Blog

Home / Insights / Blog / PPP Loan Forgiveness Will Hinge on Detailed Recordkeeping

PPP Loan Forgiveness Will Hinge on Detailed Recordkeeping

by

UPDATE as of May 14, 2020: The Small Business Administration (SBA) issued updated guidance on borrowers’ required good-faith certification and loan increases. Click here to read more


With eligible borrowers starting to receive approval and actual funding from the U.S. Small Business Administration’s (SBA) Paycheck Protection Program (PPP), it’s time to begin the documentation process to ensure that loan will be forgiven.

A “good faith” effort won’t be enough to substantiate borrowers used the loan for the intended purposes, so documenting every move from Day 1 will be key to ensuring a smooth and maximized PPP loan forgiveness effort in the next few months.

Ericksen Krentel continues to monitor the ever-changing guidance and requirements for the PPP loan application and debt forgiveness process to ensure you receive the maximum benefits. Our team is ready to help create a customized approach for your organization to effectively, and correctly, use those funds to guarantee maximum forgiveness. If you received PPP funds and need assistance in allocation and forgiveness documentation or calculation, please contact us by clicking here.

As a reminder, Treasury Secretary Steven Mnuchin told CNBC on April 28 that the government will audit any company taking out more than $2 million from the program, so it’s incumbent on the borrower to be as detailed as possible to ensure full forgiveness and maximize their relief.

The American Institute of CPAs (AICPA) recently issued guidelines on how to calculate spending and streamline the PPP loan forgiveness documentation process. The Ericksen Krentel team has analyzed those recommendations and summarized the documentation process below. Please contact us if you need assistance in calculating PPP loan forgiveness.

Employers

Track total eligible costs incurred and paid during the eight-week period after receiving the funds to prepare for PPP loan forgiveness.

Payroll tax reports: 2020 IRS Forms 941, state income and unemployment tax returns that include the eight-week covered period. (See recommendation below regarding eight-week covered period.) If your organization contracts with a payroll provider or Professional Employer Organization (PEO) you can supply other documents, such as reports reflecting employment tax returns filed.

Compensation and FTEs: In general, payroll reports, which will include the following:

  • Gross wages, including cash tips or the equivalent, for each employee for the following:
    • During the eight-week covered period
    • During the most recent full quarter before the eight-week covered period
  • Payment for vacation, parental, family, medical or sick leave
  • Allowance for separation or dismissal
  • Identifying employees who, during any period in 2019, received an annualized pay of more than $100,000 and employees whose principal place of residence is outside the United States.
  • State and local employer taxes assessed on an employee’s compensation (i.e. SUTA) during the eight-week covered period
  • The average number of full-time equivalents (FTEs) per month for the following:
    • During the eight-week covered period
    • February 15 through June 30, 2019
    • January 1 through Feb. 29, 2020
    • Note: borrower elects which period to compare to the eight-week covered period.
  • For seasonal businesses, use average number of FTEs per month from February 15, 2019, through June 30, 2019.
  • Payroll does not include:
    • The employer matching portion of FICA (Social Security and Medicare). This does not mean you have to back out any employee portions of FICA or federal withholding
    • Qualified sick and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act (FFCRA).
    • Payments to independent contractors (1099) by a company.

Group health care benefits: Documentation showing total costs paid for all health care benefits, including insurance premiums paid by the organization under a group health plan.

  • Include all employees and company owners.
  • Do not include employee withholdings for their portion of contributions.

Retirement plan benefits: Documentation showing the sum of all retirement plan funding costs the organization paid.

  • Include funding for all employees and company owners.
  • Do not include employee withholdings for their portion of contributions.

Any U.S. Small Business Administration Economic Injury Disaster Loan (EIDL) to be refinanced.

  • Refinance is at the borrower’s discretion.

Other documentation:

  • Canceled checks
  • Receipts
  • Account statements or other documentation of payment for other eligible costs incurred and paid during the covered period such as:
    • Mortgage interest on real or personal property for mortgages in effect before February 15, 2020.
    • Rent under a leasing agreement for agreements in effect before February 15, 2020.
    • Utility payments, including payment for electricity, gas, water, transportation, telephone or Internet. Service must have been established before February 15, 2020.

Sole Proprietors, Independent Contractors and Self-Employed Individuals

  • The 2019 Form 1040 Schedule C to verify net income (line 31) for owner income replacement calculation.
  • If you have employees, provide payroll documentation as outlined above, including documentation of healthcare and retirement benefits costs. Exclude owner from healthcare and retirement costs.
  • Canceled checks, receipts, account statements or other documentation of payment for other eligible costs incurred and paid during the covered period such as mortgage interest, lease payments, utility payments. Note: these types of expenses must have been deducted on the 2019 Form 1040 Schedule C to be eligible for forgiveness.

As questions or concerns arise, we ask that you contact us so we can address them as quickly as possible to ensure we continue to meet your needs. As a reminder, you can always monitor our COVID-19 Updates webpage by clicking here for the latest or monitoring our accounts on LinkedIn, Twitter or Facebook.

About Ericksen Krentel

Ericksen Krentel CPAs and Consultants, founded in New Orleans, Louisiana in 1960 with offices in New Orleans and Mandeville, believes that serving as the clients’ most trusted adviser is grounded in going beyond the numbers.

That includes helping clients achieve their business and personal financial goals by providing innovative and exceptional services in the following areas: audit and assurance services, tax compliance and planning, outsourced CFO services and business valuations for a variety of industries; employee benefit plan audits; fraud and forensic accounting; business planning; IT consulting; loss calculations; and estate planning.

Learn more at www.ericksenkrentel.com.

Related Blog Posts

COVID-19 Updates: What You Need to Know

As COVID-19 (coronavirus) continues to spread throughout the New Orleans metropolitan area, we want to provide you with information on the precautions we are taking to protect the welfare and safety of our clients and staff while still providing the efficiency and quality you expect from Ericksen Krentel.

PPP Update on Good-Faith Certification, Loan Increases

On May 13, 2020, the Small Business Administration (SBA) issued updated guidance on two different important Payroll Protection Program (PPP) topics.