Four Questions Answered on Paycheck Protection Loan Forgiveness
About 35,000 businesses in New Jersey have received Paycheck Protection Program (PPP) loans from the Small Business Administration (SBA), which means some time after June 30 they will either have to start paying the loan back or get it forgiven.
Obviously, loan forgiveness is the preferable option, but as has been widely reported already, that requires businesses to follow certain rules on how they spend the loan money. A number of gray areas in these rules have left independent contractors, business partnerships, and others wondering whatвЂ™s required of them in certain situations.
Scott Borsack, a partner at the law firm Szaferman Lakind, was able to clear up a couple of them during NJBIAвЂ™s loan forgiveness webinar yesterday afternoon.
Is compensation paid to partners or members of LLCs forgivable?
One area that has vexed certain applicants has been how to treat compensation to partners in a partnership or members of a limited liability company (LLC). Borsack said there has been some late clarification on the matter.
Essentially, a partner or LLC participant can be compensated for their income up to $100,000 as long as their past income has been subject to self-employment tax. The maximum per employee is $15,384, since the program caps the amount of an individualвЂ™s compensation at the equivalent of $100,000 per year.
вЂњGenerally thatвЂ™s going to be for someone who is actively engaged in the practice or the business or the entity; that this is not a passive investment for them,вЂќ Borsack said.
When do I have to rehire laid off employees to qualify for forgiveness?
PPP loans are calculated to cover eight weeks of a businessвЂ™ operating expenses, and one of the requirements is for businesses to maintain their payroll during that period.Read More