As of March 12, 2021
12.
Question: In addition to pre-tax employee contributions for health insurance, what are
the other pre-tax employee contributions for fringe benefits that may have been
excluded from IRS Form 941 Taxable Medicare wages & tips that is part of employee
gross pay?
Answer: Employee contributions and deductions from pay for flexible spending
arrangements (FSA) or other nontaxable benefits under a section 125 cafeteria plan,
qualified transit or parking benefits (up to $270 a month), and group life insurance (for
up to $50,000 of coverage) may have been excluded from IRS Form 941 Taxable
Medicare wages & tips. However, pre-tax employee contributions to retirement plans
are included in Taxable Medicare wages & tips and should not be added to that figure to
arrive at gross pay.
13.
Question: How should a borrower account for federal taxes when determining its
payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan,
and the amount of a loan that may be forgiven?
Answer: Payroll costs are calculated on a gross basis without regard to federal taxes
imposed or withheld, such as the employee’s and employer’s share of Federal Insurance
Contributions Act (FICA) and income taxes required to be withheld from employees.
As a result, payroll costs are not reduced by taxes imposed on an employee and required
to be withheld by the employer. However, payroll costs do not include the employer’s
share of payroll tax. For example, the wages of an employee who earned $4,000 per
month in gross wages, from which $500 in federal taxes was withheld, count as $4,000
in payroll costs. However, the employer-side federal payroll taxes imposed on the
$4,000 in wages are excluded from payroll costs under the statute.
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14.
Question: Is there a limit on the dollar amount of First Draw PPP Loans a corporate
group can receive?
Answer: Yes, businesses that are part of the same corporate group cannot receive First
Draw PPP Loans in a total amount of more than $20 million. For purposes of this limit,
businesses are part of a single corporate group if they are majority owned, directly or
indirectly, by a common parent.
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The definition of “payroll costs” in the CARES Act, 15 U.S.C. 636(a)(36)(A)(viii), excludes “taxes imposed or
withheld under chapters 21, 22, or 24 of the Internal Revenue Code of 1986 during the covered period”. As
described above, the SBA interprets this statutory exclusion to mean that payroll costs are calculated on a gross
basis, without subtracting federal taxes that are imposed on the employee or withheld from employee wages. Unlike
employer-side payroll taxes, such employee-side taxes are ordinarily expressed as a reduction in employee take-
home pay; their exclusion from the definition of payroll costs means payroll costs should not be reduced based on
taxes imposed on the employee or withheld from employee wages. This interpretation is consistent with the text of
the statute and advances the legislative purpose of ensuring workers remain paid and employed. Further, because
the reference period for determining a borrower’s maximum loan amount will largely or entirely precede the period
during which borrowers will be subject to the restrictions on allowable uses of the loans, for purposes of the
determination of allowable uses of loans and the amount of loan forgiveness, this statutory exclusion will apply with
respect to such taxes imposed or withheld at any time, not only during such period.