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Paycheck Protection Act Guidance

The Coronavirus Aid Relief, And Economic Security Act, commonly known as the “CARES ACT” was signed into law by President Trump on March 27, 2020. This article will focus on the Paycheck Protection Program (“PPP”) promulgated under the Act.

The PPP initially authorized up to $349 billion in forgivable loans to small businesses to cover payroll costs, mortgage interest, rent, and utility costs over the eight-week period after the loan is made. On April 24, 2020, the President signed into law additional funding for the PPP in the amount of $320 billion. The PPP will be available through June 30, 2020. It provides that the employers of 500 or fewer employees may borrow up to two months of monthly payroll costs plus an additional 25% of that amount, subject to a cap of $10,000,000 for a period of two years at a maximum interest rate lease of 1% per annum on a non-recourse basis meaning that no collateral or personal guarantee is required. All loan payments under the PPP, if not forgiven as noted below, will be deferred for a period of 6 months.

The most favorable aspect of the PPP is tax-free loan forgiveness of the principal if the funds are used for payroll costs, interest on mortgages incurred prior to February 15, 2020, rent under agreements in force before February 15, 2020, and utilities for which service began before February 15, 2020. However, at least seventy-five (75%) of the forgiven amount must be used to cover payroll costs. Payroll costs include: (a) salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee) (b) Employee benefits including costs of vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including premiums; and payment of any retirement benefit; (c) State and local taxes assessed on compensation; and for a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.

Please note that Payroll Costs do not include compensation of more than $100,000 for each employee, Federal Withholding and Payroll taxes, and qualified sick and family leave wages under the Families First Coronavirus Response Act. Payroll Costs do, however, include compensation to owners of businesses to the extent that they were compensated prior to the shutdown either through payroll or through reporting of income from the operations of the business.

Forgiveness is further predicated on the Borrower maintaining the number of full-time employees for the eight-week period that were employed during the period of February 15, 2019 to June 30, 2019 or the period of January 1, 2020 to February 29, 2020. If there is any reduction of employees, a proportionate reduction in the forgiveness amount will be made. The amount of forgiveness is also reduced for any salary reduction in excess of 25% of the total salary or wages of an employee for the most recent full quarter if the employee made less than $100,000 annualized in 2019. It is to be noted that Borrowers have until June 30, 2020 to maintain their employee count by rehiring any employees terminated or laid off between February 15, 2020 and April 26, 2020.

For questions about the loan application process and eligibility or guidance on how to maximize forgiveness once the Loan Proceeds are received, please contact either Harpreet Singh or Albert Buzzetti at 201-816-3733 or via email @ [email protected] and [email protected]