{"id":9681,"date":"2020-05-26T12:37:37","date_gmt":"2020-05-26T19:37:37","guid":{"rendered":"http:\/\/evergreensmallbusiness.com\/?p=9681"},"modified":"2020-05-28T04:56:57","modified_gmt":"2020-05-28T11:56:57","slug":"maximize-ppp-forgiveness-with-five-tips","status":"publish","type":"post","link":"https:\/\/evergreensmallbusiness.com\/maximize-ppp-forgiveness-with-five-tips\/","title":{"rendered":"Maximize PPP Forgiveness with Five Tips"},"content":{"rendered":"

\"Maximize<\/a>You can maximize PPP forgiveness by understanding the Small Business Administration’s Interim Final Rule on forgiveness. Further, by understanding the rule, you avoid bungles that destroy the forgiveness.<\/p>\n

Fortunately, the rule details you need to understand? Straightforward in most cases. This blog post explains what you need to know.<\/p>\n

And a quick note as we start. The Small Business Administration published the Interim Final Rule<\/a> on PPP loan forgiveness late in the day May 22nd<\/sup>, 2020.<\/p>\n

Note:<\/strong> If you\u2019re not up to speed on the way the PPP loans work, refer our earlier blog post: PPP Loan Formula Explained.<\/a> And if you\u2019re a little foggy about how the forgiveness works, refer to our earlier blog post: Losing PPP Loan Forgiveness.<\/a><\/p>\n

Tip #1: Use the Covered Period for Payroll Costs<\/h2>\n

A first tip to maximize PPP forgiveness? Probably you want to use the eight week covered period that starts when you get the PPP loan. Not the alternative covered period which starts the day the next payroll period starts. (You get to choose which eight weeks you look at.)<\/p>\n

The reason? With the regular eight week covered period, you probably get to add more<\/em> “extra bonus days” to the usual eight weeks, or 56 days, of payroll used for the forgiveness formula. And those “extra bonus days” can make a big difference.<\/p>\n

But this gets weird.\u00a0 So, let me explain.<\/p>\n

The payroll costs formula combines both payroll paid<\/em> during the eight weeks and payroll incurred <\/em>during the last payroll period of the eight weeks and paid the next regular payroll.<\/em><\/p>\n

For example, say you run semi-monthly payroll, pay on the last day of the \u201chalf month,\u201d and get your PPP loan on May 26th<\/sup>.<\/p>\n

In this case, the covered period that starts on May 26th<\/sup> ends 56 days later on July 21st<\/sup>.<\/p>\n

But the first payroll period in this eight week interval? It ends May 31st<\/sup>. And obviously it includes ten days of payroll before May 26th<\/sup><\/em> (from May 16th<\/sup> through May 25th<\/sup>).<\/p>\n

Those extra ten days from May 16th through May 25th? They bump the usual 56 days of payroll to 66 days. And the days amount to your extra bonus days of payroll costs.<\/p>\n

And now the actionable insight in all this…<\/p>\n

Probably, you get more extra bonus days with a regular covered period than with an alternate covered period. Partly because you can use longer payroll periods. And partly because in order to get extra bonus days for an alternate covered period, you need to have the timing work.<\/p>\n

If you pay payroll on the last day of the payroll period and you use the alternative covered period, for example, you don’t get any extra bonus days.<\/p>\n

A Word about Alternative Covered Periods<\/h2>\n

By the way, if you use the alternate covered period, you start your eight weeks of “payroll cost tracking” the day the next payroll period starts. The payroll period also needs to be bi-weekly or shorter.<\/p>\n

With the alternative covered period, you still count payroll paid and then also payroll incurred and paid with the next regular payroll. And you may still get extra bonus days. But the way the formula works? You may get fewer bonus days.<\/p>\n

A final point. Do double-check that the regular eight week covered period lets you maximize forgiveness. In situations where your payroll fluctuates\u2014perhaps you furloughed employees early in the Covid-19 pandemic\u2014the alternate covered period may push more payroll costs into the forgiveness formula because it starts later when you may have more people working.<\/p>\n

Tip #2: Time any 2019 Pension Contributions<\/h2>\n

Okay, an awkward trick the interim final rules allow. If you pay an employer retirement contribution during the eight weeks, that should count as payroll.<\/p>\n

For example, if you make your 2019 SEP-IRA contribution during the eight weeks in 2020 that you\u2019re measuring payroll costs, that should create payroll costs for non-owner-employees and also for owner-employees of S corporations and C corporations.<\/p>\n

Between you and me? I would not rely on this gambit as a trick for inflating your payroll costs. But if you\u2019ve done everything else in a right and righteous way and you have the option to make the 2019 employer pension fund contribution during the eight week covered period? Well, discuss this with your tax accountant. Let\u2019s leave it at that\u2026<\/p>\n

Tip #3: Verify You Have Enough Owner Payroll<\/h2>\n

The loan forgiveness formula limits owner compensation replacement to 8\/52nd<\/sup>s of what the owner earned in 2019.<\/p>\n

You can grumble about this tweak to the statute. But you also want to make sure, after you\u2019re done with any grumbling, that you pay the owner at least the 8\/52nd<\/sup>s of her or his 2019 compensation. So, double check this. You want to be sure to pay enough during the eight weeks.<\/p>\n

The precise formulas vary slightly depending on the type of business:<\/p>\n