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On Friday, March 27, 2020, the $2 Trillion Dollar Coronavirus Economic Stimulus Bill was signed into law.  Among other provisions, the Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated $349 billion (Section 1107) to help small business keep workers employed amid the pandemic and economic downturn.  Known as the Paycheck Protection Program (Section 1102), the law provides 100% federally guaranteed loans to small business who maintain their payroll during the Coronavirus pandemic emergency.

Most significantly, these loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward.  This legislation is aimed at providing relief to both business and individuals negatively impacted by the Coronavirus outbreak.  The federal government will release more details including the list of lenders offering loans under the program in the near future.


Questions regarding Paycheck Protection Program Loans

What is the Paycheck Protection Loan Program? (Section 1102) 

The Paycheck Protection Program (PPP) is a new loan program structured around the SBA’s existing 7(a) loan program and will fund loans to qualifying small businesses.


What is the Covered Loan Period?

  • Retroactive to February 15, 2020 through June 30, 2020

Who is Eligible?

  • Small businesses in existence on February 15, 2020
  • A small business with fewer than 500 employees
  • A small business that otherwise meets the SBA’s size standard
  • A 501(c)(3) with fewer than 500 employees
  • An individual who operates as a sole proprietor
  • An individual who operates as an independent contractor
  • An individual who is self-employed who regularly carries on any trade or business

Who can make PPP loans?

Banks  that are currently approved SBA 7(a) lenders and other banks  that get approved by the SBA and the Treasury Department to specifically become PPP lenders.  PPP lenders will be delegated authority to make and approve PPP loans, with no additional SBA approval required.  Loans will be made available through SBA & Treasury approved banks.  (Section 1109)

What underwriting standards will lenders use?

Lenders will only consider whether an applicant was in business on February 15, 2020 and either had employees to whom it paid salaries and payroll taxes or paid independent contractors.  Applicants will not be required to demonstrate repayment ability.

What is the maximum loan amount for a loan? 

The maximum PPP loan available to any business is 2.5 times the average monthly “Payroll Costs” (see below for definition) of the business over the year prior to the date of the PPP loan, excluding the prorated portion of any annual compensation above $100,000 for any person.  There are some adjustments for seasonal employers.  The overall maximum loan amount is $10 million.

What is Included in Payroll Costs? 

  1. Employers: The sum of payments of any compensation that is a
  • salary, wage, commission or similar compensation
  • payment of cash tip or equivalent
  • payment for vacation, parental, family, medical or sick leave
  • allowance for dismissal or separation/severance payments
  • payment required for the provisions of group health care benefits, including insurance premiums
  • payment of any retirement benefit
  • payment of state or local tax assessed on the compensation of their employee
  1. Sole Proprietors, Independent Contractors, and Self-Employed Individuals: The sum of payment of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment or similar compensation and that is in an amount that is not more than $100,000 in one year, as pro-rated for the covered period.

What is Excluded from Payroll Cost Calculation? 

  1. Compensation of an individual employee in excess of an annual salary of $100,000 as prorated for the period of February 15, to June 30, 2020
  2. Payroll Taxes, railroad retirement taxes and income taxes.
  3. Any compensation of an employee whose principal place of residence is outside of the United States
  4. Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116-5127) or qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act.

How can loan proceeds be used?

Loan proceeds can be used for:

  • Payroll costs including compensation , payments for parental, family leave, medical, sick leave, severance payments
  • Group healthcare benefit costs and insurance premiums
  • Mortgage interest (but not prepayment or principal payments)
  • Interest on debt that existed as of February 15, 2020
  • Rent and utilities
  • State and Local employment taxes

Will the loan be forgiven?  (Section 1106)   

Loans will be forgiven equal to the amount the borrower spent on eligible  items during the eight (8) week period following the date of the origination of the loan.  Loans can be forgiven to the extent that the loan proceeds have been used for:

  • Payroll Costs
  • Certain utilities, including electricity, gas, water, transportation, phone and internet services
  • Additional wages paid to tipped employees

These costs must be incurred and paid during the eight weeks after the loan is made.

The amount forgiven will be reduced based on failure to maintain the average number of full-time equivalent employees versus the period from either February 15, 2019 through June 30, 2019, or January 1, 2020 through February 29, 2020 as selected by the borrower.   (See Section 1106)

The amount forgiven is also reduced to the extent that compensation for any individual making less than $100,000 per year is reduced by more than 25 percent measured against the must recent full quarter.



Reductions in the number of employees or compensation occurring between February 15, 2020 and ending 30 days after enactment of the CARES Act (March 27, 2020) or by April 26, 2020 shall not reduce loan forgiveness if the borrower reverses the layoff or salary reduction prior to June 30, 2020.



  • Borrower and Lender fees are waived

Borrower Requirements:

  • Good faith certificate that loan is necessary because of economic uncertainty caused by COVID-19 and will be applied to maintain payroll and other eligible costs
  • Borrower must certify that they are not receiving this assistance and duplicative funds from other SBA programs
  • No collateral or personal guarantees

Are forgiven loans treated as Taxable Income? 

Forgiven amounts will not be considered cancellation of indebtedness income for federal tax income purposes.  (Section 1106)

What happens to amounts not forgiven?

Any amount not forgiven as described above will bear interest at a maximum rate of 4 percent and mature no later than 10 years after the amount of forgiveness is applied.

If not forgiven, when do payments begin?

Payments on PPP loans will be deferred for 6 to 12 months.

Do loans have collateral or personal guarantee requirements?

Loans have no collateral or personal guarantee requirements.  There will be no recourse to owners or borrowers for nonpayment, except to the extent proceeds are used for unauthorized purpose.


The SBA is implementing regulations.  The rules are due in 15 days from the signing of the Bill.  (April 11, 2020)

What about expense loans? 

The CARES Act also expands eligibility for Emergency Economic Injury Disaster Loans (EIDL) grant.  The Act waives:  1)the personal guarantee for loans up to $200,000; 2) that eligible businesses be in operation for one (1) year, and 3) that businesses be unable to get credit elsewhere.

Most significantly, borrowers may receive a $10,000 emergency advance within three (3) days after applying for an EIDL grant.  If the borrower’s EIDL application is denied, the applicant is not required to repay the $10,000 advance.  Emergency advances can be used for payroll, rent, mortgage, increased material costs.

What is the Employee Retention Tax Credit?

  • For Employers with more than 100 full time employees, qualified wages are those wages paid to employees when they are not working due to COVID-19 related circumstances. Employers with 100 or fewer employees, all employee’s wages qualify for credit, whether the employer is open for business or subject to a shutdown order
  • The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020
  • An employer is eligible for this credit only if their operation is fully or partially suspended by the government, or the business has seen a significant decline in gross revenue (50% less than in the calendar quarter of the prior year)
  • NOTE: If you receive a Paycheck Protection Loan through the CARES Act, you will not be eligible for an employee retention tax credit

Can my business delay a payment of payroll taxes?

  • Employers and self-employed individuals can defer the employer paid 6.2% social security tax for wages paid from March 27, 2020 to December 31, 2020 Fifty percent (50%) of the deferred amount must be paid by December 31, 2021 and the remaining 50% must be paid by December 31, 2022
  • NOTE: If a business receives a Paycheck Protection loan you are NOT eligible to take advantage of this program

May an individual make a withdraw from a retirement plan? 

  • Individuals are eligible to withdraw up to $100,000 from a tax-deferred account (IRA, 401k’s, etc.) without incurring a 10% penalty
  • The amounts withdrawn from tax deferred accounts may be repaid to the account in one or more payments at any time during the 3 year period beginning on the day after the distribution was received, and those repayments will be treated as a tax-free rollover, without regard to any contribution cap
  • For any distributions not repaid within the 3 year period, those would be considered taxable income but the amount can be included in income and taxed ratably over 3 years
  • Please note that the withdrawals have to be due to Coronavirus purposes which means that you, your spouse, or dependent is diagnosed with COVID-19 or you experience adverse financial consequences as a result of being quarantined, furloughed, or laid off or having to work reduced hours because of the virus


What is the status of the Waiver of Required Minimum Distributions? 

  • Individuals are not required to take a required minimum distribution for the tax year 2020
  • If you have already taken your 2020 required minimum distribution, that distribution may qualify to be rolled over in order to avoid the tax consequences from the distribution

Kozloff Stoudt will continue to post more about this Act as more is known and the regulations are promulgated.

  • Brian R. Boland, Esq.

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