partnership expenses, and depletion on oil and gas properties. The result is then multiplied by 0.9235 (to remove the "employer" share of self-employment tax).

To this amount, add any 2019:
- Monthly employee payroll costs based on the 2019 IRS Form 941 taxable Medicare wages and tips (line 5c, column 1), plus any excluded pre-tax employee contributions for health insurance or other fringe benefits, up to a $100,000 maximum per employee;
- Employer contributions for employee health insurance (portion of Form 1065, line 19, attributable to health insurance); Employer contributions to retirement plans (Form 1065, line 18); and Employer state and local taxes assessed on employee compensation (UI, ETT, and SDI).

LLCs:
LLCs compute their payroll costs based on whether they are taxed as a sole proprietorship (SMLLC), partnership, or corporation.

Additional guidance:

The guidance also specifies how nonprofit organizations and C and S corporations should calculate their maximum loan amounts, as well as the documentation each entity type must provide with its application.

The guidance is available at:

home.treasury.gov

Economic impact payment direct deposit portal open (04-15-20)

The IRS opened its direct deposit portal on its website this morning. By clicking on the "Get My Payment" button at www.irs.gov/coronavirus/economic-impact-payments, taxpayers can:

Enter their bank account information if they hadn't previously requested direct deposit on a return, or if they want to update their information;

Confirm the payment type: direct deposit or check; and
Check their payment status.

Taxpayers wanting to add their bank account information to speed up the receipt of their payment must provide the following information:

- Their AGI from their most recent tax return submitted, either 2019 or 2018;
- The refund or amount owed from their latest filed tax return; and
- Bank account type, account and routing numbers.

Comment: It appears that if a taxpayer does not qualify for a payment due to income level, after entering the requested information a message stating "Payment Status Not Available" and a link to information on eligibility rules will be displayed.

Economic Impact Payments | Internal Revenue Service We’re committed to helping you get your economic impact, or stimulus, payment as soon as possible. See if you are eligible for an Economic Impact Payment.

The FTB has posted the following new FAQs about conformity to various portions of the CARES Act:

Q: Are the payments that individuals receive from the federal government (i.e., $1,200 [$2,400 for individuals filing a joint return] and $500 per qualifying child) under the recently enacted federal CARES Act subject to California income tax?

A: No, these payments are not subject to California income tax.

Q: Is the emergency increase in unemployment compensation benefits (in the amount of $600 per week) that individuals receive under the recently enacted federal CARES Act subject to California income tax?

A: No, these payments are not subject to California income tax.

Q: Are the modifications for net operating losses (NOLs) in the recently enacted federal CARES Act applicable for California income and franchise tax purposes?

A: No, these modifications for NOLs do not apply for California income and franchise tax purposes.

Q: Does California conform to the federal early withdrawal penalty waivers for distributions from qualified retirement accounts under the recently enacted federal CARES Act?

A: Yes, the federal early withdrawal penalty waivers for distributions from qualified retirement accounts under the federal CARES Act also applies for California income tax purposes.

The FTB's COVID-19 FAQs can be found at:

COVID-19 Frequently Asked Questions | FTB.ca.gov Frequently asked questions about COVID-19 and filing income taxes