Many of our clients got the PPP during the initial phase three or four weeks ago.  Others got their PPP loans much more recently.  Either way, should you consider fully repaying the PPP loan by Thursday, May 14th?

One big issue that impacts your decision is whether the SBA will allow any flexibility with the 8-week coverage period.  As we wrote earlier this spring in a blog post on How to Best Utilize your PPP Loan available at: https://www.schwartzaccountants.com/2020/04/how-to-best-utilize-your-ppp-loan/:

The Wildcard

Many national and state medical and dental societies are pushing Congress to allow practice owners to delay the 8-week period to determine loan forgiveness. If this option passes, then practice owners who don’t immediately rehire their staff and instead save the funds to use upon reopening their practices could fare best. No one is sure of the likelihood of something like that being enacted, however.

Assuming there will be no flexibility in the 8-week coverage period, then having the opportunity to pay back the PPP by 5/14 and still qualify for the $5k per Retained Employee Credit (ERC) adds more confusion for every practice owner who received the PPP loan and isn’t sure when they will reopen their offices. According to the IRS at: https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-interaction-with-other-credit-and-relief-provisions-faqs

79. Is an employer that repays its Paycheck Protection Program (PPP) loan by May 14, 2020, eligible for the Employee Retention Credit? (updated May 7, 2020)

Yes. An employer that applied for a PPP loan, received payment, and repays the loan by May 14, 2020 (originally May 7, 2020, as provided by the Limited Safe Harbor With Respect to Certification Concerning Need for PPP Loan Request in the Interim Final Rules issued by the Small Business Administration (SBA) effective on April 28, 2020, but extended by FAQ 43 in the SBA’s PPP FAQs (https://www.sba.gov/sites/default/files/2020-05/Paycheck-Protection-Program-Frequently-Asked-Questions-5-5-20.pdf)  updated on May 5, 2020), will be treated as though the employer had not received a covered loan under the PPP for purposes of the Employee Retention Credit. Therefore, the employer will be eligible for the credit if the employer is otherwise an Eligible Employer (https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act):

One key to figuring out what to do is that ultimately, the maximum portion of the PPP to be forgiven hinges on how many hours your staff work and how much your staff earns during the 8-week coverage period. Here is what to consider when trying to figure out if you should repay the PPP by Thursday.

  1. More than three or four weeks have passed since getting the PPP without you hiring back your staff yet and you’re still not certain when your practice will reopen. The first step in determining how much of the PPP loan will be forgiven depends on how many FTEs you have during the 8-week coverage period as compared to the number of average monthly FTEs during 2/15/19-6/30/19 or 1/1/20-2/29/20. Remember, you decrease the percentage of the PPP to be forgiven proportionately by the decrease in FTEs.
  2. Your staff payroll costs will be less than they were during Q1 2020 once you reopen. You also decrease the percentage of the PPP to be forgiven if total payroll costs during the 8-week coverage period dip by more than 25% from the payroll costs of the prior quarter.
  3. Your EIDL Grant was for more than a few thousand dollars. The amount of the PPP to be forgiven is further reduced by the EIDL grant of $1,000 per employee that you received. Essentially, as part of calculating the portion of the PPP to be forgiven, the total EIDL Grant adds to the portion of the PPP loan that needs to be repaid within 24 months. In other words, the EIDL Grant converts to your PPP Loan.
  4. You understand that by not ever taking the PPP or by paying it back in full by 5/14, you can claim a $5k per retained employee tax credit. This tax credit is equal to 50% of the first $10k paid to each employee between the time they are called back to work and 12/31/20. The credit will be taken by not remitting federal payroll taxes withheld from your staff’s pay. Wages paid to family members excluding you and your spouse aren’t eligible for this credit.

Very confusing stuff. I would suggest reading through this information a few times, sleeping on it for a day or two, and giving the SBA time to issue guidelines, especially about whether there will be any flexibility with the 8-week coverage period for dental practices since they were mandated by the government to close.  Please also reach out to your PPP lender to find out the deadline for you to begin the process to pay back this loan by 5/14.