PPP Loan

[zupfer]

So, if a client receives the PPP Loan and it is Forgiven, then is it income?  Meaning, it is used for Payroll Expenses, so then are those expenses not allowed?  Offset by the loan?

[abctax55]

Excellent question, to which there is no specific answer yet.  

'Probably' the expenses are still deductible - but like most of these recent laws passed, the devil is in the details and the *details* were not very well thought out.

[itonewbie]

Section 1106 of the CARES Act deals with forgiveness of the loan.  There is a certification process and a number of factors, including FTE and pay rates, will determine the amount that would be forgiven.  Subsection (i) then stipulates that the amount forgiven which is includible as gross income under the IRC will be excluded.

[abctax55]

thanks, Jensen.

there are so many moving parts right now.

[itonewbie]

@abctax55I know.  I'm finding it exhausting to keep tab on all these moving parts and multiple emails coming on the same day with updates to updates.  This is madness!

[kwperry]

Apparently, the SBA and my client's PPP lender disagree with the inclusion of federal and state withholding and employee FICA for the loan forgiveness period.

SBA – PPP - Interim final rule

1. IS THERE ANYTHING THAT IS EXPRESSLY EXCLUDED FROM THE DEFINITION OF PAYROLL COSTS?

Yes The Act expressly excludes the following:

iii. Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee's and employer's share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees

[qbteachmt]

"disagree with the inclusion of federal and state withholding and employee FICA for the loan forgiveness period."

With the exception of Employer's Share of taxes, this part is already in Gross Payroll. The employer is not responsible for employee withholding or employee share of FICA; they "do the banking" by sending on the funds, but that is not the employer's expense.

The expenses are not deductible when the amounts forgiven are not income, according to the link I put here:

https://proconnect.intuit.com/community/tax-talk/discussion/tracking-ppp-funds-and-their-use/01/8300...

Which is a moving target at the moment.

There are at least three provisions: The deferral of Employer/Employee tax payments as 50% 221 and 50% 2020; the retention credit which is accomplished by keeping the funds and/or using Form 7200; the Paycheck Protection Loans. Oh, and the Sick/FMLA provision.