On August 11th the SBA released additional Frequently Asked Questions specifically related to the expenses eligible for PPP loan forgiveness.  PPP loan recipients have ten months from the end of their covered period to apply for loan forgiveness with their lender.

What transportation and utility expenses are eligible for forgiveness?

Early guidance listed “transportation” as an eligible utility expense.  Some analysis of the regulations suggested that vehicle fuel and delivery costs may fall under this definition.  The Treasury Department’s definition is narrowly defined in the FAQ as “a service for the distribution of transportation refers to transportation utility fees assessed by state and local governments.”  We believe that fuel expenses will be includable in utilities but as of now that is not explicitly stated in the guidance.

The guidance does clarify that all amounts billed through an electric service provider are eligible expenses for forgiveness.

What interest expense amounts are applicable for forgiveness?

The Treasury Department has clarified that interest on unsecured loans is not eligible for forgiveness, but it is an eligible use of funds.   Interest on loans secured by either real property or personal property (equipment and vehicles) would be eligible for forgiveness.

What if the EIDL loan advance was in excess of the PPP loan amount?

The Economic Injury Disaster Loan (EIDL) was administered directly through the SBA.  This program provided for an advance of $1,000 per employee up to $10,000.  This amount was considered a grant even if no other funding was obtained by the borrower.  The Treasury Department has clarified that if a borrower’s PPP loan was less than their EIDL loan advance, the borrower will not have any PPP loan eligible for forgiveness and will have to repay their loan in accordance with the terms of the loan.

What employee benefits costs are eligible for forgiveness?

Portions of the employer health, vision and dental insurance incurred during the forgiveness covered period are eligible to be used for forgiveness, as long as the expenses are either paid during the period or by the next due date.

Retirement plan benefits paid by the employer are eligible for forgiveness if they are either paid or incurred during the covered period.

Employee benefit costs for retirement or insurance paid in advance are not eligible for forgiveness.

What payroll costs before and after the covered period are eligible for forgiveness?

For employers’ pay periods paid bi-weekly or more frequently, there is no requirement to calculate partial pay periods.  The employer can elect an “alternate covered period” to align with their regular payroll schedule.   The final payroll during the covered period does not have to be paid during the covered period to be eligible for forgiveness as long as it paid on or before the next regular payroll date.

For employers with twice monthly or monthly payrolls, they will calculate partial pay periods based on the date their loan proceeds were received and cannot elect the alternative covered period.

How is owner compensation calculated?

Owner compensation is calculated based on the type of entity and will vary between organizations.  For additional assistance and guidance on how to calculate the eligible owner compensation for your organization, please see the FAQs Loan Forgiveness Payroll Costs – Questions Eight or contact your Mitchell Wiggins representative with your specific questions.

How does the reduction in salaries impact loan forgiveness? 

An employer can reduce an employee’s wages and salary by up to 25% without impacting forgiveness.  This reduction only applies to wages or base salary and does not factor in overtime, tips or other bonus compensation.  If an employer reduces an employee’s salary by more than 25%, that reduction in salaries must be applied across the entire covered period.   There are certain safe harbors to allow employers to restore wages by December 31, 2020.  For employer’s that had to reduce employees’ wages by more than 25%, a consideration of delaying the forgiveness application should be made to determine if wages can be restored and the safe harbor can be applied.

How does the reduction in Full Time Equivalents impact loan forgiveness?

This topic was not addressed in these FAQs.  We anticipate additional guidance will be released related to full time equivalents in a future update from the Treasury Department.

Are the expenses used for forgiveness tax deductible?

These FAQs did not address the tax deductibility of expenses used for forgiveness.  In Notice 2020-32, the IRS stated that expenses used for forgiveness of PPP loans would not be deductible.   Multiple congressional members have stated that the intent was for the forgiven expenses to also be deductible and the IRS notice was contradictory to that intent.  Although there are bills currently in both the Senate and the House to address this issue, there has been no final legislative action as to the deductibility of PPP loan forgiveness expenses.