Paycheck Protection Program update: 1/22/2021
PPP calculations guidance released
The U.S. Small Business Administration (SBA) and Treasury issued an 18-page document detailing how (PPP) borrowers should calculate revenue reduction and maximum loan amounts for second-draw PPP loans. The guidance also lists the documents borrowers must provide to support each set of calculations.
Second-draw calculations guidance
The second-draw calculations guidance is structured in the form of 24 questions and answers addressing a variety of situations involving different types of organizations. Eight questions deal with how to determine if a PPP borrower experienced the 25% decline in gross receipts required to apply for a second PPP loan of up to $2 million. The other 16 questions handle how a PPP borrower can calculate the maximum amount it is eligible to receive in a second-draw loan.
The guidance addresses a frequently asked question regarding the relationship between calculating gross receipts and the accounting method the borrower uses for its business. For a for-profit business, the guidance defines gross receipts as generally all revenue in whatever form received or accrued, which is determined in accordance with the borrower’s accounting method, i.e., accrual or cash.
Other topics covered include (among others):
- Documents required to corroborate a 25% reduction in gross receipts.
- Documents required to substantiate payroll costs used to determine the maximum second-draw loan amount a borrower is seeking.
- How to calculate gross receipts reduction if using annual income tax returns.
- How self-employed PPP borrowers, both those with and those without employees, should calculate a second-draw loan maximum.
- How partnerships apply for second-draw loans and how they should calculate the maximum amount for those loans.
- How S corporations and C corporations should calculate their maximum second-draw PPP loan amount.
- How not-for-profits, religious institutions, veterans organizations, and Tribal businesses should calculate their maximum second-draw PPP loan amount.
- Which set of instructions LLC owners should follow.
- How entities not in operation a full year prior to Feb. 15, 2020, should calculate a second-draw maximum loan amount.
First-draw loan calculations
The guidance explaining first-draw PPP loan calculations and documentation requirements covers 14 questions and answers. Among the topics covered are:
- How self-employed PPP borrowers, both with and without employees, should calculate a first-draw loan maximum.
- How partnerships should apply for first-draw loans and how they should calculate the maximum amount for those loans.
- How S corporations and C corporations should calculate their maximum first-draw PPP loan amount.
- How not-for-profits, religious institutions, veterans organizations, and Tribal businesses should calculate their maximum first-draw PPP loan amount.
- Which set of instructions LLC owners should follow.
- How entities and self-employed individuals not in operation a full year prior to Feb. 15, 2020, should calculate a first-draw maximum loan amount.
- Which pretax employee contributions for fringe benefits that may have been excluded from IRS Form 941, Employer’s Quarterly Federal Tax Return, taxable Medicare wages and tips should be part of employee gross pay.
- How PPP borrowers should account for federal taxes when determining their payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan, and the amount of a loan that may be forgiven.
*Resources:
The Journal of Accountancy, Jeff Drew, 1/19/2021.
We will continue to keep you informed as more information is released.