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The following information comes from Blue and Company, the auditing company that the RSA uses every year. We feel like this information may be helpful to our members to consider. We understand that many of our clients have applied for and received Paycheck Protection Program (P3) loans and for those of you who have not yet been successfully funded under the initial program, the Senate passed a bill for an additional $310 Billion of P3 funding on Tuesday April 21st which is expected to pass the House and be signed into law yet this week.. If you have received a P3 loan, or expect to pursue one in this next cycle, we want you be thinking now about the process for obtaining forgiveness of some or all of that loan balance. While you will be receiving guidance from your bank on how to obtain loan forgiveness, we want to encourage you to start your own planning now to ensure you obtain maximum forgiveness, and are available to provide assistance and guidance to support these computations and analysis. Best Practices during the Covered Period Following are some best practices for accounting for the disbursements of the loan proceeds. As a reminder, in order for the loan proceeds to be eligible for forgiveness you will need to provide documentation showing you used the funds on Qualified Expenses during the Covered Period (which is the 8 week period beginning with the disbursement of the loan proceeds). Qualified expenses are: payroll, rent, mortgage interest, and utilities, with at least 75% of the loan used for payroll. Some of the things we are recommending you do are as follows: Open a separate bank account – If possible we encourage you to open a separate bank account for the funds to be deposited in and withdrawn from. It is much cleaner from a documentation standpoint to have all the funds flow through one account. Build your file now – As you are paying qualified expenses keep a binder, electronic or old school, of copies of all invoices to verify the expenditures and your lease. It is much easier to keep track of this as you go rather than recreate it at the end of the 8 week window. Reconcile the bank account monthly - Bankers love to see reconciled accounts. Document payroll records – Also include copies of payroll records for the 8 week period listing number of full time employees, hours worked for the pay period, and copies of the payroll register. Don’t forget to factor highly compensated employees, their compensation will be limited to an annualized $100,000 for the time frame. Ask for clarity – If you are unclear if an expense qualifies, call your advisor at Blue or your lender directly to discuss the application. It is better to ask in advance than to miss an opportunity. As always, the accountants at Blue are ready and available to assist with your P3 loans and will work with you to maximize your loan forgiveness. The P3 Loan Forgiveness Planning Process We are getting many questions along the lines of “should I or can I spend my P3 money on these things, and if I do it will all be forgiven, right?” We want to be able to answer all those questions, but the answer to all those questions is “it depends”. Guidance is continuing to be provided as we write this, and we expect more clarity in the weeks ahead through additional guidance as it pertains to forgiveness to be issued to the lenders by the SBA. For you or us to be able to make sounds business decisions around spending the P3 funds we have developed a P3 planning process. Here are the steps we are suggesting to gather enough data to be able to help our clients make informed decisions. Prepare an 8-week projection of allowable expenses. Payroll – Gross wages, Retirement Plan Contributions, Health Insurance, etc. (Separate schedule of the amounts over $100,000 annualized for any employee) Interest on mortgage loans Rent Utility payments Calculate salary levels for the full quarter immediately prior to the Covered Period (either Q4 of 2019 or Q1 of 2020 pending circumstances). Calculate the average full-time equivalents by pay period to be able to determine the average for each month for two separate periods. Remember, we are going to use the Affordable Care Act definition of Full Time Equivalents. (See below) 02/15/19 through 06/30/19 01/01/20 through 02/28/20 Calculate the current average full-time equivalents of the most recent pay period. While these involve complex calculations, in short, the average full-time equivalents in the Covered Period will be compared to one of the two base periods above to determine if there is a reduction in employee count that could reduce the loan forgiveness amount. Eliminations to any potential reductions are available if certain criteria is met (i.e. levels are restored on or prior to 6/30/20). Review 2019 payroll journals for each pay period looking for current employees who during any pay period in 2019 received annualized pay (as prorated) at a level in excess of $100,000. If you desire our assistance in computing expected loan forgiveness, send the items above to us to look over once you complete them. If you need our help doing those calculations or putting those schedules together, we are here to help. Just let us know. Full-Time Employees and Full-Time Equivalent Employees A full-time employee for any period is an employee who has on average worked at least 30 hours of service per week during the period, or at least 130 hours of service during the calendar month. A full-time equivalent employee is a combination of employees, each of whom individually is not a full-time employee, but who, in combination, are equivalent to a full-time employee. An employer determines its number of full-time–equivalent employees for a month in the two steps that follow: Combine the number of hours of service of all non-full-time employees for the month, but do not include more than 120 hours of service per employee, and Divide the total by 120. Webinar and Slide Presentation If you would like more information, please feel free to access our webinar and slide presentation materials on maximizing forgiveness and minimizing reduction of your P3 loan at the following link: https://www.blueandco.com/paycheck-protection-program-p3-loan-maximizing-forgiveness-minimizing-reduction/ In addition, we are happy to help in a hands on way. JT Loughmiller, a Director in our Carmel office, is leading our efforts to help clients maximize loan forgiveness. We will be pleased to work with you and your team at Blue to assist further in this support effort. Thank you! Chris Chris Mickelson, CPA | Audit Senior Blue & Co., LLC | phone/fax 317-428-6840, cell 317-752-9708 12800 N. Meridian St., Ste 400 | Carmel, IN 46032
The following information comes from Blue and Company, the auditing company that the RSA uses every year. We feel like this information may be helpful to our members to consider.
We understand that many of our clients have applied for and received Paycheck Protection Program (P3) loans and for those of you who have not yet been successfully funded under the initial program, the Senate passed a bill for an additional $310 Billion of P3 funding on Tuesday April 21st which is expected to pass the House and be signed into law yet this week..
If you have received a P3 loan, or expect to pursue one in this next cycle, we want you be thinking now about the process for obtaining forgiveness of some or all of that loan balance.
While you will be receiving guidance from your bank on how to obtain loan forgiveness, we want to encourage you to start your own planning now to ensure you obtain maximum forgiveness, and are available to provide assistance and guidance to support these computations and analysis.
Best Practices during the Covered Period
Following are some best practices for accounting for the disbursements of the loan proceeds. As a reminder, in order for the loan proceeds to be eligible for forgiveness you will need to provide documentation showing you used the funds on Qualified Expenses during the Covered Period (which is the 8 week period beginning with the disbursement of the loan proceeds). Qualified expenses are: payroll, rent, mortgage interest, and utilities, with at least 75% of the loan used for payroll. Some of the things we are recommending you do are as follows:
As always, the accountants at Blue are ready and available to assist with your P3 loans and will work with you to maximize your loan forgiveness.
The P3 Loan Forgiveness Planning Process
We are getting many questions along the lines of “should I or can I spend my P3 money on these things, and if I do it will all be forgiven, right?” We want to be able to answer all those questions, but the answer to all those questions is “it depends”. Guidance is continuing to be provided as we write this, and we expect more clarity in the weeks ahead through additional guidance as it pertains to forgiveness to be issued to the lenders by the SBA.
For you or us to be able to make sounds business decisions around spending the P3 funds we have developed a P3 planning process. Here are the steps we are suggesting to gather enough data to be able to help our clients make informed decisions.
Prepare an 8-week projection of allowable expenses.
Calculate salary levels for the full quarter immediately prior to the Covered Period (either Q4 of 2019 or Q1 of 2020 pending circumstances).
Calculate the average full-time equivalents by pay period to be able to determine the average for each month for two separate periods. Remember, we are going to use the Affordable Care Act definition of Full Time Equivalents. (See below)
Calculate the current average full-time equivalents of the most recent pay period. While these involve complex calculations, in short, the average full-time equivalents in the Covered Period will be compared to one of the two base periods above to determine if there is a reduction in employee count that could reduce the loan forgiveness amount. Eliminations to any potential reductions are available if certain criteria is met (i.e. levels are restored on or prior to 6/30/20).
Review 2019 payroll journals for each pay period looking for current employees who during any pay period in 2019 received annualized pay (as prorated) at a level in excess of $100,000.
If you desire our assistance in computing expected loan forgiveness, send the items above to us to look over once you complete them. If you need our help doing those calculations or putting those schedules together, we are here to help. Just let us know.
Full-Time Employees and Full-Time Equivalent Employees
A full-time employee for any period is an employee who has on average worked at least 30 hours of service per week during the period, or at least 130 hours of service during the calendar month.
A full-time equivalent employee is a combination of employees, each of whom individually is not a full-time employee, but who, in combination, are equivalent to a full-time employee. An employer determines its number of full-time–equivalent employees for a month in the two steps that follow:
Webinar and Slide Presentation
If you would like more information, please feel free to access our webinar and slide presentation materials on maximizing forgiveness and minimizing reduction of your P3 loan at the following link:
https://www.blueandco.com/paycheck-protection-program-p3-loan-maximizing-forgiveness-minimizing-reduction/
In addition, we are happy to help in a hands on way. JT Loughmiller, a Director in our Carmel office, is leading our efforts to help clients maximize loan forgiveness. We will be pleased to work with you and your team at Blue to assist further in this support effort.
Thank you!
Chris
Chris Mickelson, CPA | Audit Senior
Blue & Co., LLC | phone/fax 317-428-6840, cell 317-752-9708
12800 N. Meridian St., Ste 400 | Carmel, IN 46032