The Paycheck Protection Program (PPP) is a program that provides up to $1,000 in grants for businesses that have been affected by COVID-19. The program was designed to help small businesses and families in need of cash flow as they adjust to the changes caused by COVID-19.
Businesses that were created after February 15, 2020 are not eligible for the Paycheck Protection Program. The Paycheck Protection Program expiration date is scheduled to be May 31, 2021.
What is a PPP loan?
The Paycheck Protection Program (PPP) is a business loan program that was established by the United States federal government in 2020. The PPP is designed to help certain businesses, self-employed workers, sole proprietors, certain nonprofit organizations and tribal businesses continue paying their workers.
Businesses that were created after February 15, 2020 are not eligible for the Paycheck Protection Program. The Paycheck Protection Program expiration date is scheduled to be May 31, 2021.
The Paycheck Protection Program was created to help businesses that were negatively impacted by the Financial Reform and Consumer Protection Act of 2010. The act was designed to help businesses pay their employees during a recession but it also had some unintended consequences.
There are other reforms that were adopted by various administrations over the years, such as the American Dream Downpayment Act of 2003 under the Bush administration. And after the crisis of 2008, the Financial Reform and Consumer Protection Act of 2010 was designed to help businesses pay their employees during a recession. However, the act also had some unintended consequences. The Paycheck Protection Program was created to help businesses that were negatively impacted by the Financial Reform and Consumer Protection Act of 2010.
The Paycheck Protection Program has to be repaid within 2 years unless the borrower and lender agree to a longer period of time.
How does a PPP loan work?
The PPP loan repayment process is governed by the Small Business Association’s rules. If a borrower uses the loan proceeds on an approved expense, such as payroll costs, the loan amount is forgiven, which means that the borrower won’t have to repay it. If a borrower can’t get their loan forgiven, they’ll have to repay their loan at 1% interest over 2 years at a minimum monthly payment of $50 per month. Borrowers don’t have to make a payment during the first 6 months after they receive their PPP loan funds.
The length of your PPP loan depends on how much you borrow and how much you earn. The more money you borrow, the longer the term will be. For example, if you borrow $2,000 at an annual interest rate of 7% for 6 months and make monthly payments of $50, then your monthly payment will be $200 ($50 x 12 months = $600 x 0.08) or $216 ($216/12 months = 16.67%; 100 – 16.67 = 83%), which is well within the maximum recommended management performance measures (MPM).
A business must rehire all employees who lost their jobs due to COVID-19 by June 30, 2021 in order for their Paycheck Protection Program funds to be forgiven.
If a business is eligible to receive a Paycheck Protection Program loan and has not rehired all employees who lost their jobs due to COVID-19 by June 30, 2021, the business will not be able to receive forgiveness of their PPP loan balance. This means that if your business hired 100 people on January 1st and then laid off 80 of them on April 15th, only 20 people would need to be rehired by June 30th for your business to get the full $5 million in forgiveness. These are all very specific requirements (for example: if one person was hired back in February instead of March) and you should read carefully through these guidelines before applying for a Paycheck Protection Program loan.
A straightforward application process:
The Paycheck Protection Program loan is a great way for businesses to save money on their taxes and help build back up after COVID-19. However, the program has very specific requirements and will not forgive any loans unless all of them are met. For more information about this program or if you have questions about hiring people back into your business, contact your tax advisor today.
Borrowers who apply for EIDL Advance or PPP loans are required to submit documentation supporting the information provided on their applications including tax documents and payroll records.
Tax documents include:
- Federal Income Tax Return, if applicable
- W2’s, if applicable (for example, you were an employee)
What support is a PPP loan designed to provide its beneficiaries?
The Paycheck Protection Program is designed to support individuals and small businesses that have been affected by COVID-19. The program is divided into two forms of relief:
- Payroll cost relief provides temporary tax relief for employers by capping the amount of payroll costs that can be deducted from an employer’s income taxes. This cap applies if your business’ taxable income from all sources exceeds $20 million, or if you are a small business with taxable income of $50 million or less (for purposes of this provision, small businesses are defined as those with 50 or fewer employees). If you qualify for this relief, the IRS will issue guidance on how much you may deduct in 2019 and 2020; however, it has stated it will provide some relief during these years even if they determine that they cannot issue guidance regarding the process until later.
- Health coverage tax credit provides a nonrefundable tax credit to eligible employers who offer health coverage to their employees through an eligible plan purchased in exchange markets established under ACA provisions (Health Insurance Exchange) and who pay at least half of the cost of the health coverage. The credit is available to eligible employers with fewer than 25 full-time equivalent employees and average annual wages that do not exceed $55,000 (the 2019 amounts will be adjusted for inflation).
For tax years 2019 and 2020, eligible employers could claim up to 50% of the cost of premiums paid for health insurance coverage offered to their employees as a nonrefundable credit. However, the amount of the credit was capped at 25% of average annual wages paid by the employer during the year (the 2019 amounts would be adjusted for inflation).
If you’re a small business owner or entrepreneur who has been affected by COVID-19, the Paycheck Protection Program can help. This is also an opportunity for your business to rebound after this devastating event and grow with renewed energy and enthusiasm. We hope this article gave you a better understanding of what the Paycheck Protection Program is all about.
