EMERGENCY LEGISLATION

In general, this program is designed to help you retain your employees in the economic downturn related to the COVID-19 crisis by providing federally guaranteed loans that are forgiven, with stipulations, if you continue to pay your employees.  

The key elements of this loan are as follows 

• Applies to most businesses with less than 500 employees (optometry practices included)
• Includes sole proprietors and independent contractors (not to exceed $100K during the covered period).  Benefits are also available to most franchise owners (waiver of affiliation rule – more information can be found here)
• You must have been in business prior to February 15, 2020
• You may apply for this loan at any time up to December 31, 2020
• Loan amounts are tied to the business’ payroll costs and certain operational costs with a maximum of $10 million.
• Determination of loan amount is based on:
  • If you were in business February 15, 2019 – June 30, 2019:  The maximum loan amount is 2.5 X your average monthly payroll costs (defined below) for the twelve-month period prior to your application for the loan
  • If you were NOT in business February 15, 2019 – June 30, 2019: The maximum loan amount is 2.5 X your average payroll costs (defined below) for the period January 1, 2020 – February 29, 2020.
  • NOTE:  Additional guidance provides more options regarding the covered period for loan amount determination.
• For this program, payroll costs are defined as:
  • All wages, salaries and commissions (any employee receiving a W-2 may be counted but high wage earners applicable wages limited to $100,000) NOTE:  As of April 3, 2020, SBA ruling states that independent contractors may not be counted in the owner’s payroll.  Independent contractors, sole proprietors, and general partners are allowed to file for their own PPP loan.
  • Vacation, sick, PTO, family, medical or parental leave
  • Allowances for termination
  • Employer contributions to costs related to group health care benefits including insurance premiums
  • Employer contribution to retirement benefits
  • Employer contribution to state or local tax assessed on compensation of employees
• Loan amounts (applicable expenses) may be used for payroll, paid sick leave, paid vacation, paid leave under the sick time leave and FMLA extension in Families First Coronavirus Response Act, any state or local taxes on employee compensation, insurance premiums, interest on mortgage, rent and utilities (the applicable expenses).
•  Loan forgiveness is based on the applicable expenses during a defined period after origination of the loan compared to a specified period of time in the past year. The forgiveness amount will be decreased by the amount the current expenses are less than the expenses one year ago. The original language on what percent must be used for payroll expenses was changed – see update in Forgiveness Section. Any amount not forgiven will be payable over a period not more than five (5) years at an interest rate of not more than 1.0%. NOTE: The original loan terms of ten years at 4% were earlier changed  to two years at 0.5% then changed again April 3, 2020 to two years at 1.0%. They were changed again on June 3, 2020 to five years at 1% interest. See details in Forgiveness Section.
• Any loan forgiveness amount will not be counted as taxable income
• PPP loan amounts NOT forgiven MUST be used for the same applicable expenses allowed for original loan use. Using them for other purposes considered fraud.
• You can only take out one PPP loan but SBA requirement that business not obtain other loans in addition to the SBA loan is waived.  See specific regulations for coordination with EIDL loan below.
• Any EIDL funds procured PRIOR TO APRIL 3, 2020 may be included in the PPP loan amount. (No clarification on how that effects your forgiveness amount)

The intent of this loan is to support ongoing operations including retention of employees and other business obligations but the emphasis is on keeping employees paid. At least during the loan period, there is a major incentive to hire back any employee laid off.  If employees are re-hired at initiation of loan, any reduction in forgiveness will be limited to how much your expenses were reduced compared to the prior year period. You may re-evaluate your business’ financial well-being at the end of the loan period and make any adjustments needed to maintain the viability of the practice. NOTE: According to the April 3, 2020 update, If you knowingly use PPP funds for any expense not stated as an applicable expense under this Act, SBA will consider this a fraudulent activity. Also, the June 3, 2020 update provides additional relief regarding the rules related to bringing your employees back to work.

Application for an SBA loan is made through most any bank or lending institution.  Current SBA lenders can be found here. Application preference will be given to SBA preferred lenders (ask the lender if they are or check them out on the SBA website). Forms for this loan can be found here  You will need documentation of all payroll expenses you are claiming. Example calculations and a walk through can be found here.

On March 31, 2020, the Treasury Department issued directions to SBA lenders for CARES loan processing. The banks may begin taking application on April 3, 2020 for most businesses and April 10, 2020 for sole proprietors and independent contractors.  On April 2, 2020, new directives were given that have resulted in potential hesitancy by the lender to continue processing loans until they are assured further changes will not be made. 

• NOTE:  Part of the SBA update on April 3, 2020 allowed lenders up to sixty (60) days to process loans.  There was also a statement that loans would be issued on a “first come first served” basis.  While this implies to some that once the originally allocated $349 billion dollars is depleted, no more loans will be available.  Both the Treasury Secretary and the President have been quoted saying the funds will be replenished but there is no Congressional action at this time.  We can only apply logic that the obvious intent was not to serve up loans like a restaurant and when the food is gone everyone starves.  
• NOTE: On April 21, 2020, $310 billion dollars was added to fund additional PPP relief.Stay tuned

The latest guidance from the Treasury Department (treasury.gov/Eligibility-Criteria-and-Requirements-for-Certain-Loans.pdf) provides additional insight into the mechanics of filing for a PPP loan if you are self-employed. The new guidance is relatively clear is you file your taxes using the standard IRS 1040 form with Schedule C describing the finances of your business. If you are an LLC, PLLC or other partnership, the guidance does not help. In order to apply for a PPP loan, you must have already completed or complete Schedule C of your 2019 tax return.Calculating Your Loan AmountIf you are a sole proprietor or independent contractor who has no employees, you calculate the maximum amount of your PPP loan as follows:

1. Look to Line 31 (net profit) on Schedule C. If this amount is under $100,000 record that amount. If this amount is over $100,000 reduce it to $100,000.
2. Divide this number by 12 to obtain your average monthly amount (assuming most will be over $100,000 this will be $8,333).
3. Multiply the amount in 2 by 2.5 to obtain your maximum payroll amount.
4. When you apply for the loan, you will need a copy of your 2019 Schedule C; 2019 1099-MISC showing non-employee compensation; invoice, bank statement or book or record from 2019 showing you were self-employed; and, invoice, bank statement or book of record to establish you were in business on or around February 15, 2020.

If you are a sole proprietor or independent contractor who has employees, you calculate the maximum loan amount as follows:

1. Look to Line 31 (net profit) on Schedule C. If this amount is under $100,000 record that amount. If this amount is over $100,000 reduce it to $100,000.
2. Find your 2019 gross wages and tips paid to your employees using 2019 IRS Form 941 Taxable Medicare wages & tips (line 5c- column 1) from each quarter plus any pre-tax employee contributions for health insurance or other fringe benefits excluded from Taxable Medicare wages & tips. Subtract any amounts paid to any individual employee in excess of $100,000 annualized.
3. Find your 2019 employer health insurance contributions (health insurance component of Form 1040 Schedule C line 14), retirement contributions (Form 1040 Schedule C line 19), and state and local taxes assessed on employee compensation (primarily under state laws commonly referred to as the State Unemployment Tax Act or SUTA from state quarterly wage reporting forms).
4. Add 1-3 together and divide by 12 to give you your average monthly payroll expenses.
5. Multiply the average monthly amount by 2.5 for your total payroll costs amount.
6. When you apply for the loan, you will need a copy of your 2019 Schedule C; 2019 1099-MISC showing non-employee compensation; Form 941; invoice, bank statement or book or record from 2019 showing you were self-employed; and, invoice, bank statement or book of record to establish you were in business on or around February 15, 2020. You will also need any applicable state tax documents.

If you are a partner in a general partnership, additional guidance was issued on how you file for PPP relief. You will file only one PPP for the entire partnership.

1. For loan amount calculation, use your K-1 distribution amount (line 14a) for 2019. If this amount is over $100,000 reduce it to $100,000 for each partner. Multiply this amount times 0.9235.
2. If applicable, add additional employee payroll expenses, employee health insurance and retirement premiums (cannot count partner contributions)
3. If the partnership has rent, mortgage interest or utilities, you may add those.
4. Divide this number by 12 (months) and multiple x 2.5. This is your loan amount.

 The proceeds of a PPP loan are to be used for the following. 

1. Owner compensation replacement, calculated based on 2019 net profit
2. If you have employees, employee payroll costs (as defined in the First PPP Interim Final Rule)
3. Mortgage interest payments (but not mortgage prepayments or principal payments) on any business mortgage obligation
4. Business rent payments
5. Business utility payments
6. Interest payments on any other debt obligations that were incurred before February 15, 2020 (such amounts are not eligible for PPP loan forgiveness).

You must have claimed or be entitled to claim a deduction for such expenses on your 2019 Form 1040 Schedule C for them to be a permissible use during the covered period following the first disbursement of the loan (the “covered period”).

 The “rules” of forgiveness are exactly the same as for other PPP loan applicants but there are some differences in what uses can count for forgiveness. These include:

1. Payroll costs including salary, wages, and tips, up to $100,000 of annualized pay per employee
2. Covered benefits for employees (but not owners), including health care expenses, retirement contributions, and state taxes imposed on employee payroll paid by the employer
3. Owner compensation replacement, calculated based on the maximum as calculated for the loan amount.
4. Excludes any qualified sick leave equivalent amount for which a credit is claimed under the Families First Coronavirus Response Act (FFCRA)
5. Payments of interest on mortgage obligations on real or personal property incurred before February 15, 2020
6. Rent payments on lease agreements in force before February 15, 2020
7. Utility payments under service agreements dated before February 15, 2020