Republicans want to inject more money into the Paycheck Protection Program (PPP) as practitioners and accountants applaud Treasury’s additional guidance to help businesses navigate the complex business loan program.
Senate Majority Leader Mitch McConnell, R-Ky., said in an April 7 statement that he will work with the Democratic leader, Charles E. Schumer of New York, to approve up to $250 billion in funding for the PPP by April 9.
“Congress needs to act with speed and total focus to provide more money for this uncontroversial bipartisan program,” McConnell said. He said he wants to move the legislation by either voice vote or unanimous consent, which would speed up the process and prevent all senators from having to travel back to Washington during the coronavirus pandemic.
But Democrats signaled that they want assurances that funding for the program to help with payroll costs will be made available to a wide range of businesses before agreeing to the increase. In an April 7 letter to Treasury Secretary Steven Mnuchin and U.S. Small Business Administrator Jovita Carranza, Senate Democrats asked that a portion of the PPP funding be reserved for underserved borrowers. House Speaker Nancy Pelosi, D-Calif., appeared open to the suggestion of increasing funding after a call with Mnuchin, but also said the program shouldn’t be administered in a way that “solidifies inequality.”
The $349 billion program created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) has run into problems as banks and borrowers complain that guidance from Treasury has been lacking. Senate Finance Committee member Robert Menendez, D-N.J., asked Mnuchin and Carranza for more guidance in an April 6 letter.
Treasury Sheds Light
The Small Business Administration and Treasury published an FAQ on the loan program late April 6.
The CARES Act gave employers options for how to keep paying workers during the pandemic. Those options include the PPP and an employee retention credit that provides a fully refundable credit against the employer’s portion of payroll taxes, but only $10,000 in wages per employee can be counted for all calendar quarters and the credit is capped at $5,000 per employee.
Employers must forgo that credit if they want to apply for a PPP loan. The CARES Act modified section 7(a) of the Small Business Act to create the program. Businesses eligible for the loans include those with 500 or fewer employees with a principal place of residence in the United States, or other businesses in industries that meet applicable employee-based standards.
The businesses must have been in operation on February 15, 2020, and must have paid employee salaries and payroll taxes or paid independent contractors and issued Forms 1099-MISC. But the interim rules also state that independent contractors don’t qualify as employees under the program because independent contractors and sole proprietors can apply for the loans on their own.
Businesses can borrow the lesser of $10 million or a specified amount under a payroll-based formula. The formula is mechanical, and the interim rules explain how it works: From the aggregate payroll costs for the last 12 months, subtract compensation in excess of an annual amount paid of $100,000, divide that amount by 12, and then multiply the average monthly payroll costs by 2.5.
In defining payroll costs, the law excludes any employee compensation costs in excess of an annual salary of $100,000. Practitioners were quick to point out several issues with that language, such as whether there was a cliff effect for salaries over $100,000 and what exactly counts as compensation when calculating the annual salaries.
According to the FAQ, that $100,000 exclusion doesn’t apply to all employee benefits of monetary value.
“The exclusion of compensation in excess of $100,000 annually applies only to cash compensation,” the FAQ says. However, the exclusion doesn’t apply to noncash benefits, such as employer contributions to defined benefit or defined contribution retirement plans or payments for the provision of employee benefits consisting of group healthcare coverage, which includes insurance premiums.
Practitioners said that answer is helpful because webcasts on the PPP loan program over the past week have stated otherwise.
The American Institute of CPAs on April 7 praised the SBA and Treasury for the FAQ.
“We’ve been working hard to drive a common understanding and approach around PPP implementation,” Erik Asgeirsson, president and CEO of CPA.com, the AICPA’s business and technology arm, said in a statement. “We thank Treasury and SBA for producing these clarifications and swiftly communicating this update.”