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Guidance for charting/tracking payroll costs for Paycheck Protection Program (PPP) Loan Forgiveness has been issued in the instructions for the Small Business Administration’s (SBA) PPP Loan Forgiveness Application.

SITUATION

Idaho Theological Seminary (ITS) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(i).  They are not required to file Form 990 annually.

We met with ITS’ Accounting Team via video conference to talk about CARES Act funding and the reporting requirements regarding the Paycheck Protection Program.

They asked, “When do we count our payroll costs for purposes of the 8-week period after we received the PPP funds?  Is it cash basis or accrual basis?”

“Well,” we said, “it gets a little complicated at first glance.  The instructions say that you have some choices in that area.  First, you are generally eligible for forgiveness for the payroll costs paid and payroll costs incurred during the eight-week (56-day) period beginning with your PPP Loan Disbursement Date.  Then, there are two options for the 56-day period – a ‘Covered Period’ which begins with the PPP Loan Disbursement Date or an ‘Alternative Payroll Covered Period’ which begins on the first day of your first pay period following your PPP Loan Disbursement Date.”

“Okay,” said ITS, “how do we discern between ‘paid’ and ‘incurred?’”

“Great question.  It’s not really an either/or.  Decide which type of covered period works best for your team.  Then, the key seems to be to look at when payroll costs were ‘incurred’ a la when the employees ‘earned’ their pay.  Those earned amounts must also be paid within the Covered/Alternative Period – or by the next regular payroll date if earned at the end of the 56-day period. According to the instructions, payroll costs are considered paid on the day that paychecks are distributed or when you originate an ACH credit transaction.  Payroll costs are considered incurred on the day that the employee’s pay is earned.  Payroll costs incurred but not paid during your last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date.  Otherwise, payroll costs must be paid during the Covered Period (or Alternative Payroll Covered Period).”

ITS Team: (Sigh) “Well, we guess its off to the spreadsheets – and prayer.”

“Well stated,” saith us.

RULES

From the SBA’s “Loan Forgiveness Application Instructions for Borrowers” (in the Paycheck Protection Program Loan Forgiveness Application):

Covered Period:  Enter the eight-week (56-day) Covered Period of your PPP loan.  The first day of the Covered Period must be the same as the PPP Loan Disbursement Date.  For example, if the Borrower received its PPP loan proceeds on Monday, April 20, the first day of the Covered Period is April 20 and the last day of the Covered Period is Sunday, June 14.

Alternative Payroll Covered Period:  For administrative convenience, Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date (the “Alternative Payroll Covered Period”).  For example, if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20.  Borrowers who elect to use the Alternative Payroll Covered Period must apply the Alternative Payroll Covered Period wherever there is a reference in this application to “the Covered Period or the Alternative Payroll Covered Period.”  However, Borrowers must apply the Covered Period (not the Alternative Payroll Covered Period) wherever there is a reference in this application to “the Covered Period” only.

Eligible payroll costs.  Borrowers are generally eligible for forgiveness for the payroll costs paid and payroll costs incurred during the eight-week (56-day) Covered Period (or Alternative Payroll Covered Period) (“payroll costs”).  Payroll costs are considered paid on the day that paychecks are distributed or the Borrower originates an ACH credit transaction.  Payroll costs are considered incurred on the day that the employee’s pay is earned.  Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date.  Otherwise, payroll costs must be paid during the Covered Period (or Alternative Payroll Covered Period).  For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the covered period.  Count payroll costs that were both paid and incurred only once.  For information on what qualifies as payroll costs, see Interim Final Rule on Paycheck Protection Program posted on April 2, 2020.

BOTTOM LINE

  • Many Bible colleges and seminaries received Paycheck Protection Program loans which have the opportunity to be forgiven – if certain criteria are met.
  • Generally, to qualify for forgiveness, the PPP funds must be spent within 8 weeks of receipt (the “covered period”) and – among other stipulations – 75% must be expended on “payroll costs.”
  • The Small Business Administration (SBA) released a PPP “Loan Forgiveness Application” last week.  It can be found at:  https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf
  • Payroll costs may be “charted” using a “Covered Period” or “Alternative Payroll Covered Period.”

 

Specific questions? Email Dave Moja

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.

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