Hi, I'm Candace
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Exciting news! The U.S. Small Business Administration (SBA) has launched a streamlined application portal to allow borrowers with PPP loans of $150,000 or less to apply for forgiveness directly through the SBA. The SBA’s new streamlined application portal will simplify forgiveness for millions of small businesses.
The new forgiveness platform began accepting applications from borrowers on August 4th, 2021.
There is one caveat – your lender is required to opt-in to this program. So if your lender didn’t agree to use this portal, you won’t be able to apply directly for forgiveness through the SBA and will instead have to go through your lender. As of the end of July, over 600 banks have opted in to direct forgiveness, enabling over 2.17 million borrowers to apply through the portal (This represents 30% of loans $150,000 or less that have not yet submitted for forgiveness).
Apply directly for forgiveness here: https://directforgiveness.sba.gov. And if you need assistance or have questions you should call the SBA directly at (877) 552-2692, Monday – Friday, 8 a.m. – 8 p.m. EST.
Sooo…. should you use the SBA portal or should you use your lender to apply for PPP loan forgiveness?
My recommendation is if this is your second PPP loan and you have already applied for forgiveness for your first loan through your lender, and if the process was straightforward and your loan was successfully forgiven – I say to just go through your lender again. The process is already familiar to you and they already have a record of success, so no need to switch it up now.
But if this is your first PPP loan or if the process for forgiveness for your first PPP loan was an absolute nightmare – definitely check out the new SBA portal!
Let’s talk about an entrepreneur hot topic – the PPP loan.
Many people have been asking about applying for forgiveness, and over the last couple of months I’ve been saying the same thing – hold off for now.
Many lenders are expecting Congress to pass legislation where all PPP loans under $150K will be automatically forgiven without applying.
And while this could still happen, I am a Type A accountant who said that I was going to apply for forgiveness regardless of if the legislation was passed by mid December.
Well, it’s mid December. So I’ve completed my forgiveness application and took notes on how to complete it so I can pass them along to my NewWay Accounting family.
So here you go! It’s a long one, but hopefully it will bring some clarity on the process so it feels less overwhelming.
How To Apply For Forgiveness
You may have received emails from your lender saying that you can apply for forgiveness. You can start the application by logging into their portal.
Your next step is to determine which form to use. Most lenders will ask you yes or no questions and send you to the correct form. The majority of our clients are eligible to use the 3580EZ application, which in summary means:
Below is the information you’ll need to complete the 3580EZ application. I’m going to skip over the obvious fields (if you don’t know your business name then we’ve got bigger problems ). And be sure to check out the SBA’s Application Instructions!
SBA PPP Loan Number, Lender PPP Loan Number, PPP Loan Amount, PPP Loan Disbursement Date: You can find all of this information on your lender portal.
Employees at Time of Loan Application & Forgiveness Application: Include yourself plus any individuals who were paid via payroll (i.e. where payroll taxes are withheld and you pay payroll taxes). Do not include contractors.
EIDL Advance Amount: This is the amount that was between $1,000 to $10,000 granted directly from the SBA based on the number of your employees. This is just the grant portion, NOT the loan if you accepted it.
EIDL Application Number: Go digging in your inbox. If you search for “EIDL” you’ll see an email from firstname.lastname@example.org with your application number in the subject line.
Payroll Schedule: This is how often you pay your employees via payroll.
Covered Period: There are a few ways to determine this, but the most common covered period is from your disbursement date to 24 weeks later.
Payroll and Nonpayroll Costs
Line 1. Payroll Costs:
If you have employees (including you as an employee of your S-Corp): Sum of gross wages paid during the covered period. This amount can’t equal more than $46,154 per employee for the 24-week covered period (i.e. wages are capped at an annual salary of $100,000). You can also include your employer contributions for health insurance, retirement plans, and employer state and local taxes paid.
If you do not have employees: Grab your 2019 tax return. Flip to the Schedule C – Profit or Loss From Business, Line 31 – Net profit. If you have a 24-week covered period, take this number, divide it by 12 and multiple it by 2.5 (this amount is capped at $20,833).
Line 2. Business Mortgage Interest Payments: Enter the amount of business mortgage interest payments paid or incurred during the covered period. Do not include your home mortgage payments even if you have a home office.
Line 3. Business Rent or Lease Payments: Enter the amount of business rent or lease payments paid or incurred. Do not include rent payments for your home even if you have a home office.
Line 4. Business Utility Payments: Enter the amount of business utility payments paid or incurred during the covered period. Do not include utility costs for your home even if you have a home office.
Line 5 through Line 8: Follow the simple math instructions.
Page 2: Read, initial, and sign as appropriate.
If you have employees (including you as an employee of your S-Corp) – From your payroll provider (ADP, Gusto, QBO Payroll, etc.), download or request a payroll report for your covered period, your quarterly 941 payroll returns, and quarterly state & local returns. Many payroll providers actually have a PPP Loan Forgiveness report you can run to assist with the application.
If you do not have employees – 2019 Federal Tax Return
If you are claiming other non-payroll costs, be sure to include those invoices and proof of payment.
Stimulus payments, PPP loans, EIDL loans… there are SO many different COVID-19 relief measures currently being talked about. And I know it can feel a bit overwhelming. So let me breakdown some of the more popular options and how you can benefit from them.
Individuals will receive $1,200 if you made under $75,000 on your latest tax return (phased out when income reaches $99,000). Married couples will receive $2,400 if your household made under $150,000 (phased out when income reaches $198,000). Plus you’ll receive an additional $500 per child.
If you haven’t already received your stimulus payment, be sure to check the status directly at the IRS’s portal Get My Payment.
The PPP loan has a two year term with a 1% fixed interest rate. There are no fees, and no personal guarantee or collateral required. You can borrow up to 2.5 times your average monthly payroll expenses and no payments are required for the first 6 months, but interest will accrue.
Big perk: Up to 100% of the total loan amount and accrued interest can be forgiven if used for eligible, approved expenses.
How do you apply for the loan?
As of May 15th, there is still funding available for small business owners! My first recommendation is to apply through your business banking partner. If that isn’t an option, there are various online lenders you can apply through including Paypal and BlueVine.
Your loan amount will equal your average monthly payroll costs multiplied by 2.5. If you use a payroll provider such as Gusto or ADP they have prepared PPP Loan reports for you that automatically calculate this figure. You will also have to provide your payroll tax returns (940, 941, or 944), as well payroll summary reports showing your employee’s wages, sick & paid time off, and employee benefits.
What if you are a sole proprietor or don’t have or pay employees via payroll?
Your loan amount will be based on your 2019 tax return, specifically your business net income reported on your Schedule C. The loan will be calculated by taking your net income, divided by 12 months, and then multiplied by 2.5.
How do you get your loan forgiven?
Use the PPP loan funds within the 8-week period after your lender sends you the funds. Use at least 75% of the funds on eligible payroll costs, which includes compensation to employees who reside in the US, as well as employee health and retirement benefits and state & local taxes.
To the extent an employee earns in excess of $100,000, you may only include a maximum payroll amount of $15,385 per employee in your forgiveness amount determination.
You may use the remaining 25% of the funds on business rent, business utilities, and business mortgage interest. Home office expenses are not eligible.
What if you are a sole proprietor or don’t have or pay employees via payroll?
Your loan forgiveness will be based on “owner compensation replacement”. This means that your forgiveness will be limited to 8-weeks’ worth of 2019 net profit amount, capped at $15,385. For example, if you reported $50,000 in net income on your 2019 Schedule C, your owner compensation replacement forgiveness will be $7,692 ($50,000 divided by 52 weeks, multiplied by 8 weeks).
Please note that if you received an advance through the EIDL program, it will be deducted from your forgivable amount on a PPP loan.
Small businesses affected by COVID-19 were eligible for a SBA Disaster Loan which allows up to $2 million in loan funding at a 3.75% interest rate, payable over up to 30 years. These loans will not be forgiven.
As of May 15th, the SBA is only accepting new applications for the EIDL from U.S. agricultural businesses.
Unemployed individuals will be eligible for up to an additional $600 per week in federal unemployment benefits for four months on top of what they receive from their state. Eligibility has been expanded to include self-employed individuals and freelancers!
Please check with your state’s unemployment division for instructions on how to apply.
Regulations and guidance from the SBA and the U.S. Department of the Treasury are evolving rapidly and the above information may be outdated. Please refer to the latest guidance from SBA and Treasury to confirm current program rules.
Candace is the founder of NewWay Accounting and is a CPA who specializes in working with fellow entrepreneurs. She strives to take the fear and anxiety out of taxes and help empower small business owners to feel more confident and in control of their finances.
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