The Paycheck Insurance Program is a program intended to provide a clear incentive for small employers to keep their workers on the payroll. If all workers are kept on the payroll for eight weeks and the money is used for salaries, deposit, mortgage interest, or electricity, the Small Business Administration (SBA) may reimburse loans. You may apply to any SBA 7(a) lender, or any participating federally insured credit union, federally insured depository institution, and the institution of the Farm Credit system. When they are accepted and enrolled in the system, other limited lenders will be eligible to make such loans. Connect with the team of accountingguide.co to explore more information
Paycheck Protection Program (PPP) Loan Details
It is a key section of the recently passed Corona virus Aid, Relief, and Economic Security Act (CARES) which allocates $349 billion in loans to support payroll and certain other expenses for small businesses (fewer than 500 employees). Loans are available with a maximum loan of $10 million, up to 2.5 times the total monthly payroll for the year preceding the submission.
If employers retain their payroll and use loan funds for the first 8 weeks after the loan is provided for approved expenses such as payroll, rent, and utilities, the loan amount is forgiven. The PPP is retroactive until 15 February 2020.
Program highlights
- All small companies are eligible.
- Any collateral or necessary personal guarantees.
- For the first six months, the loan has a maturity period of 2 years and an interest rate of 1%.
- Fees will not apply.
- The loan can be repaid and may in effect become a non-taxable grant.
- The loan covers expenses for eight weeks beginning from the date of credit origination (if the commitments begin before 15 February 2020).
Is your Business Eligible for Payroll Protection Program (PPP) Loan?
The following small enterprises in operation as of 15 February 2020 are eligible for PPP loans:
- A small business which meets the size criteria of the SBA
- A small business with less than 500 employees, whatever the income
- Independent contractors, single proprietors, and self-employed individuals who regularly conduct some company or trade, including those in the “gig economy”
- A hospitality or food service company (those with a NAICS code beginning at 72) if it employs less than 500 people per physical venue
- A non-profit corporation as amended pursuant to Section 501(c)(3) of the 1986 Internal Revenue Code (Internal Revenue Code), provided that that organization has less than 500 employees
- A veteran company that meets the size criteria of the SBA under section 501(c)(19) of the Internal Revenue Code
- A tribal entity which meets the size requirements of the SBA
Financial documentation you required
You require providing bookkeeping/payroll records to prove your payroll expenses and that can include:
- Payroll tax filings
- Payroll processor records
- Form 1099-MISC records
- Payroll tax forms from 2019 (Forms 940, 941 and W-3)
- Schedule C for a sole proprietorship
What counts as “Payroll Costs?”
Payroll costs under the Payroll Protection Program (PPP) include:
- Commissions, wages, salary, tips
- Employee benefits such as parental, personal, medical, vacation, or sick leave allowance for dismissal or separation; Group payments health care services needed, including insurance premiums; and any social compensation payments
- State and local taxes on benefits are appraised
- For a sole proprietor or independent contractor: wages, fees, dividends or net self-employment earnings for each employee are capped at $100,000 on an annualized basis.
In other words, it covers much of the labor expenses. However, the following situations are not covered:
- Payments rendered to self-employed contractors
- S corps and C corps owners who are not on the payroll (distributions from shareholders do not count as payroll under this program)
What can you use a PPP Fund for?
At least 75 percent of the PPP loan should be used to fund payroll expenses and workers’ compensation.
You can invest the remaining 25 percent on:
- Rent and lease payments
- Mortgage interest payments
- Utilities
If you stick to these guidelines, you’ll be able to have 100% of the loan forgiven (efficiently turning it into a tax-free grant)
Warning: You will be asked to certify as part of your application that you will be spending the funds in the appropriate manner. If you’re not spending the funds properly, you could be charged for fraud.
Terms involved in Payroll Protection Program (PPP) Loan
The efforts of the government to help businesses have given rise to generous terms for PPP loans. These are:
- Any business can borrow a maximum up to $10 million.
- Borrowers can receive two and a half times their average monthly payroll costs incurred 12 months before the date the loan is made. For instance, if your average monthly payroll over the last 12 months is $10,000, you can borrow up to $25,000.
- You can also include payroll costs: holiday payment, parental leave, family leave, medical leave, and sick leave.
- Dismissal or separation fees.
- Group health care compensation costs for insurance premiums
- Pay for pension benefits and pay state and local taxes on salaries for workers.
- You can also add the unpaid amount of any Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020, to your total loan, minus any “advance” that is forgivable under an EIDL COVID-19 loan.
Need any help or advice
The Payroll Insurance Plan offers a total of $659 billion over the COVID-19 crisis to small businesses and independent contractors that manage payrolls and headcounts. The lending system uses a simplified method with low paperwork, which does not require collateral.
To explore or have queries regarding Paycheck Protection Program (PPP) Loan or in applying, you can easily connect with the professional team via email support@apropayroll.com with your query details or live chat. The team will get back to you soon or maximum they take 2-3 hours. You can get assistance via filling up the form along with query details.
