Withum’s Construction Services Team is partnered up with New Jersey Subcontractors Association and New Jersey Land Improvement Contractors of America to host a forum regarding Paycheck Protection Program (PPP) Loan Forgiveness and Tax Considerations for the Construction Industry.

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PPP Loan Forgiveness and Tax
Considerations for the
Construction Industry
May 4, 2020

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Presenters
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Lou Sandor III, CPA, CCIFP,
Partner, Practice Leader,
Construction Services
Daniel Mayo , JD, LLM,
Principal, National Lead, Federal
Tax Policy

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Today’s Webinar Will Cover
 PPP Loan Forgiveness
 Companies returning PPP Loans
 Individual and corporate tax considerations
 Q&A Session (as time permits)
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PPP LOAN FORGIVENESS

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PPP Loans
 Terms
 One loan per person/entity
 In general, the maximum loan amount is the lesser of:
• $10,000,000, or
• 250% of the average monthly payroll costs incurred during the 1 year period before the date on which the loan is made
 Not clear whether banks will use monthly average during 2019, or 12-month rolling average
 Lender will calculate the amount of the loan – review calculations
 No need to prove credit is unavailable elsewhere (i.e., waiver of Credit Elsewhere requirement)
 Interest rate: 1%
 Term: 2 years
 No collateral required – loan is 100% guaranteed by the SBA
 No personal guarantee required
 No prepayment penalties or fees
 Deferral for 6 months following the date of the loan; interest will accrue from date of loan
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Loan Forgiveness
• Loan Forgiveness
• Includes all eligible expenses paid during the 8-week period after the loan is made
• Eligible expenses:
• Payroll costs (up to $100K salary/year/employee – see next slide)
• Interest on mortgages incurred before 2/15/2020
• Rent under a lease in force before 2/15/2020
• Utilities for which service began before 2/15/2020 (e.g., electric, gas, water, transportation,
telephone, and internet)
 Cannot exceed the principal amount of the loan
 No more than 25% of amount forgiven can be for non-payroll costs
 Amount is tax-free to the borrower (and no deduction for expenses paid)
 Amount of forgiveness is reduced if there are certain headcount or wage reductions
 Borrower submits application to lender and must document the number of FTEs and pay
rates, as well as the use of funds for all purposes
 Lender has 60 days to made a decision after it receives a completed application for
forgiveness
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Payroll Costs Defined
 Payroll Costs
 Employee
 Wages, salary, commissions, or tips (up to cap of $100K/year/person)
 DOES NOT INCLUDE INDEPENDENT CONTRACTORS
 Vacation, parental, family, medical, or sick leave
 Dismissal or separation payments
 Payments for group health care benefits, including insurance premiums
 Retirement benefits
 Employer state or local taxes on compensation
 Sole proprietor or independent contractor (up to $100,000 annually)
• Wage; commission; income; net earnings from self-employment – From 2019 Schedule C even if not yet
filed with IRS
 Partners in a partnership
• Net earnings from self-employment, computed from box 14a (reduced by certain items) multiplied by
0.9235, up to $100K per partner
 Excludes (i) employer’s share of Federal employment taxes and federal income tax withholding, (ii)
compensation to an employee whose principal place of residence is outside the United States, and (iii) qualified
sick leave and family leave under the Families First Coronavirus Response Act
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Allowable Uses vs. Forgivable Expenses
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Allowable Uses (during the 2-year term of the loan) Forgivable Expenses (during the 8-week period)
1 Payroll costs (including salary, wages, retirement benefits, group
health care benefits, state and local employment taxes, etc.) for
employees whose principal place of residence is in the U.S.
Same (note: salary cap is $15,385 for the 8-week period)
2 Interest on business mortgage obligations (but not prepayments
or principal payments) on real or personal property
Interest on business mortgage obligations (but not prepayments or
principal payments) on real or personal property, if the loan was incurred
before 2/15/2020
3 Business rent for real and personal property Business rent for real and personal property, if the lease was in effect
before 2/15/2020
4 Business utilities (including electricity, gas, water, transportation,
telephone and internet)
Business utilities (including electricity, gas, water, transportation,
telephone and internet), if the service was in effect before 2/15/2020
5 Interest in any other debt obligations incurred before 2/15/2020 None
6 Costs related to the continuation of group health care benefits
during periods of paid leave, and insurance premiums
None

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Forgiveness Example -
non-payroll costs exceed 25%
Max that can be forgiven Loan to be repaid
Loan amount $100,000
Payroll during 8 weeks 60,000 $60,000 $-0-
Rent, Utilities and Interest 30,000 (60K/75% =$80,000 less $60,000) = $20,000 $10,000
Total spent 90,000
Amount to be repaid as it
was not spent ($100,000 less $90,000 spent) $10,000
TOTALS $80,000 $20,000
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Loan Forgiveness Reductions
 Reduction based on headcount reduction
 Multiply total eligible expenses paid during 8-week period after loan is made (covered period) by the following
fraction:
• Average number of FTEs per month during 8-week period after the loan is made, divided by
• At the election of borrower:
 Average number of FTEs per month during 2/15/19 to 6/30/19, or
 Average number of FTEs per month during 1/1/20 to 2/29/20
 Reduction based on wage reduction
 Reduction amount per employee is equal to:
• the amount by which total salary and wages paid during the covered period is less than 25% of total wages paid during
most recent full quarter before the covered period
 Although unclear, calculation of the reduction applies only to employees making less than $100K/year
 Can restore headcount and wages by 6/30/2020 to account for any reductions made between 2/15/2020
and 4/26/2020
 FAQ #40 (May 3, 2020)– An IFR will be issued to exclude from the reductions any laid-off EE who rejects a
written offer of employment at a comparable wage, and the ER documents the rejection
• Example: 100 EEs – 2 laid off and reject offer, and 2 others hired; is the FTE count effectively 102? What about furloughed EEs?
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DATES
Received loan on May 1, 2020
To apply for loan
 Use either calendar 2019 or 12 months ended 3/31/20
Proceeds used during 8 weeks after loan is received (5/1/20 to 6/25/20)
Reduction of forgiveness based on:
 Reduction in # of employees
• Average # FTEs 5/1/20 to 6/25/20 compared to either:
 Average number of FTEs per month during 2/15/19 to 6/30/19, or
 Average number of FTEs per month during 1/1/20 to 2/29/20
 Reduction in wages (more than 25%)
• Salaries of employee during 5/1/20 to 6/25/20 compared to
• First full quarter before loan 1/1/20 to 3/31/20
Reduction eliminated by Re-Hire
 Average FTEs during 2/15/20 to 4/26/20 compared to 2/15/20
 Salaries 2/15/20 to 4/26/20 compared to 2/15/20
 If cured by 6/30/20 then there is no reduction in number of employees and/or salary
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Companies Returning PPP Loans
$77M Returned $20M Returned $10M Returned $4.6M Returned
$10M Returned $7.2M Returned $6.7M Returned $6M Returned
Construction Industry
Manufacturer: Receives
$5.5M

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Following several public and high-profile companies receiving PPP loans, the SBA now
plans to review all loans in excess of $2 million, and others as needed. Per a statement
issued April 28 by U.S. Treasury Secretary Steven T. Mnuchin and Small Business
Administrator Jovita Carranza:
“We have noted the large number of companies that have appropriately reevaluated
their need for PPP loans and promptly repaid loan funds in response to SBA guidance
reminding all borrowers of an important certification required to obtain a PPP loan. To
further ensure PPP loans are limited to eligible borrowers, the SBA has decided, in
consultation with the Department of the Treasury, that it will review all loans in excess
of $2 million, in addition to other loans as appropriate, following the lender’s
submission of the borrower’s loan forgiveness application. Regulatory guidance
implementing this procedure will be forthcoming.”
Businesses "owned by large companies [private and public] with adequate sources of
liquidity to support the business’s ongoing operations" can be eligible, but, like all
borrowers, must certify in good faith that their PPP loan request is necessary to
support ongoing operations of the borrower. Borrowers must make this certification in
good faith, taking into account their current business activity and their ability to
access other sources of liquidity sufficient to support their ongoing operations in a
manner that is not significantly detrimental to the business.
"Lenders may rely on a borrower’s certification regarding the necessity of the loan
request. Any borrower that applied for a PPP loan prior to the issuance of this
guidance and repays the loan in full by May 7, 2020, will be deemed by SBA to have
made the required certification in good faith."
SBA Loan Review Update:

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TAX PROVISIONS

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Corporate Tax Provisions
 Employee retention tax credit for employers subject to closure due to COVID-19
 Refundable payroll tax credit for 50% of qualified wages paid from 3/13/2020 through 12/31/2020 (see IRS FAQs, Form 7200 and Instructions,
IR-2020-62, and JCT Bluebook)
 Qualified wages include the employer’s group health plan expenses allocable to the wages
 The credit is capped at the first $10K of wages per employee (including health benefits) (so max credit is $5K per employee)
 Employers may reduce their employment tax and income tax deposits for the amount of anticipated credits without penalty (Notice 2020-22)
 Applies to employers whose (i) operations were fully or partially suspended due to a COVID-19 related shut-down order, or (ii) gross receipts
declined by more than 50% when compared to the same quarter in the prior year (and ends when back over 80%)
 Applies regardless of the size of the business, or number of employees
 Amount of qualified wages: if more than 100 FTEs – then applies only to wages of EEs not working; if 100 or fewer employees – then applies to
all wages
 Credits claimed on Form 941 starting in Q2 2020, per IRS
 Credit not available if taxpayer obtains a covered loan under the PPP (i.e., the forgivable loan program)
 Credit not available if based on sick/family leave that is reimbursed under FFCRA (no doubling up on the credits)
 U.S. Senate Finance Committee FAQs address nonprofits
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Corporate Tax Provisions
 Employer payroll tax deferral
 Employers can defer payment of the employer’s share (6.2% of wages up to $137,700) of the SS payroll tax, and 50% of self-
employment taxes (see IRS FAQs)
 Covers taxes due from 3/27/2020 through 12/31/2020 – no special election is required to claim the credit
 Claimed on Form 941 starting in Q2 2020, per FAQs
 Deferred amount must be repaid in equal installments by 12/31/2021 and 12/31/2022
 Applies regardless of the size of the business, or number of employees, and the statute imposes no interest charge on the
deferred amounts
 Taxpayers can claim this deferral on top of the ERC and qualified paid sick/family leave – they can layer the benefits
 Not available if the taxpayer has debt forgiven on a covered loan under the PPP, but taxpayers can defer up to the date
forgiveness is granted by the lender, and even then the deferred amounts up to that point can be further deferred until the
end of 2021 and 2022, as above
 Tax deduction may be deferred depending on when payroll tax is eventually paid
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QUESTIONS?

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Withum’s Construction Services team is
proud to serve all types of contractors and
builders, distributors, suppliers,
manufactures, equipment dealers,
recyclers, demolishers and construction
service providers.
For more information on our services
please visit: withum.com

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Contact Your Presenters
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Lou Sandor III, CPA, CCIFP,
Partner, Practice Leader,
Construction Services
lsandor@withum.com
Daniel Mayo, JD, LLM,
Principal, National Lead, Federal
Tax Policy
dmayo@withum.com