
Lending & Finance Practice Group Leader
Client Alert
Steven S. Poindexter
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On August 4, 2020, the Small Business Administration (SBA), in consultation with the U.S. Department of the Treasury (Treasury), issued its “Frequently Asked Questions (FAQs) on PPP Loan Forgiveness” (the “FAQs on PPP Loan Forgiveness”), which is available here. SBA advises that borrowers and lenders may rely on the FAQs on PPP Loan Forgiveness as SBA’s interpretation, in consultation with Treasury, of the CARES Act, the Paycheck Protection Program Flexibility Act, and the interim final rules relating to the PPP (the “PPP Interim Final Rules”). For our prior alerts relating to PPP, click here.
The FAQs on PPP Loan Forgiveness is divided into several sections dealing with general forgiveness matters, payroll costs, nonpayroll costs, and reductions. Although the FAQs on PPP Loan Forgiveness does not answer all of the questions that borrower and lenders have had concerning PPP loan forgiveness, as applicable, it does provide helpful confirmations and additional guidance relevant for both borrowers and lenders.
Here are ten of the most helpful takeaways from the FAQs on PPP Loan Forgiveness:
Question: What expenses for group health care benefits will be considered payroll costs that are eligible for loan forgiveness?
Answer: Employer expenses for employee group health care benefits that are paid or incurred by the borrower during the Covered Period or the Alternative Payroll Covered Period are payroll costs eligible for loan forgiveness. However, payroll costs do not include expenses for group health care benefits paid by employees (or beneficiaries of the plan) either pre-tax or after tax, such as the employee share of their health care premium. Forgiveness is not provided for expenses for group health benefits accelerated from periods outside the Covered Period or Alternative Payroll Covered Period.
If a borrower has an insured group health plan, insurance premiums paid or incurred during the Covered Period or Alternative Payroll Covered Period qualify as “payroll costs,” as long as the premiums are paid during the applicable period or by the next premium due date after the end of the applicable period. As noted, only the portion of the premiums paid by the borrower for coverage during the applicable Covered Period or Alternative Payroll Covered Period is included, not any portion paid by employees or beneficiaries or any portion paid for coverage for periods outside the applicable period. Loan Forgiveness Payroll Costs FAQ 8 outlines the rules that apply to owner health insurance.
Question: What contributions for retirement benefits will be considered payroll costs that are eligible for loan forgiveness?
Answer: Generally, employer contributions for employee retirement benefits that are paid or incurred by the borrower during the Covered Period or Alternative Payroll Covered Period qualify as “payroll costs” eligible for loan forgiveness. The employer contributions for retirement benefits included in the loan forgiveness amount as payroll costs cannot include any retirement contributions deducted from employees’ pay or otherwise paid by employees. Forgiveness is not provided for employer contributions for retirement benefits accelerated from periods outside the Covered Period or Alternative Covered Period. Loan Forgiveness Payroll Costs FAQ 8 outlines the treatment of retirement benefits for owners, which are different from this general approach.
The new FAQs on PPP Loan Forgiveness provides helpful guidance for borrowers and lenders that are now focused on applying for and reviewing loan forgiveness applications. Lewis Rice will continue to monitor these developments and provide updates to our COVID-19 Resource Center as needed. If you would like to sign-up to receive client alerts via email, you can do so here. If you have any questions about the implications and disruptions of COVID-19 on your business, please reach out to the author above or another member of the Task Force.