You Received Your PPP Funds, Now What?

Many businesses started to receive Paycheck Protection Program (PPP) funding last week and many more will continue into this week and next. Additionally, we are anticipating that Congress will approve additional funding this week and more businesses will continue to get funds for the next few weeks – if you have not yet received approval for a PPP loan, be patient, we do believe you will have an opportunity soon.

Due to the rapid pace of implementing this large-scale new program, there remains a lot of uncertainty around some of the details and the Small Business Administration has yet to issue official guidance on forgiveness which we anticipate any day now. We will continue to update you as more information becomes available. Once we have that official guidance, we will also be working with our clients on strategies to maximize the forgiveness. Given the large amount of uncertainty, we are taking a conservative approach right now based on our reading and interpretation of the law. Ultimately, our advice and answers may change as we get more information and guidance.

When do I need to use the funds?

The funds are to be used over an 8-week period starting on the day you receive the funds.

Should I put the funds in a separate bank account?

This is not required, but may be a good idea for the following reasons:

  1. It will help you track and show exactly how you spent the money over the 8 weeks. You would do this by reimbursing your regular account from this account for any expenses over the 8 weeks that are allowed. You could also pay some of the expenses directly from the account, but for many of the expenses that will be tricky as only portions of payroll, health insurance, retirement contributions, and loan payments are allowable under the program.
  2. It will help prevent you from using the funds for unauthorized purposes. If you use the funds for other than the forgivable purposes, the loan will not be fully forgiven. If you deposit the funds into your regular bank account, you may inadvertently use it to pay vendors or to pay down your line of credit which could then cause the loan to not be forgiven.

What do I do with my employees?

Generally, to maximize your forgiveness, you need to hire back 100% of your pre-crisis employees at their “normal pay” immediately upon receiving the PPP funds. If you don’t maintain the full number of equivalent employees from before the crisis, you risk portions of otherwise forgivable expenses to not be forgiven even if you use the money for payroll. The purpose of the program is to keep people employed now, off unemployment, and ready to open your business up as soon as it is possible to do so. Even if your business is closed, the money is supposed to be used to pay the employees to stay home. You cannot save this money and use it when you reopen in June or July. There are complex calculations around this, and we would be happy to assist you with your situation.

Even if your business is down, consider using the employees you are paying to do projects that you don’t normally have time to get to in the normal course of business. You may also consider hiring new employees and use this time to train them.

What can the funds be used for?

Payroll and Certain Benefits

  1. Gross (not net) pay of employees paid during the 8 weeks up to $1,923.07 per week per employee. Anything above $1,923.07 on average per week per employee cannot be paid from PPP funds.
  2. Employer share of health insurance, but not the employee share
  3. Employer share of retirement contributions, but not the employee share
  4. Employer payments made for state unemployment taxes

Rent, Interest, and Utilities

  1. No more than 25% of the loan proceeds can be used for payments in this category. Payments must be paid during the 8-week period. These must have started prior to February 15, 2020.
  2. Rent – make sure you have copies of leases to provide for forgiveness
  3. Mortgage loan interest and other business loan interest, but not the principal portion of payments
  4. Utilities – electric, natural gas/propane, water, telephone, and internet

How will it be forgiven?

At the end of the 8-week period, you will need to apply for forgiveness with your bank and will likely need to provide backup for how you have spent the funds. There will be more information forthcoming on this once the official guidance is released. In the meantime, the best advice is document as much as possible and keep copies of backup for any eligible expenses, so you are ready to provide that information at the end of the 8-week period.

Is the forgiven amount taxable?

The forgiven amount is not taxable for federal income tax purposes. We do not have definitive guidance from Illinois on the taxability for state income tax purposes.

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About the Author: Shelly Spata, CPA

Shelly Spata joined the firm in 1998, and her name went on the door in 1999. She now serves as the Managing Partner of the firm. "As a business owner myself, I understand the complexities and challenges business owners face, and I strive to add value by helping clients understand their financial statements, manage tax consequences, and clearly see the financial and tax ramifications — both positive and negative — of decisions they make," she explains. "Without good financial information, it’s like driving a car blind, but with good information, clients are able to maximize profits."