If you were or are fortunate to get a PPP Loan, then there is a loan forgiveness that can be applied to the full amount of the loan and any accrued interest. The amount of loan forgiveness will depend on the total amount of payroll costs, payment of interest on mortgage interest (business) obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, and utility payments under service agreements on leases dated before February 20, 2020. However, not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs.
Independent Contractors do not count as employees for the purpose of PPP loan forgiveness.
During the 8 weeks (56 days) after the date of funding of the PPP Loan, the PPP Loan is to be used for payroll costs (wages, commissions, bonuses, group health, medical and family leave, state & local payroll taxes, and employer retirement contributions), rent payments, utility payments and interest on mortgage payments and interest payments on any other debt obligations incurred before February 15, 2020. But remember that 75% of the loan forgiveness amount must be for Payroll Costs.
Proceeds from any advance up to $10,000 on the EIDL Loan will be deducted from the loan forgiveness amount on the PPP Loan.
It is presumed that the documentation for the loan forgiveness will be your payroll registers, lease agreements, health insurance invoices, retirement contributions, bank statements, and copies of checks/bank documents showing the payments. Additional guidance from the SBA is expected.
The CARE Act specifically says that the forgiveness amount of the PPP loan is not taxable. However, the IRS stated on April 30, 2020 that it believes the expenses that result in forgiveness of PPP loan are not tax deductible (the agency cited Section 256 of the tax code, which states that deductions can’t be taken if they are tied to a certain class of tax-exempt income). This essentially makes the loan forgiveness amount taxable. We will monitor to see if this gets changed.