PPP Loan Maximum Calculations for Nonprofits
The Consolidated Appropriations Act, 2021, created many new opportunities for New Jersey and Pennsylvania-area nonprofit organizations. Perhaps the most compelling was the re-launch of the Paycheck Protection Program (PPP), including expanded qualification for certain 501(c)(6) organizations and a new second draw loan program. The Small Business Administration (SBA) has been busy issuing new loan applications, including a new streamlined Forgiveness Application Form 3508S and updates to Form 3508 and Form 3508EZ. New guidance for first-time loan applicants entitled, How to Calculate Maximum Loan Amounts for First Draw Loans, was also issued. It contains detailed information on loan calculation and documentation requirements that nonprofit organizations need to consider, the key details of which are summarized below.
Maximum Loan Amount
Tax-exempt applicants should use the following calculation method to determine the maximum loan amount that can be borrowed. It is important to note that borrowers can calculate the maximum loan amount using either 2019 or 2020. The information below uses 2019 for illustration purposes.
- Determine total 2019 payroll costs by identifying the total amount of gross tips and wages paid up to $100,000 per employee. The total can be determined by adding taxable Medicare wages & tips from each quarter to pre-tax employee contributions for health insurance and other fringe benefits excluded from wages & tips, employer retirement, and insurance contributions, and state employer taxes assessed on employee compensation.
- Determine the average monthly payroll cost by dividing the total from step 1 by 12 (the total number of months in a year).
- Multiply the average monthly payroll cost by 2.5.
- Add the outstanding amounts of any Economic Injury Disaster Loans (EIDL) made between January 31, 2020, and April 2, 2020, that you would like to be refinanced. Also, do not include any amount received from an EIDL advance because repayment is not required.
It is important to note that applicants may also include contributions or deductions from pay for Flexible Spending Arrangements (FSA), Section 125 Cafeteria Plans, qualified transit, or parking expenses (no more than $270 per month), and group life insurance that has been excluded from Form 941 when calculating pre-tax employee contributions in step 1.
Required DocumentationMaximum
At the time of application, an organization must include the 2019 Form 941 and state quarterly wage unemployment insurance tax reporting from each quarter, Form 990 Part IX, or other documentation of any retirement plan, group health, life, disability, vision, and dental insurance contributions. Finally, a payroll statement or other similar documentation from the pay period, which covers February 15, 2020, to establish the organization was in operation and had employees on that date.
Nonprofits Not in Operation Between February 15, 2019, and June 30, 2019
These applicants have the option of using one of two calculation methods. The first allows a borrower to use the method outlined above, but use payroll information from all of 2020, rather than 2019. The second option will enable borrowers to make calculations using the average monthly payroll costs incurred in January and February of 2020. The latter method is outlined below.
- Compute January and February 2020 payroll costs by adding the gross pay to employees for the two months, limited to $16,667 per employee, to the employer group health, dental vision, life and disability and retirement contributions, state employer taxes assessed on employee compensation.
- Determine the average monthly payroll cost by dividing the total from step 1 by 12 (the total number of months in a year).
- Multiply the average monthly payroll cost by 2.5.
- Add the outstanding amounts of any Economic Injury Disaster Loans (EIDL) made between January 31, 2020, and April 2, 2020, that will be refinanced. Do not include any amount received from an EIDL advance because repayment is not required.
Required Documentation
Under this method, an applicant must include a copy of payroll records from January and February 2020, IRS Form 941 for the first quarter of 2020, and documentation proving that employer contributions to life, dental, health, vision, and disability insurance were made.
Contact Us
The PPP offers access to low-interest loans to help New Jersey and Pennsylvania-area nonprofits manage through the persistent pandemic. While useful, there are several complicated calculations and other requirements to consider before applying. If you have questions about the information outlined above or need assistance with a nonprofit tax or audit issue, Klatzkin can help. For additional information, click here to contact us. We look forward to speaking with you soon.
©2021 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date and should not be construed as accounting, tax, or financial advice. Please consult your tax advisor concerning your specific situation.