The defining characteristics of paycheck protection loans, created by the Cares Act, are also the most vexing. A paycheck protection loan can be forgiven if business owners use at least 75 percent of the proceeds for payroll, and the remainder for rent, utilities, or mortgage interest on their place of business. But until recently, it's been unclear exactly how those amounts should be calculated.
Bit by bit, we're getting more clarity, as the U.S. Department of the Treasury continues its pattern of releasing crumbs of information day-by-day. Treasury released the application for loan forgiveness on May 16, and followed up with two related documents on May 22. In combination, the guidance is starting to give business owners and their advisers an outline of the requirements for loan forgiveness.
William McDevitt, head of the tax practice at accounting firm WilkinGuttenplan, expects Treasury to continue to dole out guidance piecemeal, even as Congress debates fundamental changes to the program. "The big thing everyone is waiting for is congressional action," says McDevitt.
For those business owners who received money, kept or called back their employees, and used at least 75 percent of the loan for payroll and the rest on other allowable expenses, the calculations to forgiveness are pretty clear. "It's more complicated than a tax return, but you can go through it and do the math," says Marilyn Landis, the CEO of Basic Business Concepts and a member of the Regulatory Fairness Board for the SBA's Office of the Ombudsman.
The situation is more challenging for those who haven't been able to retain their employees or call them back. "They are trying to run their businesses," says Landis. "By no means are they flying to Tahiti. But they are in a gray area. They are past the period of returning the money and reluctant to spend it, which is further weakening their businesses."
For those in the gray, here are a few of the noteworthy changes in the latest rounds of guidance from Treasury.
You can get partial loan forgiveness
If you use 60 percent of the loan for payroll, for example, and 40 percent for rent, you've violated the requirement that you use at least 75 percent of the loan for payroll. The loan application makes it clear that you can you can still get forgiveness for most of the loan.
You can still fire people
The intent of the paycheck protection program is to preserve jobs and prevent layoffs. To get a loan forgiven, business owners have to maintain their headcounts and their payrolls. What happens if an employee quits, or you have good reason to fire them? Treasury now says you won't get penalized for the related drop in pay.
Expect more debate over how the money can be used
This has been one of business owners' biggest worries. What if they use half the money on payroll, and the other half to pay a vendor that's been screaming at them? That violates the 75/25 rule -- but the money was still used for a legitimate business purpose. It's not clear if, in that case, the business owner merely forfeits their forgiveness, or if they might have committed fraud. In the new guidance, the SBA reasserts its authority to make sure the loans were used in the way Congress intended. Asks Landis: "Who knows what Congress intended?"
Bonuses are allowed
You're allowed to pay employees as much bonus as you want during the eight-week forgiveness period, as long as their total pay during that time doesn't come to more than $15,384. (On an annualized basis, that's equivalent to $100,000, and salaries above $100,000 aren't eligible for forgiveness.)
Loan forgiveness can be slow
Payments on all PPP loans are deferred for six months. But that six months might fly by. The new guidelines say that the banks have 60 days to review forgiveness applications, and then the SBA gets another 90 days.
Your payroll dates are probably fine
One of the most common questions about the Paycheck Protection Program is a relatively simple bookkeeping challenge. To get the loan forgiven, business owners have eight weeks from the time they get the money to use 75 percent of it on payroll. If the money comes in on May 10, for example, and biweekly payroll is run May 14, can the entire payroll be counted toward forgiveness? Or just four days' worth? Treasury says business owners can choose an "alternate covered period" that lines up with their payroll dates, rather than counting a strict eight weeks from when the loan money showed up.