We continue to receive questions about what items and amounts can be counted as “payroll” for loan forgiveness. Following are several questions copied from the Treasury Department FAQ in this regard.
One thing it and other communications make clear is that the employer paid portion of Federal taxes (Indiana FUTA for instance) can’t be counted in the loan amount, and by extension it is assumed can’t be counted for loan forgiveness.
Another frequent question we receive is can I pay my employees at a higher rate for working in this time period, or pay them a bonus of some sort? There is nothing in the regulations or commentary in this regard. We have accessed a webinar put on by a local law firm and read in several other third-party sources that bonuses paid “in the normal course of business and within reason” are likely to be forgiven.
Again – there is no clarity on this point, and “within reason” can have as many definitions as there are people trying to answer the question.
The full Treasury Department FAQ document is posted to our website at Citizens-Banking.com. It is updated often as additional questions are added and answered, so check back frequently.
Question 16: How should a borrower account for federal taxes when determining its payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan, and the amount of a loan that may be forgiven?
Answer: Under the Act, payroll costs are calculated on a gross basis without regard to (i.e., not including subtractions or additions based on) federal taxes imposed or withheld, such as the employee’s and employer’s share of Federal Insurance Contributions Act (FICA) and income taxes required to be withheld from employees. As a result, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do not include the employer’s share of payroll tax. For example, an employee who earned $4,000 per month in gross wages, from which $500 in federal taxes was withheld, would count as $4,000 in payroll costs. The employee would receive $3,500, and $500 would be paid to the federal government. However, the employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from payroll costs under the statute.
Question 7: The CARES Act excludes from the definition of payroll costs any employee compensation in excess of an annual salary of $100,000. Does that exclusion apply to all employee benefits of monetary value?
Answer: No. The exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to non-cash benefits, including: • employer contributions to defined-benefit or defined-contribution retirement plans; • payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums; and • payment of state and local taxes assessed on compensation of employees.
Question 8: Do PPP loans cover paid sick leave?
Answer: Yes. PPP loans covers payroll costs, including costs for employee vacation, parental, family, medical, and sick leave. However, the CARES Act excludes qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).
Question 32: Does the cost of a housing stipend or allowance provided to an employee as part of compensation count toward payroll costs?
Answer: Yes. Payroll costs includes all cash compensation paid to employees, subject to the $100,000 annual compensation per employee limitation.
Citizens Bank will continue to bring you information and resources as they become available.
Citizens Bank recommends that you consult your outside advisors and experts in all matters relating to the PPP and loan forgiveness. We will work to provide you timely and accurate information, but the burden for obtaining forgiveness rests on the borrower. All information provided in this format or any other communication regarding the program is believed to be accurate, but no guarantee is or can be made by any Citizens Bank representative.