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The SBA has clarified whether expenses paid for housing allowances could be included in “payroll costs” when figuring the amount of spending on covered costs during the 8-week period after receiving PPP funds.  This can be important for applying for “PPP forgiveness.”

SITUATION

Denali Christian College (DCC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

DCC’s Finance Team concluded that the institution had a necessity for the PPP funds based upon our uncertain times.  They documented this need with a memo to Management and the Board.  In addition, DCC created detailed financial projections for operations – that show a need for the funds.

DCC’s Team called us to ask a specific question.  “Our PPP lender told us that we were not allowed to include minister’s housing allowances in our “payroll costs” when we applied for the PPP loan/grant.  We understood that this was not clear from the CARES Act nor the original SBA regulations.  Has there been any news on this issue?”

We replied, “Yes, as a matter of fact.  Well, like we thought, your lender called it incorrectly.  Housing allowances may be counted toward ‘payroll costs’ pursuant to a new FAQ issued by the Small Business Administration.  But, you must remember the $100,000 annual compensation per employee limits.”

We heard silence from the DCC folks, then, “So we did not get as much PPP funds as we could have, correct?”

“True, but don’t blame your lender.  For the most part, they followed a protocol that used W-2 amounts or payroll records that generally did not include housing allowances.  However, we suggest that you communicate with them and inform them that you will be using housing allowance amounts as part of ‘payroll costs’ when you apply for PPP loan forgiveness – just to make sure they are aware of the new information from the SBA.”

The PPP FAQs can be found at:

https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

RULES

From the SBA’s “Paycheck Protection Program Loans FAQs” (5/3/20):

32. Question: Does the cost of a housing stipend or allowance provided to an employee as part of compensation count toward payroll costs?

Answer:  Yes. Payroll costs includes all cash compensation paid to employees, subject to the $100,000 annual compensation per employee limitation.

BOTTOM LINE

  • Many readers of “Tax Tips” have applied for and received Paycheck Protection Program loans/grants.
  • In order to “convert” the loan to a grant, you must meet certain stipulations – including spending at least 75% of the PPP funds on “payroll costs” over the 8-week period following receipt of the funds.
  • Many lenders told PPP applicants that “housing allowances” were not allowed to be included in “payroll costs” when figuring average payroll for purposes of establishing the PPP loan amount.
  • The SBA has stated that housing allowances may be included in “payroll costs.”

 

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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