A MedCV Practice Management Tip
If you applied for the Payroll Protection Program loan (If you didn’t, you need to, immediately) through the SBA, you probably found the process both confusing and frustrating. And now if your PPP loan has been funded, the confusion continues as you search to use the funds in a manner to obtain forgiveness and so as not be required to pay back the loan.
Here are a few thoughts to remember as you begin to use the funds for your business or practice:
You have 8 weeks (56 days) to use the funds for your business or practice in order for the loan to be forgiven. The clock begins on the day funds are deposited into your account. This is a relatively short window of time to use the funds so you need to understand what expenditures count toward the forgiveness use of the funds.
- Payroll and benefits – there are two hurdles to clear related to use of funds for payroll and employee benefits.
- At least 75% of the funds must be used for payroll and employee benefits; this includes gross wages/salary and any benefits paid by the employer. This does not include payroll taxes paid (except certain state and local taxes assessed – ie state unemployment tax). The 75% limit is a minimum so it is ok to exceed this amount. In some cases employers could use 100% of the loan for payroll and benefits.
- The number of employees during the 8 week period needs to average the lower of your average number of employees on payroll from February 2019 to June 2019 or from January 2020 to February 2020. The goal of the PPP program is to have the employer back at 100% employment but the timing of bringing employees back on payroll is critical in order to meet the requirements of the Loan forgiveness.
The portion of the loan proceeds that is not used for payroll and benefits can be used for Utility expense, rent or mortgage expense. It is our belief that these expenses are considered as paid so again timing of the expenses can be critical. Although you cannot prepay utilities or rent with these funds, it may be possible to pay 3 months of utilities if you can time the invoices properly. But critical to this part of the loan forgiveness is to document the use of the funds – copies of invoices, copies of checks written, or from electronic documentation of payment – documentation is going to be essential to proving use of funds and obtaining loan forgiveness.
Final thought – this PPP program is a LOAN and a liability to your company or practice. Once loan forgiveness has been approved, the liability is converted to tax free income. This should be tracked in a separate income account on your profit/loss statement so your tax preparer will be alerted to reporting it as nontaxable on the tax return.
MedCV would like to thank Roger and our trusted MedCV friends at Boatner & Pugh CPA’s for this insight and these important “Need to Know” practice management tips.
Roger Boatner, CPA, MTA