In just the first week after the Paycheck Protection Program was replenished, the Small Business Administration reported that more than half of the newly-allocated funds had already been claimed, with an average loan amount of roughly $79,000. Through May 1, nearly 3.9 million qualifying businesses had claimed more than $500 billion in forgivable loans.
The IRS issued guidance making clear that companies who receive PPP loans may not “double dip” by taking a tax deduction on expenses that were paid for with forgivable loan funds. The forgiven loan funds are exempt from income taxes, which is the genesis of the double-dipping concern that the IRS has addressed in this guidance.
The SBA also issued guidance last week, specifying a “single corporate group” could not receive more than $20 million in PPP funding. According to NADA’s interpretation of the rule, this decision is not retroactive, and only applies to disbursements made on April 30 or later. A “single corporate group” is defined as being “majority owned, directly or indirectly, by a common parent.” Please refer to Question 27 in NADA’s CARES Act Guidance for more details.
On Monday, the SBA issued further guidance for lenders, making it clear that all PPP funds must be disbursed to a lender at once, within 10 days of the loan being approved. This ruling applies to all loans that were approved on April 28 or later. And U.S. Labor Secretary Eugene Scalia told Fox News on Tuesday that PPP participants should not expect any changes from the current requirements for loan forgiveness, which mandate that at least 75 percent of the funds be spent on near-term payroll expenses. Please refer to NADA’s guidance on PPP loan forgiveness for more information.
For companies who have not received PPP or Economic Injury Disaster Loan advance funds, the Employee Retention Tax Credit is another available option. The IRS published an FAQ page on the ERTC yesterday; the ERTC is available to businesses who a) did not receive EIDL advance or PPP funds and b) were shuttered either partially or entirely by a government mandate before March 31 or who suffered a “significant decline” in revenues in the first quarter of 2020.
The ERTC is available to businesses of nearly any size who meet the above requirements, and serves as a refundable tax credit that covers up to 50 percent of an employee’s wages, up to $10,000 per employee. The IRS’ robust guidance on the tax credit includes details on what counts as “wages,” and thus would be subject to the $10,000 cap, including certain “qualified health plan expenses.”
As for the EIDL advance program, those funds were processed directly by the SBA; Congress appropriated an additional $60 billion for that program at the same time they added $350 billion to the PPP, but that money only served to clear the backlog of applicants from the first round of funding.Download Bulletin PDF