Business Advisory Archives - Page 4 of 9 - Wouch Maloney CPAs & Business Advisors

YEAR-END PAYROLL PROCESSING REMINDERS FOR 2021

December 15, 2021/in Business Advisory /by Julie Shennard

With just under three weeks to go, we want to focus on year-end payroll processing reminders for 2021. In the below list, we have included additional information for those businesses impacted by COVID-19 and received earnings from the Families First Coronavirus Response Act (FFCRA) or Coronavirus Aid, Relief, and Economic Security (CARES) Act. We have also included common W-2 adjustments.

As the year comes to a close, we hope the following information will help reduce or eliminate errors while you complete your year-end payroll processing for 2021.

Year-End Checklist

Make certain all information is up-to-date and correct for each employee
If your business was impacted by COVID-19 and you need to record any Families First Coronavirus Response Act (FFCRA) or Coronavirus Aid, Relief, and Economic Security (CARES) Act earnings, you must do so before December 30, 2021. Keep in mind that December 31st is a holiday.
If your payroll processing was disrupted by COVID-19, and you issued manual checks and/or voided checks, be sure your payroll information is up-to-date and correct in your software or with your third-party payroll provider before December 30, 2021. Again, keep in mind that December 31st is a holiday.
Verify that all cash and non-cash income has been recorded and taxed properly. Common W-2 adjustments include:
- Group-term life insurance in excess of $50,000
- Employer-paid health insurance premiums for subchapter S shareholders who own at least 2% of the company
- Personal use of a company vehicle
- Third-party sick pay
- Company-provided transportation or parking
- Non-qualified moving expense reimbursements
- Non-accountable business expense reimbursements or allowances
- Bonuses and other annual incentive pay
- Employer-paid education not related to the employee’s job
- Non-cash payments
- Health care premiums– Employers with over 250 employees must report the total cost of employer-sponsored health care coverage
Check for excess retirement contributions to 401(k), 403(b), or SIMPLE retirement plans as they cannot exceed IRS limits
Start preparing for ACA Annual Reporting – Determine if your company had 50 or more full-time employees for form 1095 reporting:
- 50 or More Employees: Complete and file Forms 1095-C and 1094-C
- Less Than 50 Employees (Self-Insured): Complete and file Forms 1095-B and 1094-B
- Less Than 50 Employees (Fully Insured): The insurer is responsible for filing on behalf of the employer Less Than 50 Employees (No Insurance): Reporting is not required
Check with your payroll provider to find out the last day you can submit final 2021 payrolls to avoid penalties and interest charges
Holiday Impacts: If your check date falls on either of these dates, you should adjust it to avoid delaying your employees’ payroll checks/direct deposits
- Christmas Day is Saturday, December 25 but the holiday is recognized by the Federal Government on Friday, December 24th.
- New Year’s Day is Saturday January 1, 2022 and will be recognized by the Federal Government on Friday, December 31, 2021.

Questions?

Should you have questions about this topic, or any other topics related to your personal or business situation, please contact us at any time.

DISCLAIMER: The WM Update, WM Wednesday Wisdom, WM Daily Update COVID-19, COVID-19 Business Resources, COVID-19 Client News Alerts and other related communications are intended to provide general information, including information regarding legislative COVID-19 relief measures, as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

Ted Allavena, CPA contributed to this article.

Budget Time For Your Budget

November 10, 2021/in Business Advisory /by Eric Seidman

The goal of any enterprise is to earn more than it spends. One of the most effective ways to accomplish this goal is to establish a budget, a tool which estimates the revenue and expenses expected to be earned and incurred in a given period. With the 4^th quarter in full swing for calendar year entities, now is the opportune time to create or fine tune your 2022 budget.

Defining a Budget

A budget enables a company to determine if it has sufficient revenue to cover its expenses; if it will generate enough cash flow to service debt; or even if certain desired ratios or key performance indicators will be met. A company can then utilize its budget to make important decisions surrounding personnel, capital expenditures and other means of establishing growth. Despite its overall utility to a company, budgeting can sometimes be deprioritized in favor of other tasks and functions. However, budgeting is crucial to facilitating growth and accomplishing goals, as it aids a company in understanding what it spends and how that spending is financed.

Revenues and Expenses

A budget should estimate revenues and both fixed and variable expenses on a monthly basis. These preliminary numbers can be based on various inputs and assumptions. Often, historical data and trends are the perfect foundation for the following year’s budget as, barring significant changes, a company can expect its costs will approximate prior figures. From there, changes to revenues and costs known at the time the budget is created can be programmed in, as can goals associated with revenues and expenses.

WM WISDOM:
In addition to tracking expenses, a company can use a budget to see what revenue or expense levels need to be met to achieve certain objectives, whether related to profitability, key performance indicators or expansion.

For revenues, work already on the books or expected to be obtained can be estimated per contractual terms. Fixed costs, such as rent or insurance, can be locked in at set rates for each month. Payroll, which is typically fixed but can have a variable component, can be projected based on rates, expected hours and salaries set prior to the new year. Variable overhead expenses, though subject to change on a monthly basis, can be projected monthly based on the expected annual cost. Direct costs, which are those related directly to the generation of revenue, can be estimated based on the projected gross profit: if revenue is budgeted at $250,000 in January and the expected gross profit is 10%, direct costs would equal $225,000.

Review Budget Monthly

The budget should be reviewed monthly with a focus on addressing significant swings – both positive and negative – in budgeted vs. actual results. This level of intel can help decision making in the future and allows a company to address issues before it is too late.

WM WISDOM:
By reviewing these results on a monthly basis, a company will gain an increased understanding of its business practices and can potentially uncover inefficiencies to rectify. All of this is done with the goal in mind of confidently charting a course forward.

Modify Budget When New Information is Known

Overall, budgeting is an ongoing process as opposed to a one-time exercise. Business activity typically ebbs and flows – even the best companies experience the unexpected. While it is crucial to establish a base or foundation budget prior to entering the year, the budget can be modified as new information becomes available – new jobs or projects, additional expenditures or even updated goals or cash flow requirements. Budgets help businesses navigate uncertainty to help make any situation manageable.

Questions?

At Wouch Maloney, we have vast experience in helping companies create, interpret and manage their budgets to achieve desired goals. Please contact us with questions or for a consultation on your existing budget or for assistance in creating your initial budget.

Employee Retention Credit Extended

October 20, 2021/in Business Advisory /by Brandon Landis

As you prepare your third quarter payroll tax filings and look towards year-end, we wanted to remind you that the Employee Retention Credit (ERC) has been extended through January 1, 2022. This means that an eligible employer can claim ERC for the 3^rd and 4^th quarters of 2021.

The ERC is a refundable tax credit equal to 70% (up from 50% in 2020) of the qualified wages paid by an eligible employer. An eligible employer is a business whose gross receipts in one quarter declined more than 20% (down from 50% in 2020) in 2021 as compared to the same quarter in 2019.

Eligible employers can claim a credit against up to $10,000 of qualified wages (including certain health care costs) paid per employee. The credit is then calculated at 70% (up from 50% in 2020) of the qualified wages. Wages paid to owners and related individuals, such as a child, brother, sister, mother, father, etc., are not considered qualified wages for ERC purposes.

Example:

Eligible employers who do not qualify for ERC under the more than 20% decline in gross receipts as compared to the same quarter in 2019 could still be eligible based on the Alternative Quarter Election. The Alternative Quarter Election allows the employer to look at the decline in gross receipts in the previous quarter for eligibility. If in the prior quarter an employer qualified for ERC as a result of meeting the 20% sales decline criteria, they would automatically qualify in the current quarter, even if they do not meet the sales decline parameters in the current quarter.

The Employee Retention Credit can be claimed on the original filing of the quarterly payroll tax return, Form 941, or by amending the quarterly payroll tax filing through Form 941-X for previously filed quarterly returns.

WM Wisdom
Eligible employers can claim ERC for the 3^rd and 4^th quarters of 2021.
Eligible employers compare the decline in gross receipts for 2021 to the same quarter in 2019 rather than 2020. This most likely makes it easier to qualify for ERC as 2020 gross receipts are likely less than 2019 gross receipts.
Eligible employers can qualify for ERC using the gross receipts decline in the previous quarter under the Alternative Quarter Election. This means employers could qualify for ERC in quarters where they do not have gross receipt declines.

Questions?

Should you have questions about this topic, or any other topics related to your personal or business situation, please contact us at any time. We are available to speak with you by phone at 215-675-8364 or contact us.

DISCLAIMER: The WM Daily Update COVID-19, COVID-19 Business Resources, and COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

Senate Passes $1.2 Trillion Infrastructure Bill, What’s Next?

August 11, 2021/in Business Advisory /by Wouch Maloney

On Tuesday, August 10, 2021 the Senate passed a $1.2 Trillion bipartisan bill. The bill, called the Infrastructure Investment and Jobs Act, features $550 billion in new federal spending over five years.

The bill will now go to the House of Representatives for approval before President Biden can stamp his approval. Here’s what we know so far about the latest version of the agreement, according to the CBO report, an updated fact sheet provided by the White House, as well as the bill text and 57-page summary released last week.

Roads and Bridges

The package calls for a $110 billion investments for roads, bridges, and major infrastructure projects. Included is $40 billion for bridge repair, replacement, and rehabilitation.

Transit and Rail

The deal would provide $39 billion for the modernization of public transit, including the repair and upgrade of existing infrastructure, increasing accessibility to stations, expanding service to new communities and modernizing rail and bus fleets. The plan calls for replacing thousands of vehicles with zero-emission models.

The deal would also invest $66 billion in passenger and freight rail. The funds would eliminate the maintenance backlog of Amtrak, modernize the Northeast Corridor line, and expand service to areas outside the northeast and mid-Atlantic regions.

According to the White House, it would be the largest federal investment in public transit in history and in passenger rail since the creation of Amtrak 50 years ago.

Broadband

The nation’s broadband infrastructure would benefit from a $65 billion investment, which aims to lower the cost of internet service and creates a permanent federal program to help low-income households gain internet access.

Airports, Ports and Waterways

The deal would invest $17 billion in port infrastructure and $25 billion in airports. These monies will be used towards repair and maintenance backlogs, reduced congestion and emissions near ports and airports and to promote electrification and other low-carbon technologies.

Electric vehicles

The bill would provide $7.5 billion for zero- and low-emission buses and ferries, with a goal to bring thousands of electric school buses to districts across the country. Another $7.5 billion would go to building a nationwide network of plug-in electric vehicle chargers.

Power and Water Systems

$65 billion would be provided to rebuild the electric grid, including building thousands of miles of new power lines and expanding renewable energy;
$55 billion would be provided to upgrade water infrastructure, including replacing lead service lines and pipes so that communities have access to clean drinking water; and
$50 billion would go toward making the system more resilient to the impacts of climate change and cyber-attacks.

How Will It All Be Paid For?

While lawmakers claim that the bill pays for itself, according to the Congressional Budget Office the bill would add more than $250 billion to the federal deficit over the next decade. The White House and Congress will need to continue to look for ways to pay for this bill as well as further spending bills.

President Biden said in a statement that the bill won’t raise taxes on people making less than $400,000 a year and does not include a gas tax increase or fee on electric vehicles. He initially called for raising taxes on corporations to fund the infrastructure investments — but that proposal did not make it into the latest package after strong opposition from Republicans.

The White House has proposed several financing sources for the spending, one of which is providing the Internal Revenue Service (IRS) with nearly $80 billion so that it can close the so-called “tax gap.” The tax gap is the difference between the estimated amount of taxes that the IRS is owed and the amount that it receives each year. Closing this gap, the White House argues, will help the government recoup billions of dollars that it is already owed and use those funds to fuel new initiatives.

WM Wisdom:
In June 2021 the Biden administration released their “Green Book” of tax proposals. While none of those proposals are incorporated into the current bill WM expects that Congress will be considering and acting on proposed tax changes soon as a way to pay for the increased spending. Increased funding of the IRS will result in more compliance audits, specifically on businesses and individuals making more than $400,000 per year.

We will continue to monitor legislation and report on any developments that may impact your business and financial planning.

PPP Loan Forgiveness Portal Launched by SBA on August 4, 2021

August 4, 2021/in Business Advisory /by Adrienne Straccione

Despite efforts by the U.S. Small Business Administration (SBA) and U.S. Treasury to streamline Paycheck Protection Program (PPP) loan forgiveness forms and processes, lenders continue to have concerns. To help lenders and borrowers, the SBA launched a PPP loan forgiveness portal today, August 4, 2021. The new portal will allow some borrowers with loans up to $150,000 to apply for forgiveness directly with the SBA instead of going through their lender.

Many borrowers and lenders who participated in the PPP reported being overwhelmed by the complexity of the loan forgiveness process. While the SBA and U.S. Treasury made changes in October 2020 for borrowers with loans of $50,000 or less, additional efforts were necessary to help streamline loans in the $150,000 or less category since 93% of outstanding PPP loans fall into that range.

The Economic Aid Act provided for a simplified loan forgiveness application process for borrowers with loans of $150,000 or less in 2020 (SBA Form 3508S). The new forgiveness application was less burdensome for borrowers; however, lenders were inundated with the number of new loan forgiveness applications. Borrowers were displeased with the amount of time it was taking lenders to process the applications and were worried they would have to start repaying the loan while waiting for a forgiveness decision from the SBA.

PPP Loan Forgiveness Portal Launched by SBA on August 4, 2021.

Simplifying the PPP Loan Forgiveness Process

Since the inception of the loan forgiveness process, the SBA has received numerous comments from borrowers and lenders that the forgiveness process was complicated. Changes were issued throughout 2020 to simplify the process, but lenders still needed to limit the number of forgiveness applications they accepted due to the requirements set by the SBA.

In response to these and other concerns the SBA, in July 2021, issued an interim final rule (IFR) to further streamline the forgiveness process. In the IFR, the SBA made two changes to further simplify and streamline the forgiveness process for loans $150,000 or less.

For Second Draw PPP Loans of $150,000 or less, where the borrower is required to provide revenue reduction documentation at the time of loan forgiveness, SBA is allowing lenders to use a COVID Revenue Reduction Score developed by an independent, third-party SBA contractor as an optional method to document the borrower’s revenue reduction.
The SBA is making available a direct borrower forgiveness process for lenders that choose to opt-in as an alternative method for processing borrower loan forgiveness applications for all PPP loans of $150,000 or less.

COVID Revenue Reduction Score

To help streamline cases where the borrower did not submit documentation of revenue reduction at the time of the Second Draw PPP loan, the SBA is offering an alternative form of revenue reduction confirmation for loans of $150,000 or less.

Prior to this IFR, borrowers would need to provide tax forms, bank statements, financial statements or other documents supporting that they met the revenue reduction standards, and those documents would need to be reviewed by the lender.

The alternative confirmation is based upon an independent third-party SBA contractor developed COVID Revenue Reduction Score (score) which factors in a variety of inputs including industry, geography, and business size. The score uses current data on economic recovery and return of businesses to operational status. Each Second Draw PPP Loan of $150,000 or less will be assigned a score, which will be maintained in the platform and will be visible to lenders to use on an optional basis as an alternative to document revenue reduction. Additionally, the score will be visible to those borrowers that submit their loan forgiveness applications through the platform using the direct borrower forgiveness process.

When the score meets or exceeds the value required for validation of the borrower’s revenue reduction, use of the score will satisfy the requirement for the borrower to document revenue reduction. When the score does not meet the value required for validation of the borrower’s revenue reduction, and if the borrower has not already provided documentation to the lender that validates the borrower’s revenue reduction, the borrower must provide documentation either directly to the lender (for those lenders that do not opt-in to the direct borrower forgiveness process) or provide documentation to the lender by uploading it to the platform.

WM WISDOM:
While the score may help to streamline the process, we recommend that you keep the appropriate documentation (bank statements, financial statements…) to verify that you meet revenue reduction requirements.

Direct Borrower Forgiveness Process

The direct borrower forgiveness process is an optional technology solution that the SBA is providing to PPP lenders. This is designed to leverage the SBA’s existing platform to align and integrate the streamlined forgiveness application for loans of $150,000 or less as mandated by the Economic Aid Act.

As of July 29^th, over 600 banks have opted into direct forgiveness which enables over 2.17 million borrowers to apply through the portal.

The platform provides PPP lenders who opt-in with a single secure location for all its borrowers with loans of $150,000 or less to apply for PPP loan forgiveness through the platform using the electronic equivalent of SBA Form 3508S. Upon receipt of notice that a borrower has applied for forgiveness through the platform, lenders will review the loan forgiveness application in the platform and issue a forgiveness decision to SBA inside the platform.

Benefits for borrowers using the platform include the ability to submit loan forgiveness applications directly, reduction in wait time and certainty as to application submittal to the SBA.

To visit the SBA PPP direct forgiveness portal, click here.

WM WISDOM:
We recommend all PPP borrowers check with their lender to determine the preferred method of applying for forgiveness and apply as soon as they are able to avoid any last minute issues.

As always, we are available to discuss your situation or assist you with preparing your documentation needed for loan forgiveness. If you would like to speak with one of our CPAs, please contact us at your earliest convenience.

To read the entire Interim Final Rule published by the SBA, please click here.

The Importance of Developing a Solid Business Succession Plan

November 2, 2020/in Business Advisory /by Eric Seidman

Family-owned businesses are often considered the backbone of the American economy, but the numbers don’t lie. According to the Conway Center for Family Business, just 30 percent of family-owned businesses transition to the second generation of ownership; 12 percent are still viable into the third generation; and just three percent successfully transition to the fourth generation. While there are certainly myriad reasons for the percentage drops, one of the key factors is the lack of a strong succession plan put in place by the owners.

Why do I need a succession plan?

Today, many family-owned businesses do not have an automatic “heir” to take over. Often, the next generation has a different career path in mind that does not include staying in the same area or the same field. It may be critical to the continuation of the business to look outside the family for the next business owner to lead the company.

How long does it take to create a succession plan?

Succession plans are not developed overnight – they come in phases, with some of the most successful versions brainstormed and implemented almost a decade in advance. Even if a business owner has no desire to retire, a succession plan proves vital in the case of death or disability.

An owner should start, first and foremost, by identifying the overarching goals.

What does the owner want to happen to the business?
How long does the owner plan to work?
How long does the owner envision a transition period will take?
To whom would the owner sell or transition the business?

Once these questions are answered a general outline can be formed and the business owner can then begin working with his or her CPA and attorney to document scenarios and structures based on different considerations. These considerations would then be recorded via a Buy/Sell Agreement, which would serve as the governing document for business succession.

Know the value of your business

Typically, the owner would require a certified business valuation to determine how much it is worth. From there, depending upon whether the business would be sold to family members, gifted to family members or sold to third parties, certain premiums or discounts would be applied. There are tax implications aplenty for any of these scenarios.

In a sale to a family member, an important consideration may be the length of the buyout, and how it coincides with the owner’s previously stated goals for remaining involved. In a gift to a family member, the transition may take longer in order to utilize annual gifting limits to avoid using the owner’s lifetime exemption, or to ensure the owner does not cede control of the majority interest until a certain point in time. In a sale to a third party, there are different tax ramifications for an asset or a stock sale, as well as in how the purchase price is allocated among sold assets.

Outside of the numbers, developing a succession plan in advance increases the likelihood of the plan coming to fruition, as the owner can spend the years leading up to its implementation grooming the successors. The owner can determine who is best suited for certain roles and establish a leadership or mentoring program. Plans tend to fail when they are not mapped out thoroughly in advance and anyone involved feels as if they are scrambling to put it in place.

Keep your business succession plan agile

Additionally, the plan should be reviewed regularly with the advisory team – the CPA, attorney and financial advisor – to ensure the owners’ goals are being achieved. Changes in tax rates via legislation and administrations could result in the need for plan modifications and remaining adaptable is important. When all of the above questions are answered, the steps are implemented, and the plan is communicated, a business owner can better ensure a smooth transition that helps accomplish the goals and increases financial security for all of those involved.

For over 30 years, Wouch Maloney has worked with business owners throughout the Greater Philadelphia region to create a succession plan that is right for their unique situation and goals. To learn more, reach out to Eric Seidman, CPA, MBA, or any of our CPAs or business advisors.

DISCLAIMER: All communications by Wouch, Maloney & Co., LLP intend to provide general information, as of the date of the communication, and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. Please be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

6 Ways to Help Your Small Business Prevent Fraud and Costly Mistakes

October 14, 2020/in Business Advisory /by Christine Nelson

Updated February 26, 2026 The rise in cybercrime and remote work environments have created new risks and obstacles for many small businesses. Phishing emails, password attacks and employees working from home offices or at remote locations provide numerous opportunities for sensitive information to be compromised.

Inc.com reported in their February 2026 technology newsletter, “research by Public Private Strategies Institute found that 72% of small businesses were hit by fraud, scams, or ransomware last year”. According to the article, “71 percent of respondents said they believe that the spread of artificial intelligence tools will cause fraud and ransomware attached to become more common”.

While an increase in fraud is being reported, there is no need to panic. If you haven’t reviewed and updated your existing systems in response to scammers and changing work conditions, it is not too late to create a plan. The following list provides six ways to help you prevent fraud and reduce risk in your business.

1. Protect Your Small Business Passwords

Use multifactor authentication when possible and limit the number of people who have access to passwords of business accounts such as:

Email business accounts
Bank/financial accounts
Bookkeeping/invoice software
Websites and social media accounts

2. Create internal systems to avoid unauthorized or duplicate payments

Use a unique identifier when placing orders with vendors
Set up processes to approve payments
Understand your accounting software and use built-in features to help detect duplicate invoices or payments

3. Know your vendors

Create an internal process to approve and verify new and existing vendors
Emails from vendors demanding payment should be independently verified
Confirm products and services were received before authorizing payment

4. Pay attention to payroll

Outsourced payroll needs verified and approved
Check employee names and rates on a regular basis
Expense reimbursements should be approved to make certain business reimbursement policies are being followed

5. Check the checks

Perform monthly bank reconciliation by verifying the cancelled check with the bank statement and accounting software
Note when check numbers are out of order or missing and research
Verify authorized signatures are accurate

6. Segregate accounting duties

Review bank statements before turning over for reconciliation
Review accounts payable and accounts receivable reports each period for accuracy

Employees are no longer working from secure locations. Sensitive company information, such as bank account passwords, can be compromised.

Challenges for Small Business Owners

Small business owners do not always have the luxury of having more than one employee available to segregate accounting duties. Often, one person is responsible for all aspects of the financial record keeping for the company. Implementing internal systems to mitigate risk is possible no matter what size your business may be.

We understand the specific needs of small business owners. Loss of income due to error or fraud can make it difficult to meet your goals and the financial needs of your business.

Establishing the right internal controls specifically for your business, including the steps listed, can help you keep your business on a secure path to reduce the risk of loss and ensure the accuracy of your financial information.

As always, should you have questions on this or other matters affecting you or your business, please call 215.675.8364 or email us to speak with a member of our team today.

Christine Nelson is an accounting paraprofessional in our Center City Philadelphia office. She is a Certified QuickBooks Level 2 ProAdvisor and has over 20 years of experience helping businesses set up and maintain bookkeeping systems including QuickBooks, MAS 90, Great Plains, Creative Solutions, Peachtree and NetSuite. She is also available to manage, train and help transition companies to a new bookkeeping system.

PPP Loan Forgiveness – Additional Guidance Issued

August 26, 2020/in Business Advisory /by Sweta Joshi

Additional Guidance for Owner-Employees and Non-Payroll costs

The U.S. Small Business Administration (SBA) and Treasury issued an interim final rule addressing Paycheck Protection Program forgiveness issues related to owner-employee compensation and the eligibility of nonpayroll costs.

Owner – Employees

As provided in previous rules, compensation for owners of an S Corporation or C Corporation cannot exceed the lesser of $20,833, or 20.833% of their 2019 compensation, or the lesser of $15,385 or 15.385% of 2019 compensation if the borrower elects to use an 8- week Covered Period. The interim final rule establishes that owner-employees with less than a 5% stake in a C or S corporation are exempted from the PPP owner-employee compensation rule for determining the amount of their compensation for loan forgiveness.

The new IFR makes it clear that individual shareholders owning less than 5% of the compensation paid to shareholders owning less than 5% can be treated just like any other compensation and qualify for forgiveness for up to $46,154 of compensation if a 24-week period is elected. The exemption’s intent is to cover owner-employees who have no meaningful ability to influence decisions over how loan proceeds are allocated.

Expenses related to sub-lease or home office

Although borrowers might expect to capture all rent, mortgage interest or utility expenses when calculating its forgiveness amount, they must be careful to take into the account the portion of such expenses that are attributable to a tenant or subtenant or to household expense for a home-based business. The IFR provides four examples that explain this new rule:

Example 1: A borrower rents an office building for $10,000 per month and subleases out a portion of the space to other businesses for $2,500 per month. Only $7,500 per month is eligible for loan forgiveness.

Example 2: A borrower has a mortgage on an office building it operates out of, and it leases out a portion of the space to other businesses. The portion of mortgage interest that is eligible for loan forgiveness is limited to the percent share of the fair market value (FMV) of the space that is not leased out to other businesses. As an illustration, if the leased space represents 25% of the FMV of the office building, then the borrower may only claim forgiveness on 75% of the mortgage interest.

Example 3: A borrower shares a rented space with another business. When determining the amount that is eligible for loan forgiveness, the borrower must prorate rent and utility payments in the same manner as on the borrower’s 2019 tax filings, or if a new business, the borrower’s expected 2020 tax filings.

Example 4: A borrower works out of his or her home. When determining the amount of nonpayroll costs that are eligible for loan forgiveness, the borrower may include only the share of covered expenses that were deductible on the borrower’s 2019 tax filings, or if a new business, the borrower’s expected 2020 tax filings.

*Borrowers must be careful to take into account the portion of such expenses that are attributable to a tenant or subtenant.*

Related Party Rent Payments

The IFRs provide that mortgage interest payments to a related party are not eligible for loan forgiveness.

As a result of the above, borrowers who own their building in a separate entity free and clear with no mortgage will not receive credit towards forgiveness for rent paid to the related entity. The CARES Act does not provide definition of “related party” and the IFR describes “any ownership in common between the business and property owner is a related party”. The limitation applies even if an individual owns just 1% of the entity receiving rent payments.

We will provide updates as the SBA continues to change the rules and issue more guidance on loan forgiveness.

If you have questions about this or other topics, please know we are available to speak by phone at 215-675-8364.

DISCLAIMER: The WM Daily Update COVID-19, COVID-19 Business Resources and COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

Executive Order to Defer Payroll Taxes Signed by President

August 10, 2020/in Business Advisory /by Adrienne Straccione

Over the weekend, President Trump signed four executive orders; one of those orders focused on a deferral of payroll taxes. The details of the executive order include:

Defer the EMPLOYEE portion of social security taxes (employer has already been deferred under CARES Act)
Effective for payroll paid during the period September 1, 2020 – December 31, 2020
Effective for employees who earn less than $4,000 bi-weekly or less than $104,000 annually.

The Secretary of the Treasury will issue guidance on implementing the memorandum, but we do believe this order will be challenged.

To read the entire executive order, please click here.

As always, we will continue to stay abreast of breaking news and keep you updated accordingly. If you have questions about this or other topics, please know we are available to speak by phone at 215-675-8364.

Additional Articles by Wouch Maloney

To read the entire list of FAQs is no longer available (updated 07/16/2025).

As always, if you have questions about this or other topics, please know we are available to speak by phone at 215-675-8364.

Additional Articles by Wouch Maloney

WM Newsletter

News, ideas, and advice to keep you informed and ahead of the curve.

Contact Us

Year-End Checklist

Questions?

Defining a Budget

Revenues and Expenses

Review Budget Monthly

Modify Budget When New Information is Known

Questions?

Questions?

Simplifying the PPP Loan Forgiveness Process

COVID Revenue Reduction Score

Direct Borrower Forgiveness Process

Why do I need a succession plan?

How long does it take to create a succession plan?

Know the value of your business

Keep your business succession plan agile

1. Protect Your Small Business Passwords

2. Create internal systems to avoid unauthorized or duplicate payments

3. Know your vendors

4. Pay attention to payroll

5. Check the checks

6. Segregate accounting duties

Challenges for Small Business Owners

Additional Articles by Wouch Maloney

Additional Articles by Wouch Maloney

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