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PPP Loan Forgiveness: Should I wait 8 or 24 weeks - Part 2

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Should you wait 8 or 24 weeks to apply for PPP Loan forgiveness? This depends on when you reach full forgiveness. This presentation will help guide you.

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PPP Loan Forgiveness: Should I wait 8 or 24 weeks - Part 2

  1. 1. PPP Loan Forgiveness When should I apply for forgiveness? Part 2 FTE Reduction
  2. 2. Reference period In addition to the salary wage reduction, there is also a full-time equivalency reduction i.e. a reduction for reducing your employee's hours However, in the case of the FTE reduction calculation, you get to choose your reference period. The reference period with the least FTE will help you most.
  3. 3. Reference period: Date choices (i) February 15, 2019 to June 30, 2019; (ii) January 1, 2020 to February 29, 2020; or (iii) in the case of seasonal employers, either of the preceding periods or any consecutive 12-week period between May 1, 2019 and September 15, 2019.
  4. 4. Schedule A – The FTE reduction is calculated on the schedule A
  5. 5. Safe Harbor – Safe harbor eliminates the need to reduce your loan forgiveness – When a safe harbor applies then you do not have to reduce your loan forgiveness amount
  6. 6. Safe Harbor contd. You are exempted from the reduction in loan forgiveness based on a reduction in FTE employees if: (a) You reduced your FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and (b) then restored your FTE employee levels by December 31, 2020 to the FTE employee levels in the pay period that includes February 15, 2020.
  7. 7. Safe harbor cont. – Or, you are able to document that you were unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020, by governing authorities
  8. 8. Safe Harbor Example 1 – FTE between 2/15/2020 and April 2020 was 1 ( 40 hours) – FTE inclusive of 2/15/2020 was .75 (30 hours) – Since the average hours worked between 2/15/2020 and 4/26/2020 was more than the average hours worked as of 2/15/2020, the safe harbor does not apply
  9. 9. Safe Harbor Example 2 – FTE between 2/15/2020 and April 2020 was .75 ( 30 hours) – FTE inclusive of 2/15/2020 was 1 (40 hours) – Since the hours worked between 2/15/2020 and 4/26/2020 was less than the hours worked as of 2/15/2020, you will need to test to see if salary was restored no later than December 31, 2020 – FTE as of the application submission date and no later than December 31,2020 was 1. – Safe harbor applies and no salary reduction is required.
  10. 10. Example Now let us see how this works with the bigger picture. We will revisit our example from part 1
  11. 11. Example Adam Smith who had one employee received a $20,000 PPP Loan. Covered period: 8 weeks from 3/18/2020 to 5/12/2020 Total payroll expenses/ forgivable loan was $18,760 after wage reduction limitation
  12. 12. Now let us see what happens when there is also a FTE reduction – FTE between 2/15/2020 and April 2020 was 1 ( 40 hours) – FTE inclusive of 2/15/2020 was .75 (30 hours) – Since the hours worked between 2/15/2020 and 4/26/2020 was more than the hours worked as of 2/15/2020, the safe harbor does not apply
  13. 13. FTE during reference period – Reference periods – Average FTE between 2/15/2019 and 6/30/2019 was 1(40 hours) – Average FTE between 1/1/2020 and 2/29/2020 was 1 (40 hours) – Average FTE for chosen reference period will be lesser of the 2 – Since there are both 1, we choose 1 – Average FTE during the forgiveness window was .5 (20 hours)
  14. 14. FTE Reduction Quotient – Next we compute the FTE reduction quotient – This is computed by dividing average FTE during the forgiveness window by the average FTE in the chosen reference period – This is .5/1 = .5 – The forgivable loan amount is further reduced by the FTE reduction quotient – This is 18,760 *.05 = $9,380 – The forgivable loan has now been halved to $9,380 – This is 47% of the PPP loan amount – Which is less than the 60% of the payroll requirement to be eligible for full forgiveness – Even if you had extra expenses it would not allow you get to full forgiveness
  15. 15. Recommendation – Wait for the 24 weeks
  16. 16. Apply or not? This workbook will make it easier to run your numbers. It is worth checking to see if you are eligible for full forgiveness within the 8 or 24 week window.
  17. 17. https://lifestylecpa.com/product/ppp-loan-forgiveness-in-less-than-1-hour/

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