On June 26, 2020, the U.S. Small Business Administration (“SBA”) published guidance on the determination of the maximum loan amount by entity type under the Paycheck Protection Program (“PPP”) of the CARES Act.
The guidance summarized how to determine the potential maximum PPP loan amount (generally 2.5 times certain average monthly payroll costs) for each of the following entity types:
- S and C Corps – 2019 payroll costs are calculated by adding the following:
- Gross wages and tips paid to U.S. employees using 2019 IRS Form 941 Taxable Medicare wages and tips from each quarter and any pre-tax employee contributions for health insurance or other fringe benefits excluded from Taxable Medicare wages and tips less any amounts paid to any individual employee in excess of $100,000 and any amounts paid to any employee whose principal place of residence is outside the U.S.
- 2019 employer health insurance contributions;
- 2019 employer retirement contributions (IRS Form 1120 line 23 or IRS Form 1120-S line 17); and
- 2019 employer state and local taxes assessed on employee compensation, primarily state unemployment insurance tax (from state quarterly wage reporting forms).
- Eligible nonprofits – 2019 payroll costs are determined by adding the following:
- Gross wages and tips paid to U.S. employees using 2019 IRS Form 941 Taxable Medicare wages and tips from each quarter and any pre-tax employee contributions for health insurance or other fringe benefits excluded from Taxable Medicare wages and tips less any amounts paid to any individual employee in excess of $100,000 and any amounts paid to any employee whose principal place of residence is outside the U.S.
- 2019 employer health insurance contributions (portion of IRS Form 990 Part IX line 9 attributable to health insurance);
- 2019 employer retirement contributions (IRS Form 990 Part IX line 8); and
- 2019 employer state and local taxes assessed on employee compensation.
- Partnerships – While employee compensation is generally consistent with other methodologies for determining maximum loan amounts, partners have a separate calculation.
Specifically, partners’ compensation is based upon the 2019 Schedule K-1 which is net earnings from self-employment of individual U.S.-based general partners who are subject to self-employment tax, computed from box 14a (reduced by any section 179 expense deduction claimed, unreimbursed partnership expenses claimed, and depletion claimed on oil and gas properties) multiplied by 0.9235 (to adjust for self-employment taxes) up to $100,000;
- Self-employed but not in operation between 2/15/19 and 6/30/19 – The maximum PPP loan amount is generally equal to 2.5 times average monthly payroll costs incurred in January and February 2020, plus the outstanding amount of any EIDL loan received between January 31, 2020 and April 3, 2020, that will be refinanced by the PPP loan.
- Maximum loan calculation amounts were also provided for the following:
- Self-employed, no employees;
- Self-employed, with employees;
- Self-employed, reports income on Schedule F;
- Nonprofit religious institutions, veterans organizations, and tribal businesses; and
- LLCs.
Additional details can be found at, https://home.treasury.gov/system/files/136/How-to-Calculate-Loan-Amounts.pdf.
If you need more information, please reach out to any of your contacts at Schneider Downs or contact Joel Rosenthal ([email protected]) directly.
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