Pub. 19 2020-2021 Issue 4

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S I S S U E 4 | 2 0 2 0 26 new jersey auto retailer PAYCHECK PROTECTION  continued from page 25 Which Form Do I Use? The SBA provides three different forgiveness applications. Form 3508S — File this application if: • The total PPP loan amount you received from your Lend- er was $50,000 or less, and the total PPP loans received, together with affiliates, amounted to less than $2M. This simplified form will not apply to most dealers since dealer- ship loans typically exceeded $50,000. Form 3508EZ — File this application if: • During the Covered Period, the dealership had no salary or wage reduction over 25% for employees that did not re- ceive, in any single pay period in 2019, wages and salaries at an annualized rate of more than $100,000 and either no reduction in Full-Time Equivalent ( FTE ) OR meets FTE safe harbor based on inability to operate at the same level of business. Form 3508 — File this application if not eligible to file Form 3508S or 3508EZ. Dealers that use the lenders’ portals to complete their forgive- ness applications will answer a series of questions that will guide them to the proper form. It will be useful to have Form 3508 completed since the lender portals simulate the form and make the application process quicker. Determination of Forgiveness Amount The forgiveness amount is lower of: • Modified total ( the sum of all qualified costs less any salary/wage reductions adjusted for any FTE reduction ) • PPP Loan Amount • Qualified Payroll cost divided by 60% Note that any reductions are calculated on the total quali- fied costs. For example, a dealership received a PPP loan of $750,000, spent $1,500,000 in qualified cost and incurred a 30% FTE reduction. This will result in a modified total of $1,050,000 ( $1,500,000 X 0.70 ). In this case, the dealership will still have full forgiveness because the modified total, after reduction, would be more than the PPP loan amount. Qualified Cost Qualified costs eligible for forgiveness include both payroll costs and non-payroll costs. Payroll costs need to be incurred and paid during the Covered Period ( or the Alternative Payroll Covered Peri- od ) or paid on or before the next regular payroll date. Non-pay- roll costs need to be incurred or paid during the covered period or paid on or before the next regular billing date. Payroll costs include all forms of cash compensation paid to employees, including tips, commissions, bonuses and hazard pay. Note that forgivable cash compensation per employee is limited up to $46,154 for non-owners during the 24-week Covered Period. Employers may also elect to use the Alterna- tive Payroll Covered Period if the payroll frequency is weekly or biweekly. This allows you to move the Covered Period’s start date to the first day of the payroll week after receiving PPP loan proceeds. Other Payroll costs include employer-paid health insurance, employer-paid retirement plan contribu- tions and employer payments for state and local payroll taxes assessed on employee earnings. Compensation for owner-employees, self-employed individ- uals or general partners — The eligible cost is the lesser of $20,833 or 2.5/12 of their 2019 compensation. Non-cash benefits for owner-employees will depend on the business tax structure. For S corporations: employer health insurance is not allowed for owners and family members of 2% shareholders. For LLC mem- bers/partners: employer health insurance, retirement contribu- tions and state & local taxes are not allowed. Non-payroll costs such as rent, utilities ( electricity, gas, water, telephone, etc. ) and mortgage interest had to be in effect or ser- vice as of February 15, 2020. It is important to note that rent paid to related parties ( dealer-owned real estate ) is limited to the amount of the mortgage interest paid on the property during the Covered Period. Reductions to PPP Loan Forgiveness Qualified costs must be reduced by the dealership’s reduction for salary and wage reductions and reductions in FTEs. If an employee’s base salary or hourly rate was reduced by more than 25% when compared to the measurement period (Q1 2020), a reduction to forgiveness is applied by calculating the difference in rate between the Covered Period and the measurement period ( multiplied by 0.75 ) and applying that difference to the hours worked during the Covered Period. For example, if an employee earned $20 per hour during the measurement period and $14 per hour during the Covered Period, the wage reduction is $1 per hour ( $20 x 0.75 = $15 – $14 ). If the employee worked 500 hours during the Covered Period, the wage reduction is $500 ( $1 x 500 ). This is subtracted from the dealership’s total qualified costs. Note that employees who were paid more than $100,000 at any time during 2019 and new hires are not included in this calculation. Also, note that the reduction for salaries is calculated on the base salary and does not include commissions or bonuses. The FTE reduction is calculated by taking the average FTE for the Covered Period ( or Alternative Payroll Covered Period, if used ) and dividing it by the Borrowers choice of reference periods: • February 15, 2019 — June 30, 2019; • January 1, 2020 — February 29, 2020); If the average FTE for the Covered Period is less than the ref- erence period, then the percentage decrease would result in an “FTE Reduction Quotient” of less than 1.0. For example, if you had 100 FTEs in the reference period and only 70 FTEs during your Covered Period, you would have a 70% FTE Reduction Quotient ( 70/100 ). Safe Harbors Certain safe harbors are provided for businesses unable to main- tain their FTEs and pay rates during the Covered Period. For- giveness will not be reduced under the following circumstances: • There is a safe harbor for Salary/Hourly Wage Reduc- tion. In the previous example ( the employee with the rate of pay that was reduced from $20 per hour to $14 ), if the rate was restored during the pay period that includes 2/15/2020 ( $20 ) and the date the forgiveness application is submit- ted, the safe harbor is met. In that case, the $500 reduc- tion will not be a reduction to the forgiveness amount.