The Paycheck Protection Program offers alluring loans of up to $ 10 million tax free. If you are obedient, you don’t even have to pay it back. What’s more, there is no forgiveness of debt income when your loan is forgiven, something that is the standard fee if you are relieved to pay back the debt. However, the IRS Watch 2020-32 assert you cannot claim tax deductions, even if wages, rent, etc. usually fully deductible. The CARES Act provisions for small businesses include the Paycheck Protection Program, which calls for up to $ 10 million in loans that can be forgiven to cover employee salaries, and direct tax credits designed to do the same.
Since PPP came out, it has been in turmoil in controversy, with SBA and banks offering uneven launches, and concrete steps for banks that spend all their money very quickly. Congress finally saved by authorizing more money, but that also did not seem to last long. And the FAQ and other guides are fast and furious. Likewise speculation about various things. There is a debate about tThe point of tax reduction, with some people saying you can still reduce wages, because the CARES Act does not seem to say otherwise. But under traditional tax principles, it seems too good to be true that you can get free money, not pay debt expenses, and still reduce payment of wages and rent made with free money. IRS notifications confirm that.
The Paycheck Protection Program allows loans of up to $ 10 million at 1% interest for employers with less than 500 workers to cover two months’ salary and overhead. If you retain your workers and do not cut their wages, the government will forgive most or all of the loans and even repay the bank that actually made you a loan. The loan amount will be forgiven as long as: (1) The loan proceeds are used to cover payroll costs, and most of the interest costs on mortgages, rents and utilities during the 8 week period after the loan is made; and (2) Employee levels and compensation are maintained. Payroll costs are limited to $ 100,000 for each employee. SBA lenders have details, despite the controversy and hiccups in launching the program.
Your loan forgiveness will decrease if you reduce the number of your full-time employees. Your loan forgiveness will also be reduced if you reduce your salary and wages by more than 25% for each employee who earns less than $ 100,000 per year by 2019. You have until 30 June 2020 to recover your full-time job and your salary level for each changes were made between 15 February 2020 and 26 April 2020.
You must also specifically ask for a loan forgiveness. You can submit a request to a lender who is serving a loan. The request will include documents that verify the number of employees who are equal full time and payment rates, as well as payments for a decent mortgage, rent, and utility obligations. You must certify that the document is correct and that you use the amount of forgiveness to retain employees and make payments for interest, rent, and utilities that qualify. The lender must make a decision about forgiveness within 60 days.
There are other no-double dip rules. You can’t get second small business loans under PPP and also claims CARES Act, a tax credit for retaining employees. Which one is better? It’s one of the most ‘annoying’, so run the numbers.