Neilley & Co. CPA Blog

In certain cases when income tax refunds are delayed, IRS is required to pay interest on those refunds.  The exact rules about when this applies can get complicated, but in very broad terms, anyone who received (or will receive) a 2019 tax refund after the end of May will also be paid interest.  IRS began sending out those payments on August 19^th to eligible recipients.  If you used direct deposit for your refund, that’s how your interest will be paid as well, otherwise you should receive a check that has the code “INT Amount” on it.

If you haven’t yet received your refund, the interest will probably be added on to it rather than paid separately.

Taking a bit of shine off this good news, remember the interest you receive will be taxable income on your 2020 return.

Applying for a PPP loan was one thing, but getting all or some of it forgiven requires a separate application process.  Even though SBA posted an application on their website some time ago, it was really just to give borrowers a head start on what information would be needed when applying to their lenders for forgiveness.  Lenders are still waiting on SBA for guidance and procedures to process those applications, so few if any are accepting applications at this time.

Loan forgiveness depends on two elements: using the loan proceeds for “forgivable” expenses, and how employee count and pay is maintained or restored.  Not only can these calculations be complex in and of themselves, but there are numerous alternatives and strategies available to ensure maximum forgiveness.  It appears many payroll companies are going to provide specialized reports to help with the employee data needed for these calculations.  However, they may or may not help guide employers to the optimum “sweet spot” convergence of employee count/pay, covered expenses and choice of covered period.  Except for the simplest cases where you spent the whole loan on payroll and maintained employee count and pay, you would be well advised to get some knowledgeable help with your application.

Having said that, the Senate version of the stimulus package currently being debated (or not?), provides an easier pathway to forgiveness for loans under $2 million, and especially under $150,000.  Basically, all that would be required under the proposal is your signature certifying you complied with all requirements for the loan to be entirely forgiven.  Whether the bill will pass, or what changes might be made before it does, remains to be seen.

To request forgiveness of PPP loans, borrowers generally have ten months from the end of their “covered period” which can be as long as 24 weeks from the date of their original loan.  Understandably, many borrowers want closure on these loans, but with so many questions still in flux, there really is no rush to apply for forgiveness (even if you could).

If your PPP loan was under $150,000, we recommend sitting tight until the forgiveness process is finalized so you don’t spend unnecessary time figuring out complex calculations… when it’s all said and done, you might not need to spend much time at all.

If your PPP loan was over $150,000, you’ll still need documentation to support loan forgiveness, either to submit with the application itself or to have it on hand in case of an audit.  Even though the process isn’t finalized yet, it would be a good idea to start considering the alternative ways you can measure employee count and pay, and how you used the loan funds, to determine maximum forgiveness.  If you would like some help figuring it all out, give us a call!

(Yet Another) PPP Loan Update

Changes keep coming!  On June 3^rd, Congress passed another bill making important changes to certain forgiveness and repayment provisions of PPP loans.

If you haven’t yet applied for a PPP loan, funds are still available.  One of our clients applied for a loan last week, and received the proceeds in just a few days.  The deadline to apply appears to remain unchanged at June 30, however applications will close earlier if available funds run out.

It’s important to remember there are actually two different components to the forgiveness formula.  First of course, is what you spend the money on.  That part will be much easier to satisfy now, as you’ll see in a moment.  But the second part, which changed only slightly, is how many people you employ.  This is where we think many borrowers may end up with a surprise, and not get as much of their loan forgiven as they expected.

Here are some brief highlights of the changes made by Congress this week:

• Originally there was an 8 week period to measure your use of loan proceeds for forgiveness. That has changed to 24 weeks, but you can elect to use the original 8 weeks if you wish.
• 60% of the loan amount must be spent on payroll expenses, rather than the original 75%.
• However, if you don’t meet the 60% standard, none of the loan will be forgiven; if you hadn’t met the original 75% standard, only a portion would not have been forgiven.
• In order to obtain 100% loan forgiveness, borrowers now have until December 31^st to restore their FTE (full-time equivalent) employee count to February 15^th levels, with added exceptions for reductions required due to mandatory safety measures.
• Repayment of any portion of the loan not forgiven may be extended to 5 years, rather than 2. If you already have a loan, you need to work with your lender to get the extension, but 5 years will be automatic on any new loans.

Even though the forgiveness side of this program has been expanded, there has been no change to the amount of loan you can apply for, which is still based on 2-1/2 months of your average monthly payroll for all of 2019.

There are plenty of lawmakers and interest groups pushing for even more changes to this program, but it’s hard to know how to plan when the goal line keeps moving!  We recommend you make decisions based on what your business needs, when it needs it.  PPP loan details as they currently stand may perhaps influence some of those decisions, but don’t do anything strictly for the sake of getting more of your loan forgiven; that could end up costing you more in the long run.