Payroll Protection Program
As discussed in our post on March 31, 2020, the new law signed on March 27, 2020 establishes the paycheck protection loan program, which provides that loans made to certain employers will be forgiven if the employers retain their employees for at least eight weeks after the loan occurs and the employers provide the required documentation that payroll payments were made to the employees or for certain other expenses.
The new law indicates that loans forgiven under this program will not be treated as income from the cancellation of debt for federal income tax purposes.
The Treasury Department has directed employers who wish to apply for payroll protection program loans to apply through their banks. Banks will generally take applications through an on-line application.
Loan amounts are generally computed by determining the employer’s monthly payroll costs (generally payroll costs for 2019 divided by 12) and multiplying that amount by 2.5.
On April 6, 2020, the Small Business Administration issued answers to Frequently Asked Questions (“FAQs”) about the program.
The FAQs clarify that, when computing payroll costs, cash compensation of over $100,000 is excluded, but the $100,000 exclusion does not apply to employer contributions to retirement plans, payment of group health care coverage, including insurance premiums and payment of state and local taxes assessed on compensation of employees.
The FAQs also clarify that payments made to independent contractors are not included in eligible payroll costs.
In addition, the FAQs clarify that the employer-share of federal payroll taxes is not included in eligible payroll costs.