Payroll Protection Program Updates

May 5, 2020

The information that follows is provided to the members of the NYS Council as a courtesy by our bookkeeping & accounting firm, Dalle Accounting,

Payroll Protection Program Act Update

Since the CARES Act, and specifically the Payroll Protection Program (PPP) was announced on March 27, information regarding the program has been more of a slow drip from a faucet rather than a fire hose.  As a result, information continues to be released that has an impact on businesses who have applied for or received a PPP loan.

Within the past few days, two very important communications have been released that could potentially impact the amount of loan forgiveness to all employers and the taxation of loan forgiveness to for-profit businesses.

When the CARES Act was originally announced, the Act specifically stated that the amount forgiven would not be considered taxable income.  However, on April 30, 2020, the IRS Released Notice 2020-32 which provides clarity on the deductibility of expenses paid with Paycheck Protection Program (PPP) loan proceeds that are partially or completely forgiven. Essentially,  the IRS has determined that normally deductible expenses that are paid with PPP funds and forgiven may not be deducted for federal income tax purposes.  Therefore, for-profit businesses who receive loan forgiveness will have to report an increase in taxable income equal to the amount forgiven.  For-profit clients should carefully evaluate the impact this will have on taxable income for 2019.  Please contact your DALLE Accounting representative if you would like assistance in discussing how this might impact you.

The second communication impacts all businesses who are having difficulty re-hiring terminated employees.  Reasons could be because the employee is no longer incentivized to return to work as a result of larger unemployment payments or is simply having difficulty caring for family or children who remain at home.  On May 3, 2020, the US Treasury released guidance for employers who, as a result, may not be able to maximize loan forgiveness under the PPP program. The Treasury’s updated FAQ document can be interpreted to address the following questions:

Q: What if I offer to rehire an employee but they don’t want to come back or want to come back at reduced hours?

A: Treasury has indicated that if an employer can prove that, in good faith, they provided a written offer to rehire and the employee rejected that offer,  the employer will not be subject to a reduction in loan forgiveness related to that specific employee.   The employer must obtain written documentation that the employee rejected the offer.

Q: Employees have rejected my offer to return to work because it is more beneficial for them to collect unemployment – what should I do?

A: Employees should be made aware that if they receive an offer to be rehired and do not accept that offer, their unemployment compensation eligibility could be forfeited.

These two considerations only impact the penalty portion of the loan forgiveness calculation and does not factor into the employers payroll costs over the 8-week period immediately after receiving a PPP loan.

The Treasury has stated that it will issue future interim final guidance on rehiring laid-off employees. Given the continuously evolving nature of the Treasury’s guidance, DALLE Accounting stresses that all employers maintain detailed, written records regarding offers to rehire or restore hours, as well as any rejections of such offers.

If you have specific questions, please contact us.  We are here to serve you in any way we can.