Dear clients and PPP recipients,
Many of you are asking questions about receiving forgiveness of your PPP loans. Bottom line: There is no need to rush to apply for forgiveness. You have 10 months from the end of the 24-week period, accrued interest is small and will likely be forgiven, and we believe Congress will pass legislation simplifying the forgiveness application. For the many of you who had PracticeCFO do your accepted PPP application, we will automatically process the forgiveness application as well right after the 24-week mark. We will reach out to you if we need more information, your signature, or to let you know it is done.
Here is a Q&A to help answer those questions. But first, a quick refresher.
Once the PPP funds were disbursed to your account, you had 24 weeks to spend those funds for qualified expenses (with at least 60% going toward payroll) in order to receive forgiveness. Importantly, you must maintain your overall employee headcount. For most, if not all of you, we expect you will receive forgiveness on the majority or all of your loan.
- When is the application due?
A borrower has 10 months following the 24 week “covered period” to apply for loan forgiveness. Once the forgiveness application has been submitted, the lender has 60 days to provide it to the SBA, who then has 90 day determine the amount of forgiveness.
- When should I apply for forgiveness?
PracticeCFO recommends waiting to apply for forgiveness until (1) the end of the 24 weeks to increase the likelihood of full forgiveness and (2) it is widely expected that congress will pass legislation that would dramatically simplify forgiveness of PPP loans under $150,000. Since most of you have PPP loans under $150,000 such legislation would make forgiveness easy and incentivizes waiting. Until it is passed, we recommend making arrangements to apply for forgiveness under the current guidelines within a few months after your 24 weeks have expired. Assuming the current guidance remains in force, we expect early applicants to receive higher levels of scrutiny on their forgiveness apps. That said, we remain optimistic Congress will pass the legislation and forgiveness will likely be a simple signature attesting that you used the funds on qualified expenses (i.e. an honor code).
- When will the loan begin to accrue interest?
Your PPP loans began accruing interest at 1% annually when the funds were disbursed. However, you will only be responsible to pay interest on any unforgiven amount. If 100% of your PPP loan is forgiven, then you will not be required to pay any interest.
- Will PracticeCFO be applying for forgiveness?
If you submitted a formal request for PracticeCFO to apply for your PPP loan that was then funded, then PracticeCFO will automatically be applying for forgiveness once the 24-week period ends. If you applied for the PPP loan on your own, then you’ll be required to apply forgiveness. However, you can request PracticeCFO apply for it on your behalf for a nominal fee.
- Is the PPP income taxable?
The PPP loan will increase your tax liability. Although the PPP funds are excluded from taxable income, any expenses paid using PPP funds are not tax deductible. This has the same effect as those funds being included in taxable income. We’ve planned accordingly in our financial planning meetings with you. We are cautiously optimistic congress may change this to allow those expenses to be tax deductible. Separately, be aware that most grants, including those from HHS, will be taxable as well, and your advisor is including that in your tax planning.