Pub. 2 2020 Issue 2

11 nebraska society of cpas W W W . N E S C P A . O R G payroll costs. The Rules also provide that the proceeds of the loan may only be used for the specific purposes enumerated in the CARES Act and not for any purposes permitted under the SBA Business Loan Program, acknowledging that this further restriction will help achieve Congress’ overarching goal of keeping workers paid and employed. Are the loans made under the Paycheck Protection Program forgivable? Any amount of the proceeds of the loan used for the following purposes during the eight-week period beginning when the loan is made shall be forgiven by the SBA: • Payroll costs (subject to the same $100,000 cap per employee) • Group health care benefits • Interest on mortgage obligations • Rent payments • Utility expenses Increases in wages to compensate tipped workers are also eligible for forgiveness. The Rules provide that non-payroll cost expenses can only account for 25% of the total forgiveness amount. The amount of forgiveness permitted under the Paycheck Protection Program is subject to a reduction in the event a borrower reduces its full-time employee equivalents (FTEE) or its total wages paid to employees. A reduction in FTEEwill reduce the forgiveness amount according to the following formula: The total amount eligible for forgiveness multiplied by (a) FTEE during the covered period divided by (b) the lesser of (i) the average FTEE between Jan. 1, 2020, and Feb. 29, 2020, or (ii) the average FTEE between Feb. 15, 2019, and June 30, 2019. A reduction in total payroll paid by a borrower to its employees in excess of 25% will result in a corresponding decrease in the amount eligible for forgiveness in the amount of such reduction in total wages/salary. To the extent the reductions in FTEE or total wages occur before 30 days after the enactment of the CARES Act and are reversed before June 30, 2020, the reductions will not result in a corresponding reduction in the forgiveness amount. Any amounts forgiven will not be treated as taxable income. The SBA has indicated it will issue additional guidance on loan forgiveness. How are loans forgiven under the Paycheck Protection Program? A borrower seeking forgiveness for its loan must submit documentation verifying the payroll and number of employees during the covered period; documentation verifying other reimbursable costs such as mortgage payments, rent, and utilities; and a certification from the borrower that such documentation is true and correct. A lender shall issue its decision on an application for forgiveness within 15 days after receipt of the application. Within 90 days after determining the forgiveness amount, the SBA will remit the payments directly to the lender.