Redpath Insights

CARES Act Paycheck Protection Program

by John Kammerer, CPA

UPDATED: July 2, 2020 - 11:00 a.m.

On Wednesday, July 1, Congress approved an extension of the period in which to apply for Paycheck Protection Program (PPP) funds, with small businesses now having until August 8 to apply for the $134 billion of funds which remain in the program. The White House has been orally supportive of such an extension, so it is likely that President Trump will sign this legislation shortly.

UPDATED: April 13, 2020 - 11:30 a.m.

On Friday, April 10, 2020, the IRS issued additional guidance regarding the deferral of payroll tax available under the CARES Act. The most significant clarification relates to the deferral of employment taxes for those taxpayers also receiving a Paycheck Protection Program (PPP) loan.  The guidance clarifies that employers can defer deposit and payment of the employerโ€™s share of social security tax without penalties up to the date the employer receives a decision from its lender that its PPP loan is forgiven.  After that date the employer is no longer eligible to defer the employerโ€™s share of social security tax. Any amount that was properly deferred would be due evenly on December 31, 2021 and December 31, 2022. Click here for a link to the updated guidance. 

In addition, Form 941, Employers Quarterly Federal Tax Return, will be revised for the second quarter filing (April - June) to account for the deferred portion of employer social security tax.  The IRS will provide instructions for employers who deferred deposits otherwise due on or after March 27, 2020 for the first quarter 2020 Form 941.

UPDATED: April 7, 2020 - 12:30 p.m.

On Monday, April 6, 2020, the Treasury released an FAQ regarding this program which you can read in its entirety here. Here are additional details that were clarified:

  • The FAQ clarifies that the $100,000 compensation cap for purposes of calculating eligible payroll costs (see below for the definition of payroll costs) is limited to cash compensation to employees.  Employer contributions to retirement plans, health care benefits and SUTA are excluded from the $100,000 cap.  
  • The time period to calculate aggregate payroll costs (for purposes of calculating the maximum loan amount) can be either the immediately preceding 12 month period or from calendar year 2019.
  • The FAQ clarifies that the employer share of federal payroll taxes are not considered payroll costs for purposes of calculating the maximum loan amount. 
  • If a borrower submitted a loan application based on the SBA Interim Final Rule published on April 2nd, they can either:
    • Rely on that guidance and not update the application, or
    • If the application has not yet been processed by the SBA, submit a revised application if desired.

UPDATED: April 3, 2020 - 10:30 a.m.

On Thursday, April 2, 2020, the Small Business Administration (SBA) issued its Interim Final Rule regarding the Paycheck Protection Program loans available to businesses, nonprofits, sole proprietors and independent contractors under the CARES Act. Funds for such loans are limited, so businesses should act now if they intend to apply for this loan.

Some key areas of note are:

  • The interest rate is now 1% instead of .5%
  • Loan origination fees will be paid by the SBA to the lender
  • Loans are going to be disbursed on a โ€œfirst-come, first-servedโ€ basis
  • Accrued interest on loans is also eligible to be forgiven
  • Not more than 25% of loan forgiveness can be attributable to non-payroll costs

The following terms still apply per the guidance issued on March, 31, 2020:

  • All payments are deferred for 6 months
  • Loan term is 2 years

Small businesses, nonprofits, and sole proprietorships can apply starting April 3, 2020 and independent contractors and self-employed individuals can start applying on April 10, 2020.

Click here to find more information on the U.S. Treasury website.

Click here to find more information on the Small Business Association website.

For these resources plus additional information, please visit the Redpath COVID-19 Resource Center.

ORIGINAL POST: March 27, 2020 - 11:03 a.m.

Late on the night of March 25, 2020, the Senate passed the CARES Act to provide emergency assistance to individuals and businesses impacted by the coronavirus pandemic. The $2 trillion bill passed unanimously and is now going to the House of Representatives where House Speaker Nancy Pelosi is expected to bring it to a vote soon.

One of the key features of the bill is the expansion of Small Business Act to include the โ€œPaycheck Protection Program.โ€ The Senate bill authorizes up to $349 billion in loans for this program designed to provide immediate liquidity to businesses impacted by the coronavirus. 


The โ€œPaycheck Protection Program,โ€ modifying Section 7(a) of the SBA act, is available to businesses, nonprofit organizations, veterans organizations or Tribal businesses with 500 or fewer employees (or, if higher, the standard number employees established by the SBA for certain industries). In addition, sole proprietor, independent contractors, and eligible self-employed individuals are eligible to participate in the program. Businesses in the restaurant and hospitality industry have less restrictive rules for determining their employee count.

An eligible recipient receiving a loan must make a good faith certification that the uncertainty of prevailing economic conditions makes the loan request necessary to support ongoing operations and that the funds will be used to retain workers, maintain payroll, pay group healthcare benefits including insurance premiums, or make mortgage, lease, or utility payments. In addition, the borrower cannot receive both a loan under this program and an economic injury disaster loan for the same purpose but they may be eligible to refinance the loan into the program.   

Taxpayers receiving loans under this program are not eligible for the employee retention credit provided for in the CARES Act.

Loan amount and loan period

This article was originally posted with the number five rather than the two-point-five shown below. The correct multiple is two-point-five.

The loan amount available to a business is the sum of:

  • 2.5 times the average total monthly payments for payroll costs incurred during the 1-year period before the date the loan is made (with special rules and measurement dates available for seasonal employers), and
  • The outstanding loan amount under subsection 7(b)(2) concerning the SBA Loans for Disaster Recovery Act related to Covid-19 that was made during the period beginning on January 31, 2020, and ending on the date the loan is made.

Special rules exist to determine the average wages if the business was not in existence beginning February 15, 2019 and ending June 30, 2019. The maximum loan amount under the program is $10 million. Loans eligible for the program are loans made between February 15, 2020, and ending on June 30, 2020. 

For purposes of determining the maximum amount of the loan, payroll costs means:

  • the sum of compensation with respect to employees that is a:
    • salary, wage, commission or similar type of compensation;
    • payment of cash tip or equivalent;
    • payment of vacation, parental, family, medical, or sick leave;
    • allowance for dismissal or separation;
    • payment requirement for the provisions of group health care benefits including insurance premiums;
    • payment of any retirement benefit; or
    • payment of state or local tax assessed on the compensation of employees; and
  • the sum of payments of any compensation or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation, and
  • shall not include compensation for an individual employee (or self-employed individual) in excess of $100,000 as prorated for the covered period; employment taxes; compensation of an employee whose principal place of residence is outside the US; qualified sick leave or qualified family leave for which a credit is allowed under the Families First Coronavirus Response Act.

Loan forgiveness

A loan under the Paycheck Protection Program is eligible to be forgiven in an amount equal to the sum of the payroll costs; payment of interest on a covered mortgage obligation; rent obligations (in place before February 15, 2020); and utility payments (if service began before February 15, 2020) incurred during the 8-week period following receipt of the loan. 

The forgiven amount shall not exceed the principal amount of the loan. In addition, the amount of the loan eligible to be forgiven is:

  • reduced proportionately based on the reduction in the average number of employees;
  • further reduced to the extent the total salary of any employee is reduced in excess of 25%.

If, within 30 days of enactment of the law, the employer re-hires employees there is an exception to the reduction in the portion of the loan forgiven.

Employers who receive loan forgiveness under this program are not eligible for the employer or self-employed payroll tax payment deferral provided for in the CARES Act.

Any loan amount in excess of the amount forgiven shall be payable over 10 years at an interest rate not in excess of 4%. Also, the loan forgiven under this section is excluded from taxable income.

Next step

Businesses and other organizations who are interested in this program should contact their banker or a lender approved to make loans guaranteed by the Small Business Administration for more information.


John Kammerer, CPA

John Kammerer, CPA

John Kammerer is a partner at Redpath and Company and holds a seat on the firmโ€™s board of directors. He leads the firmโ€™s business tax and M&A service areas, assisting clients with tax planning and preparation, research, entity structuring, and M&A transactions. John works with a variety of clients in industries such as manufacturing, construction, real estate, and professional services. He is a frequent presenter on topics of business taxation and entity structuring. John is also a member of the S Corp Association advisory board and is actively involved with the group to promote and support tax policies that positively impact S Corporations and privately-held businesses. John graduated from Winona State University with a Bachelor of Science degree in Accounting. He is a member of the American Institute of Certified Public Accountants (AICPA) and the Minnesota Society of Certified Public Accountants (MNCPA). He has provided public accounting services at Redpath and Company since 2004.