Note: The information contained in this article only applies to certain small businesses and other eligible organizations. For example, effective April 20, 2020, if you filed or will file a 2019 IRS Form 1040 Schedule C, other rules apply.
The Paycheck Protection Program (PPP) is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, for which the government recently authorized an additional $310 billion (bringing the total to $659 billion) in government-backed loans to help small businesses continue paying payroll costs and certain operating expenses. Business owners can apply for a loan of 2.5 times their average qualified monthly payroll expenses, up to $10 million, to be used for eligible payroll costs, rent, mortgage interest, utilities, interest on certain other debt obligations, and refinancing an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 (though at least 75% of the loan proceeds must be used for eligible payroll costs). PPP loans may be forgivable, in whole or in part, if certain requirements are met.
Calculating the PPP loan amount
A borrower’s maximum loan amount is based on their average qualified monthly payroll expenses, multiplied by 2.5—up to the $10 million loan cap, subject to certain restrictions.
The Borrower Application Form calculates the loan amount using the following equation:
[Average qualified monthly payroll expenses x 2.5] + [EIDL, Net of Advance (if applicable)] = [PPP loan request amount]
What makes up qualified payroll expenses?
Not all payroll expenses are included for purposes of calculating average qualified monthly payroll expenses. Excluded payroll expenses should not be used in loan request calculations and will not be considered for loan forgiveness. It’s important to know the difference between included and excluded expenses so you calculate the loan request according to the PPP guidelines.
Payroll expenses for entities include compensation to employees whose principal residence is in the U.S. in the form of:
Cash compensation, capped at $100,000 on an annualized basis for each employee including,
- Salary, wages, commissions, or similar compensation, as well as cash tips or equivalent. Payroll expenses are calculated on a gross basis, without subtracting federal taxes that are imposed on the employee or withheld from employee wages.
- Employee benefits including paid vacation, parental, family, medical, or sick leave
- Allowance for separation or dismissal
- Payments required for the provision of group healthcare benefits and insurance premiums
- Payment of any retirement benefits
- Payment of state and local taxes assessed on compensation
Payroll expenses for entities do not include:
- Individual employee compensation in excess of annual compensation of $100,000 per year
- Compensation for employees who live outside the U.S.
- The employer’s share of certain payroll tax
- Qualified sick and family leave wages under the Families First Coronavirus Response Act
Calculating qualified average monthly payroll expenses
Non-seasonal employers calculate qualified average monthly payroll expenses by aggregating qualified payroll expenses as described above for either (a) the previous 12 months, or (b) calendar year 2019, and then divide by 12. The equation would look like this:
[Sum of total qualified payroll expenses for (a) the previous 12 months, or (b) calendar year 2019] / [12 months] = [Qualified average monthly payroll expenses]
Seasonal businesses may elect to calculate qualified average monthly payroll expenses for the time period between (a) February 15, 2019, and June 30, 2019, (b) March 1, 2019, through June 30, 2019, or (c) any consecutive 12-week period between May 1, 2019 and September 15, 2019.
Applicants that were not operational from February 15, 2019, to June 30, 2019, may calculate their qualified average monthly payroll expenses for the period January 1, 2020, to February 29, 2020. The equation would look like this:
[Sum of total qualified payroll expenses for the period January 1, 2020 to February 29, 2020] / [2 months] = [Average qualified monthly payroll expenses]
Putting it all together
Once you’ve determined your average qualified monthly payroll expenses using the formula applicable to your business:
Multiply your average qualified monthly payroll expenses by 2.5.
- Add any outstanding EIDL loan you received between January 31, 2020, and April 3, 2020
- Subtract any advance you received on a COVID-19 EIDL loan (such advances can be up to $10,000, even if you were not approved for the EIDL loan)
Remember that there is a $10 million cap on all PPP loans, even if the above calculations result in a number greater than $10 million.
If you’re having trouble calculating your qualified payroll expenses or maximum loan amount, it’s always a good idea to speak with a financial adviser or accountant. Now is a good time to organize your payroll information to be ready to apply for PPP loan forgiveness in the future.
Loan and forgiveness calculations and eligibility may vary. Refer to the SBA.gov for information about your particular situation.
Regulations and guidance from the SBA and the U.S. Department of Treasury on the PPP are evolving rapidly and the below information may be outdated. Please refer to the latest guidance from SBA and Treasury to confirm current program rules.
The resources described above are made available to businesses within the United States of America.
Given the large demand for additional authorized Paycheck Protection Program funds, not every qualified Paycheck Protection Program applicant will receive a loan.
This content is for information purposes only and should not be considered legal, accounting or tax advice, or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Intuit Inc. does not have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Intuit Inc. does not warrant that the material contained herein will continue to be accurate, nor that it is completely free of errors when published. Readers should verify statements before relying on them.