For the calculation of the Average Monthly Payroll cost under the Paycheck Protection Program (PPP), the Gross Payroll approach should be used for the application, according to the recommendation from the AICPA-led small business funding coalition. This recommendation was developed in conjunction with the National Payroll Reporting Consortium (NPRC). It comes after the additional guidelines Treasury and the Small Business Administration (SBA) issued on Thursday.

For the calculation of the Average Monthly Payroll cost, we recommend that payroll providers and CPAs use Gross Payroll based on 2019 data versus Net Payroll (defined as Gross Payroll less federal withholding and employee FICA). Neither the CARES Act nor the recent guidance instructs the PPP applicant to exclude federal withholding and employee FICA for the 2019 period. The Average Monthly Payroll cost includes Gross Payroll and the other defined PPP payroll cost elements such as health care, etc.

Downloadable Paycheck Protection Program (PPP) Borrower Application Form.

“Treasury and the SBA have acted quickly to generate this small business stimulus. As key stakeholders in the implementation of the PPP relief, we are collectively working to drive consistency in the interpretation of the administration’s guidance. Our goal is to help produce an efficient application process to quickly get the funds in the hands of small businesses and their employees,” said Erik Asgeirsson, president and CEO of CPA.com.

Mark Koziel, CPA, CGMA, the AICPA’s executive vice president of firm services, added, “Based upon statements from members of Congress, it appears that the intent of the PPP was to base the salary calculation on gross wages with no adjustment for federal taxes. This ensures that payroll tax expenses are not passed on to the small businesses in need. In a program of this magnitude, it’s expected that guidance will evolve and terms will be clarified.”

The AICPA also said that its discussions with Treasury, SBA, banks and payroll processors to address these and other issues are ongoing and that it will keep its members, coalition partners and small businesses updated on the efforts to protect Main Street America.

The American Institute of CPAs (AICPA) is the world’s largest member association representing the CPA profession, with more than 429,000 members in the United States and worldwide, and a history of serving the public interest since 1887. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting. The AICPA sets ethical standards for its members and U.S. auditing standards for private companies, nonprofit organizations, federal, state and local governments. It develops and grades the Uniform CPA Examination, offers specialized credentials, builds the pipeline of future talent and drives professional competency development to advance the vitality, relevance and quality of the profession

Late Monday night, Treasury and the U.S. Small Business Administration (SBA) released FAQs on the Paycheck Protection Program (PPP), the $349 billion small business relief program that is a key part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136.

Over the past week, the AICPA and our small business funding coalition have been advocating for additional clarity on certain provisions of the PPP. We've been working hard to drive a common understanding and approach around PPP implementation. The AICPA has been leading with recommendations and interpretations based on our understanding of the intent of the program.

These FAQs from Treasury and the SBA are critically important to help facilitate the funding of small businesses. We thank them for producing these clarifications and swiftly communicating this update.

The FAQs align with many of the recommendations we made, such as:

• Using the gross payroll approach for both loan application and forgiveness. Also, the guidance clarified that the employer's share of Federal Insurance Contributions Act taxes should not be included.
• The $100,000 salary limitation does not include health care, retirement benefits, and state and local taxes.
• Applicants that use Professional Employer Organizations (PEOs) can provide payroll reports since they cannot produce individual entity payroll tax documents.
• The time period for calculating payroll costs for the maximum loan amount.

These clarifications are going to have a significant impact in the total eligible funding amount available to small businesses. We plan to release an updated set of AICPA recommendations later today that will include a distilled version of these FAQs.

Our overall goal is to help minimize confusion for both our firms and PPP applicants and also to drive consistency with lenders. The effectiveness of the PPP depends on the quick distribution of funds, so it's crucial we minimize complexity for small businesses that desperately need support now.

These are historic times for our clients and our stakeholders. We know there are other outstanding issues, and we will continue to drive recommendations and advocacy to produce further clarity.

The AICPA's Paycheck Protection Program Resource Center houses resources and tools produced by the AICPA to help address the economic impact of the coronavirus. 

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the pandemic, visit the JofA's coronavirus resources page.

— Erik Asgeirsson is president and CEO of CPA.com. Mark Koziel, CPA, CGMA, is the AICPA's executive vice president–Firm Services. To comment on this article or to suggest an idea for another article, contact Kim Nilsen, the JofA's publisher, at Kim.Nilsen@aicpa-cima.com.

Panicked, small-business owners started calling Drucker & Scaccetti’s public accounting offices in Philadelphia nonstop last week.

Owners didn’t want to miss a chance to borrow some much-needed cash to cover rent and payroll for the next eight weeks—especially if the low-interest loan eventually would be repaid by the federal government. But they had questions, and little guidance to help them in their urgent rush to start submitting applications for the Payroll Protection Program, $349 billion in small business loans created in the latest virus relief package (Public Law 116-136).

“It’s so complicated and such a mess,” said Daniel Marques, a tax accountant with Drucker & Scaccetti P.C.

Business owners need help understanding their options, navigating loan officers at the local bank, calculating their payroll, even quelling their fears that they’ll miss out and risk losing their business. CPA firms like Drucker & Scaccetti are on the front lines of that effort, racing to save millions of American small businesses.

And they are stepping up, Marques said, even though the Small Business Administration program doesn’t directly involve taxes and the loans can’t be used to pay his fees.

Fight for Survival

The vast majority of CPA firms are small businesses too, and their own future depends heavily on the financial health of their client base. Right now, small businesses in survival mode are turning to their accountants to make critical decisions, said Erik Asgeirsson, president and CEO of CPA.com, the technology arm of the American Institute of CPAs.

The AICPA last week called on all 44,000 public accounting firms in the U.S. to support their clients as they seek the much-needed cash relief—a life line Congress provided in the legislation known as the CARES Act. The organization has worked with banks and paycheck-processing companies to ensure consistency in the loan applications over important details, like how to calculate the payroll and the time-frame the calculation should cover.

CPAs can offer trusted guidance, help clients apply for the relief, and make sure that the loan will qualify to be forgiven, Asgeirsson said.

The needs are urgent. According to the JPMorgan Chase Institute, about half of all small businesses have a cash safety net worth less than 15 days. A survey of small businesses found that a quarter have seen revenue dry up due to the outbreak, according to the group Businesses for Responsible Tax Reform.

Anne Zimmerman, a Cincinnati-based CPA and co-chair of the tax reform group, said her six-person firm will continuing working with clients even though some of them can no longer afford their services. Her clients are like family, she said, and she won’t turn away from them.

“For smaller firms like ours, if we don’t continue to help our clients through, whether or not they’re going to be able to afford to pay us, we’re not going to have any clients when we’re done,” Zimmerman said. “How do you say ‘No, sorry you can’t afford me.’ You’re going to help them.”

Accounting Not Immune

Like its clients, Postlethwaite & Netterville APAC isn’t immune to the downturn in the economy and the firm is keeping a close eye on its own cash flows, said Brandon Lagarde, a Baton Rouge, La. tax attorney, who runs the firm’s tax services group.

The firm works with restaurants and other businesses in New Orleans’s normally vibrant hospitality industry, now hobbled by travel restrictions intended to slow the spread of the virus. Thanks to Hurricane Katrina, the region’s business owners are familiar with SBA loan programs. The agency approved nearly $10 billion in aid to businesses and residents impacted by a trio of Gulf Coast hurricanes in 2005. q

“The Katrina recovery, I mean it took probably a year to really get off the ground, and now you’re talking about trying to get something like this off in a week,” Lagarde said. “It’s just very frustrating.”

But owners aren’t waiting for guidance or clarifications from the SBA, Lagarde said; they need to apply now or they risk running out of money.

He’s focused on how businesses are preparing for the inevitable red tape that could dash hopes of the government covering the full amount of the loan.

"No one wants a big old loan on the balance sheet after it’s said and done, not if they can help it,” he said. “It’s really trying to help people make sure they are not borrowing too much because maybe not all of it will be forgiven.”

Companies that receive the CARES loan will need to track the money with separate bank accounts and ledgers. They must decide carefully how they spend the money, he said.

Zimmerman has given her clients in Ohio similar advice.

“Get what you think you deserve, but don’t go spend it all,” she said. “You need to hold onto this money to use for only dire things that you really need to keep your business going.”

In the meantime, Zimmerman is bracing for her own revenue decline in the coming months. She, like her clients, would be eligible for the paycheck loan coverage.

But for now, she says, her team is busier than ever, helping clients to hold on just a little longer.

A PAYCHECK PROTECTION program designed to help keep Americans employed in the wake of the ongoing coronavirus pandemic ran out of money on Thursday, as partisan differences have held up the allocation of additional funds to help America's small businesses stay afloat.

The Small Business Administration on Monday issued a statement on its website indicating that it "is currently unable to accept new applications for the Paycheck Protection Program based on available appropriations funding." In less than two weeks, the $349 billion initially allocated to the program has been exhausted.

"We need to extend that support so we can protect workers and ensure our economy can rebound quickly once restrictions are lifted," Barry Melancon, president and CEO of the American Institute of CPAs, said in a statement on Thursday morning.

The program was designed to backstop banks and lenders granting loans to small businesses while their operations are locked down by state-mandated nonessential business closures. Provided any loans awarded to such firms go toward supporting worker salaries and keeping employees on the payroll – with some exceptions – some or all of those loans would be forgiven through the SBA.

But the initial $349 billion was never expected to be enough to provide long-term and meaningful support to small businesses across the country that have either shut down or drastically altered their business models in the wake of the coronavirus outbreak. Last week and during the three weeks prior, roughly 22 million Americans filed initial unemployment claims. That's roughly equivalent to all of the jobs that the country gained during its historic economic expansion after the Great Recession, erasing progress built between late 2010 and February 2020.

President Donald Trump's administration has been ramping up pressure in recent days to reopen at least portions of the domestic economy from lockdown measures implemented to prevent the spread of the coronavirus. As of Thursday morning, more than 639,000 Americans are confirmed to have been infected with the disease. More than 30,000 have died.

Several governors are now considering plans to partially lift lockdown measures in their states in the coming weeks – though many are expected to do so only gradually to prevent a spike in infection counts. Widespread social distancing measures are expected to remain in place throughout much of the country for at least the next several weeks.

Lawmakers on both sides of the political aisle have recognized the need to allocate further funds to the paycheck protection program, but progress has been stalled by differences over how the federal dollars should be spent. Senate Majority Leader Mitch McConnell of Kentucky has been pushing for an infusion of more than $250 billion into the program, blaming Democrats for slow progress. But Democratic lawmakers have blocked that approach, instead calling for a $500 billion package that would also funnel additional money to hospitals and state and local governments.

Discussions are ongoing between Republicans, Democrats and Treasury Secretary Steven Mnuchin. But business owners and economists warn that time is a critical factor in getting funding to small businesses across the country.

"Just yesterday, we released new data that 90% of small businesses have been impacted by COVID-19 with a large percentage reporting a severely negative impact," John Arensmeyer, founder and CEO of the Small Business Majority advocacy organization, said in a statement on Wednesday. "While it is clear that PPP is not a long-term nor an efficient solution, Congress must immediately add robust funding to keep it solvent, and not delay any further in providing direct cash grant assistance to the smallest, most vulnerable businesses."

With many small business owners in danger of running out of cash as their businesses remain closed in the coronavirus crisis, fintech companies are lobbying to disperse government relief funds to them.

Some say that using the digital platforms they have developed to lend money and process payrolls will be quicker than going through traditional Small Business Administration (SBA) procedures for disaster relief.

The current hotly debated Republican economic relief package bill, under which the SBA would disseminate aid to small businesses, along with relief to workers and big companies, gives the agency 30 days to determine relevant rules before it starts accepting applications for capital. Many in the small business community say that by that point, many businesses, particularly very small ones with inadequate cash reserves and no money coming in, will already have closed. 

The American Institute of CPAs (AICPA), the International Franchise Association, payroll processor Paychex and accounting software provider Intuit, issued an open letter to President Trump, U.S. Treasury Secretary Steven Mnuchin, Small Business Administrator Jovita Carranza and members of Congress today that called for the government to disperse funds to employer businesses through existing payroll processors. 

“We urge the federal government to use these existing systems to direct funds to small businesses so they can make payroll and not shut down due to restrictions caused by the pandemic,” they said in a statement. “In this scenario, the federal government could set up a central payroll funding account that small business payroll processors could utilize so that millions of small businesses could continue paying workers during this time of crisis.”

However, as the group noted, this help would apply only to employers. The vast majority of all small businesses are nonemployer firms, meaning they are solo firms or partnerships that have no employees on payroll.