Once you’ve received a PPP loan, you must spend the loan on approved expenses in order for it to be eligible for forgiveness. Luckily, the loans are intended to help with payments many churches are struggling with right now, including:
- Payroll costs
- Interest for mortgages
- Church rent obligations
- Church utility payments
- Health care benefits
If you use any part of your PPP loan for expenses not on this list, that amount cannot be forgiven. Also, note that only 25% of your loan funds can be used for the non-payroll costs mentioned above if you want the full loan amount to be forgiven.
Finally, in order to qualify for full loan forgiveness, you must maintain your employee headcount and their compensation levels. If you’ve made any staffing or wage reductions between February 15, 2020, and the end of the eight-week period following disbursement of your loan, you have until June 30, 2020, to rehire employees and restore salary levels. Otherwise, your forgiveness amount will be reduced.
There are many things in the forgiveness process that still require clarification from the government so you should check regularly for updates and always confirm with your lender for their specific requirements.
What costs are included under forgivable payroll costs?
Forgivable payroll costs include:
- Salary, wages, commissions, or tips—capped at an annual sum of $100,000 (prorated to the eight-week period) for each employee. This also includes housing and manse allowance,
- Paid time off and leave, including costs for paid vacation and parental, family, medical, or sick leave
- Note: If you’re using credits from the FFCRA for any of the above, those amounts are not eligible for forgiveness.
- Employee benefits, including group health insurance premiums and payment of any retirement benefit
- This includes:
- Health insurance plans
- Dental and vision plans
- Health FSAs
- HRAs (but NOT QSEHRA)
- This does not include:
- Group term life plans (as long as there are no ancillary benefits for medical care)
- Long-term and short-term disability plans (again, as long as there are no ancillary benefits for medical care)
- Commuter benefits
- This includes:
- State and local taxes
- Note: you are not able to get forgiveness for the employer’s share of FICA.
For example, a minister who earns $3,000 per month in base wage and $1,500 per month in housing would receive gross wages of $4,500, from which $500 in federal taxes are withheld, would count as $4,500 in payroll costs.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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