PPP+ERC Office Hours today at 2pm; FAQs
Reminder that I will be online on Zoom for free office hours at 2pm EST today. Sign up below.
And here’s a quick round up of FAQs I have been getting:
Q: We submitted our application for a second round of PPP loan, and they asked us for proof of the NAICS code. Did your bank ask for that, and if yes, what did you submit?
A: There is no "proof" for NAICS code, it is self-defined. It can be listed on your tax return, but doesn’t have to be. You can ask your accountants to write a letter and that should be sufficient. (You'll want to say you are 721214 if you are an overnight camp; day camps are not in code 72).
Q: Can I enter NAICS code 72 on my Second Draw PPP Loan application if the business activity code line was left blank on my business’s most recently filed income tax return?
A: If an entry for this line is missing from your tax return, you should report the industry code that is most applicable to your business’ primary business activity. If your business is in the Accommodation and Food Services sector (e.g., a hotel, restaurant, bar), you can only report a NAICS Code beginning with 72 if you can substantiate this with alternative documentation, such as permits or licenses issued by local governments that are unique to this sector.
Q: Assuming the entire PPP second draw is spent on allowed expenses (a proper mix of payroll and other expenses), but at the end of the period the number of employees significantly drops (from 9 to 5 FTE) – would that be against the terms, and prohibit the loan from being forgiven?
A: There is a "safe harbor" exemption to the forgiveness rules which exempts you from the staffing levels test if covid compliance rules prevent you from staffing at the same levels as before. I included the text below. You should review with your organization's accountant.
The safe harbor states: "The Borrower was unable to operate between February 15, 2020 and the end of the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 (or, for a PPP loan made after December 27, 2020, requirements established or guidance issued between March 1, 2020 and the last day of the Covered Period), by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19."
Q: Is the ERC separate from the ppp and if so can we request that amount in the ppp?
A: The ERC is seperate and is claimed on your 941 payroll tax forms - talk to your accountant or payroll company.
Q: We don’t use a payroll service, should we?
A: Absolutely, you should definitely be using a payroll service. I recommend Gusto. It’s cheap, easy for to use and your employees to use, and will save you so much time. Your staff will be able to on board themselves, enter their own direct deposit and tax information, and change it whenever they want.
Q: Am I calculating ERC correctly? So, for example, a young staff member that helped run virtual camp and did a few more projects this year. He earned $2500 total in 2020 and his salary was not needed for PPP purposes (PPP forgiven amount is already covered with others’ payroll). I can calculate a 50% credit for his total salary = a $1250 credit (up to $5000 per person)?
A: Yes, that’s correct.
Q: Can we apply for a second PPP loan if we didn’t get the full amount of the first PPP loan forgiven?
A: To apply for a second PPP loan, you need to check a box that says that you “have used or will use all of your first PPP loan funds.” This does not mean you need to qualify for forgiveness for that full amount, but that since you received the funds you have had expenses that equal or exceed the amount of your PPP loan in the authorized categories. I, and others, believe the provision is meant to weed out businesses that are closed or would use the funds on unauthorized expenses.
Q: I already requested forgiveness on my first PPP loan, but I want to re-allocate expenses given the new categories so I can claim the ERC for 2020 on more payroll? Can I do that?
A: No, as of right now, once you have forgiveness granted, you are locked in to what you submitted and you can’t double dip on those amounts.
Q: How do you apply for the retroactive ERC?
A: Your accountant or payroll company has 2 years to submit an IRS form 941x.
Q: For PPP second draw, when calculating average monthly payroll, which taxes should/shouldn’t be included (i.e. federal/state taxes withheld from employee, employer taxes)?
A: Taxes are not included in your average monthly payroll for PPP.
Q: It says we can choose a forgivenes period between 8 and 24 weeks, so if we exhaust the funds at 21 weeks, then the covered period is 21 weeks?
A: Yes
Q: Can second draw loans include expenses not covered by insurance for natural disasters (wildfires)?
A: No
Q: Does the receipt of the PPP funds count towards our gross receipts?
A: No
Q: When does the covered period begin, immediately after loan disbursement or we get to choose another period?
A: As soon as you receive the PPP funds in your bank account or 10 days after your loan is assigned an SBA number, whichever comes first.
Q: With the ERC, it could be to our benefit to postpone receipt of major gifts until April (if possible)?
A: Yes
Q: Does getting a larger PPP#1 preclude you from getting PPP #2?
A: No
Q: Can we use the seasonal 12-week formula for our second PPP loan, even if we didn’t use that formula for the first loan?
A: Yes, but you will need to submit new payroll data.