AOA Frequently Asked Questions - January 29, 2021

Paycheck Protection Program First Draws, Second Draws, and Department of Health and Human Services Provider Relief Funds

Q: Is the HHS Provider Relief Fund payment included in my gross receipts?

A: The AOA is working to have the SBA clarify that the HHS funds are not included in gross receipts. Once clarification is received, we will share with members. AOA requested confirmation as late as January 29, 2021.

Q: Can I return the HHS Provider Relief Funds, if those funds impact my PPP eligibility?

A: Recipients of HHS funds have the option to return them within 90 days of receipt. However, you may want to wait for additional SBA clarification prior to returning those funds.

Q: What if I wasn’t in business in the comparable quarter in 2019?

A: The Small Business Administration has provided guidance for this situation: Equation for calculating losses if not in business for a portion of 2019

• For applicants not in operation in Q1 or Q2 2019, select either Q3 or Q4 2019 and compare with the same quarter in 2020.

• For applicants not in operation in Q1, Q2 or Q3 2019, select Q4 2019 and compare with Q4 2020.

• For applicants not in operation in 2019 but in operation as of Feb. 15, 2020, select Q1 2020 and compare with Q2, Q3, or Q4 2020.

Q: I didn’t have an annual revenue decrease of 25% in 2020, but I did in one quarter of 2020. Do I qualify for the Second PPP Draw?

A: As long as you met the reduction threshold in one quarter, you are eligible for the second round of PPP.

Q: Can I use the simplified forgiveness form, if I was approved for amount above 150,000 but accepted less than 150,000?

A: You can use the simplified forgiveness form if the loan you received was less than $150,000, even if you were approved for a higher amount. The amount that triggers the form you can use is the amount you received.

Q: Can I use PPP funds and HHS Provider Relief Funds concurrently (at the same time)?

A: Yes, you are able to use the funds during the same period of time. Per HHS, “There is no direct ban under the CARES Act on accepting a payment from the Provider Relief Fund and other sources, so long as the payment from the Provider Relief Fund is used only for permissible purposes and the recipient complies with the Terms and Conditions.” Recently Congress enacted legislation that would allow you to use PPP funds and also get tax credits for the Employee Retention Credit (ERC). Previously you had to choose ERC or PPP but not both. AOA requested clarification (as late as January 29, 2021) on the specific rules to use both PPP1 and ERC at the same time. We will update members when Treasury/SBA provides specific rule updates. Consult your accountant to understand tax implications of PPP Forgiveness and ERC benefits.

Q: How do I report the two(was it not 3?) HHS Provider Relief Fund payments?

A: If you received more than $10,000 total, you will need to report that to HHS.HHS has opened its portal so that doctors can register to report, but you are not yet required to enter any information. The portal to register is available here: https://prfreporting.hrsa.gov/s/ AOA anticipated that HHS was going to open the portal for reporting starting on Jan 16, but they ultimately just opened it for registration, so we are still waiting to see what the entirety of the reporting requirements will entail. This FAQ document will be updated as more information becomes available.

Q: My PPP Loan Forgiveness was reduced because of my EIDL advance. What do I need to do to get those funds returned to me?

A: The Small Business Administration provided guidance to lenders regarding how to reconcile this issue. There is no action needed on your part at this point.

Q: Can I still apply for the COVID-19 Economic Injury Disaster Loans (EIDL) Advances?

A: New targeted EIDL Advance funds were included as part of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act (December 27, 2020). The Targeted funds will be available to applicants in low-income communities who originally received an Advance fund payment of less than $10,000 and those that applied but received nothing due to lack of SBA funding available. If you qualify for the Targeted Advance, the SBA will reach out to you. More information on these resources is available through the SBA: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/covid-19-economic-injury-disaster-loans#section-header-6

Q: Should partners’ self-employment income be used in the calculation for the Second Draw PPP Loan application?

A: The SBA has instructions on how to calculate loan amounts using a K-1 form (Form 1065; Partner’s Share of Income, Deductions, Credits, etc.) in Question 4 of its resource on Second Draw calculations. It begins on page 8 in the Maximum Second Draw PPP Loan Amounts section of the document. Per the SBA, “LLCs should follow the instructions that apply to their tax filing status in the reference periods.” If you are unsure, consult with your accountant.

Q: I understand the $10,000 threshold for reporting use of provider relief funds to HHS. Is that $10,000 threshold based just on provider relief funds or do I need to include the PPP funds I received?

A: The HHS reporting requirements are tied to the funds you received from the HHS Provider Relief Fund. If you received $10,000 or more from HHS Provider Relief Funds, you will need to report use of those funds in the future. You can register for future reporting here: https://prfreporting.hrsa.gov/s/

Q: What is the deadline to apply for this round of PPP Funding?

A: The deadline is March 31, 2021.

Q: I didn’t get a first round PPP loan, can I apply now?

A: Yes, there is a new round of initial PPP loans. The application is here: https://www.sba.gov/document/sba-form-2483-ppp-first-draw-borrower-application-formIf you have additional questions, please contact askaoa@aoa.org

Q: I understand my PPP is now tax deductible. Does that mean federal and state taxes?

A: The PPP1 and PPP2 are tax deductible for federal taxes. In California, COA is working to pass legislation to make the PPP deductible on your state income tax return.

The January 14, 2021 #AskAOA webinar on new PPP funding opportunities is available here: https://www.aoa.org/covid-19/askaoa-webinar-series

On June 5, 2020, the Paycheck Protection Program Flexibility Act (PPPFA) was signed into law, which is a bipartisan effort to address the many concerns expressed by small business owners around the Paycheck Protection Program (PPP). The SBA filed a Interim Final Rule (IFR), published on Friday June 19th, focusing on revisions made from Paycheck Protection Program Flexibility Act (Flexibility Act) signed into law on June 5th. The new rule ensures full forgiveness for self-employed, freelancers and independent contractors who took the maximum loan amount based on 2.5 times their 2019 monthly income. (Under previous rules, the eight-week limitation made it hard to get above the 75% payroll threshold.) Below is a list of the most important provisions of the new law and federal rule:

1. Changes amount of loan needed for payroll to 60%

The new law reduces the amount of the loan needed to be spent on payroll from 75% to 60%, thus increasing the amount of funds available for other expenses from 25% to 40%. However, the law does not change the list of expenses eligible for forgiveness. Payroll includes salary, health insurance, leave, and severance pay. Other eligible expenses include rent, mortgage payments, utilities, and interest on loans.

2. Extends time period to use funds from 8 to 24 weeks

Businesses will now have the flexibility to spend the PPP funds when they like for the remainder of the year. The PPPFA also does not require businesses to wait for 24 weeks to apply for forgiveness and can still do so after eight weeks if they prefer. However, many experts are recommending that people wait to apply for forgiveness because the rules may change again. The 24-week time frame begins the day you receive your funds.

Employee compensation - The 24-week extension also increased the amount eligible for forgiveness to business owners with employees. The payroll costs including salary, wages and tips is still capped at $100,000 of annualized pay. But now instead of $100,000/52 * 8 (a max of $15,385 per individual), you get up to $100,000/52 *24, making the new maximum forgiveness cap $46,154 per individual for 24 weeks.

Keep in mind the payroll costs also include covered benefits for employees (but not owners), including health care expenses, retirement contributions, and state taxes imposed on employee payroll paid by the employer (such as unemployment insurance premiums).

Non-payroll expenses - The loan forgiveness amounts for non-payroll expenses have also been extended to 24 weeks, making it much easier to meet loan forgiveness thresholds. As a reminder, non-payroll expenses include:

• covered mortgage obligations: payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020

• covered rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020

• covered utility payments: business payments for a service for the distribution of electricity, gas, water, transportation

The “incurred or paid” rule still applies. So, you can count expenses that were incurred or paid within that 24-week period, which means you’ll likely get some expenses that fall outside of the 24-week covered period as well.

3. Pushes back the June 30 deadline to rehire workers to December 31, 2020

However, the new law did not change how salaries are calculated towards forgiveness. The payroll calculation used in the loan application still applies to the forgivable amount.

4. Eases rehire requirements

As the intent of PPP was to keep the same number of employees on the payroll as was used to calculate the loan, it required a business to rehire the same number of full-time employees or full-time equivalents by June 30, 2020. The only exception to this rule was if an employer could document in writing an attempt to rehire an employee who rejected this offer.

The new law makes two significant changes to these requirements. First, it extends the rehire date to December 31, 2020, and second, it adds additional exceptions for a reduced head count. The law states a business can still receive forgiveness on payroll amounts if it:

• • Is unable to rehire an individual who was an employee of the eligible recipient on or before February 15, 2020;

  • Is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or

  • Is able to demonstrate an inability to return to the same level of business activity as such business was operating at prior to February 15, 2020.

It remains unclear how to “demonstrate the inability to rehire similarly qualified employees” or what the standard “to demonstrate the inability to return to previous levels of business activity” would be, but hopefully forthcoming guidance will elaborate.

The good news appears to be that even with a reduced head count based on these exceptions, if 60% of the loan is still used on payroll throughout the remainder of 2020, it will be forgiven. Certainly, a business will need to document in writing as thoroughly as possible its efforts to rehire employees through December 31, 2020.

5. Extends the repayment term from 2 years to 5

The new law also eases repayment terms in the event loans or portions of them are not forgiven. A business now will have five years at 1% interest to repay the loan. Further, the first payment will be deferred for six months after the SBA makes a determination on forgiveness. Since under current regulations your bank has 60 days to make a forgiveness determination and the SBA an additional 90 days, this means you could have up until May of 2021 to make the first payment on the loan.

In addition, the PPP also allows borrowers to take advantage of the CARES Act provision allowing deferment of the employer’s payroll taxes for Social Security. Previously, PPP did not permit deferment of these taxes on the forgivable portion of the loan.

6. How to calculate owner compensation

The newest IFR shows us how to calculate owner compensation under the new rules. It’s either:

• Eight weeks’ worth (8/52) of 2019 net profit (up to $15,385) for an eight-week covered period or

• 2.5 months’ worth (2.5/12) of 2019 net profit (up to $20,833) for a 24-week covered period.”

This does exclude any qualified sick leave equivalent amount claimed under the Families First Coronavirus Response ACT (FFCRA). For those of you filing a schedule C, the first option is the same it has always been – 2019 Schedule C line 31/52 * 8. The second option should also look familiar because that’s how you calculated the maximum amount of your loan (2019 Schedule C line 31/12 * 2.5). So, in short, if you are choosing the 24-week covered period option, you will get full-loan forgiveness.

As always, the additional guidance answers some questions and raises others. In the rationale for the rule, the SBA specifically mentions “owner compensation replacement for individuals with self-employment income who file a Schedule C or F” but doesn’t mention the owner-employees (e.g, S-Corp owners).

Presumably, the $20,833 cap applies to them, too, since the current Schedule A on the application lumps owner-employees, self-employed individuals, and general partners together. Even so, it’s confusing why they weren’t mentioned here.

7. New forms

The SBA also released two new applications: a revised full-loan application and a new EZ Version.

The new EZ version applies to borrowers that:

• Are self-employed and have no employees; OR

• Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; OR

• Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.

The EZ application requires fewer calculations and less documentation for eligible borrowers. Details regarding the applicability of these provisions are available in the instructions to the new EZ application form. Click here for a link to the Long Form Forgiveness Application Instructions.

You have until the end of the month to apply for PPP funding. There’s still some $146B left in the second round of the program funding.

The federal Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed on March 27, 2020. The CARES Act includes a number of coronavirus (COVID-19) relief measures, including the Paycheck Protection Program. The Paycheck Protection Program provides $349 Billion for small business loans so that businesses can retain workers for eight weeks.