Paycheck Protection Program (PPP) FAQ for Restaurant Operators

The following are actual questions asked by restaurant operators about the Paycheck Protection Program (PPP). For simplicity, PPP1 refers to the first round of PPP loans under the CARES Act in 2020 and PPP2 refers to the newest round of PPP loans under the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (Economic Aid Act) as part of the Consolidated Appropriations Act, 2021. The application period for PPP2 will end on March 31, 2021.

When will the application process be available for PPP2?

The SBA portal fully re-opened on January 19, 2021 to all participating PPP lenders to submit First and Second Draw loan applications. However, it also depends on each individual bank’s readiness.

Can we apply for PPP2 if we haven’t applied for/received loan forgiveness for PPP1?

Yes. You are required to use all the PPP1 proceeds on eligible expenses by the time PPP2 funds are disbursed.

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Regarding using all PPP1 funds, do these funds have to be in relation to the 24-week covered forgiveness period or can we use PPP1 funds for eligible expenses after our covered period?

You may use the funds on eligible expenses within or after your covered period.

Regarding the tax deduction, please clarify that expenses are deductible in 2020 although forgiveness will happen in 2021. 

2020 expenses are deductible for 2020.

 When the loan is forgiven, will we be taxed for the forgiven loan?

 No.

Will plexiglass, etc., expenses be eligible expenses for PPP2?

Yes.

Would COVID-19 testing costs apply as a forgivable expense?

Yes.

Yes.

Are the high paid ($150K) to be included in calculating payroll?

Payroll rules are the same as they were under PPP1, capped at $100K.

If we pay for software in advance on a one-year contract, is the entire amount forgiven if we pay it during the covered period?

Yes, given the current guidance, the entire amount would be forgiven if it was paid during the covered period.

(NOTE: Paying for 12 months of Restaurant365 restaurant management software in advance is forgiven if you pay it within the 8- to 24-week covered period. To learn more, contact Restaurant365.)

In regard to calculating full-time employees (FTE) for 2019, would we the average monthly FTE for the 12 months and then take the 2019 average?

FTEs are calculated on a monthly basis. Calculate each month’s FTEs and add them up, then divide by 12 to get your average.

What if we had a quarter that did not have a 25% decline, but all others did?

As long as you had a 25% decline in one quarter of 2020 compared to the same quarter of 2019, you are eligible for PPP2 (assuming other requirements are also met).

For Q2 of 2020 we closed the store for two months.  For all other quarters we didn’t decline by 25%.  Would we still qualify for PPP2?

If Q2 2020 is down at least 25% compared to Q2 2019, then yes, you would be eligible for PPP2 (assuming other requirements are also met).

Do additional expenses eligible for forgiveness apply to the PPP1 loans or only the PPP2?

The additional expenses are applicable to PPP1 as well, as long as you have not received forgiveness already.

Our EIDL advance was not forgiven against our PPP.  How do we get it corrected?

SBA will remit the funds they withheld from your forgiveness to your bank to pay off the remainder.

How do we show that the first loan balance was used?

Standard books and records for your business expenditures, if you are requested to prove the use of the funds.

If we received PPP1 and EIDL loans, have spent all of PPP1 but not all of EIDL, can we be considered for PPP2 loans?

Having not spent EIDL does not prevent eligibility for PPP2 based on current guidance.

Does PPP eligibility count full-time employees per location?

FTEs are calculated in the aggregate. If you have multiple affiliated businesses, you must combine these businesses to determine eligibility.  Any business with a NAICS Code that begins with 72 (Accommodations and Food Services) that has more than one physical will determine eligibility based on each physical location.

Regarding the maximum 300 employee rule: what if we own 6-8 different companies and the total is more 300, but we only want to apply for 1-2 companies that have fewer than 300 employees?

You are only allowed to treat each physical location separately if you fall under an NAICS business code starting with 72 (which includes restaurants). Otherwise you must aggregate.

Are any taxes included in eligible expenses for the PPP2?

Yes, SUTA taxes are included.

In Washington state, we will likely be closed for in-house dining. Can we delay start time to allow for more payroll deductions?

The covered period starts when the PPP2 is funded. You would have to delay your application (and risk that funds will not run out before you apply).

What are the gross receipts definitions that follow SBA size rules?

Gross receipts include all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Generally, receipts are considered “total income” (or in the case of a sole proprietorship, independent contractor, or self-employed individual “gross income”) plus “cost of goods sold,” and excludes net capital gains or losses as these terms are defined and reported on IRS tax return forms.

We filed our restaurants as separate entities in PPP1. Can we file as a holding company in PPP2 or do we need to file the same as last round?

Often the lender will dictate this and expect or require different companies with separate EIN’s to apply separately.  Although, if you have a holding company with legal ownership of all the restaurants and can qualify as an aggregated group under this holding company, this may be available to you.

Does streamlined forgiveness for loans of $150K or less apply only to PPP2 or to PPP1 also?

Form 3508S, which requires fewer calculations and less documentation, may be used for loans $150K or less for both PPP1 and PPP2.

If you didn’t apply for a PPP1, are you allowed to apply for PPP2?

Yes, there is a provision built into this round for first time borrowers.

How are gross receipts calculated for single member LLC? (PPP1 was net profit on Schedule C.)

For determination of the decline in 2020 vs. 2019, gross receipts are “gross income.”

To meet the 25% revenue decline in any quarter, can any Cares Act grants received (counted as income) be deducted from sales so that it doesn’t put the business over the 25% sales decline?

Only PPP and EIDL are specifically excluded.  Otherwise, CARES monies that are part of taxable income are anticipated to be counted (and not be excludable).  We are continuing to watch for additional guidance from the SBA here.

Can you clarify whether all perishable CoGS costs are eligible under the additional costs category?

Covered supplier cost is an expenditure made by an entity to a supplier of goods that are: 1) Essential to the operations of the entity at the time at which the expenditure is made, or 2) Is made pursuant to a contract, order, or purchase order that was either:

  1. in effect at any time before the covered period with respect to the loan, or
  2. with respect to perishable goods, in effect before or at any time during the period.

Is the forgiveness on the PPP loan only for the 60% that is used on payroll or also on the rest of the loan that you spend on software, PPE etc.?

Forgiveness is for all eligible expenses but at least 60% of those expenses must be qualified payroll expenses.

Are employee meals and payroll expenses such as payroll processing expenses forgivable?

No.  Those are not the types of expenditures that qualify for PPP loan forgiveness.

If you didn’t apply for PPP1, and apply for PPP2, do you still get to use the funds on the PPP2 for the expanded allowable expenses?

Yes.

Is the ERTC based on $10K for a quarter?

The Employee Retention Tax Credit (ERTC) for the year 2020 is limited to $10k per employee maximum for the year. For 2021, it is $10k per employee per quarter for qualified quarters.

Does an order that places a restriction on capacity count as a partial suspension?

Yes. See IRS FAQs https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act.

Does choosing not to do takeout/delivery negate the qualification?

Suspension must be as a result of a government order, not simply a choice.

We are not allowed (due to directives) to open for indoor or outdoor dining. Takeout/delivery is not operationally profitable. Does this affect our ability to qualify?

As long as there is an order that would be the reason for at least partial suspension, you qualify.

For ERTC qualification, if the business is definitely under orders for reduced operations AND chooses not to open at the allowed 25% capacity, does it qualify?

As long as there is an order in place causing full or partial suspension, you would qualify. Reduction due to a choice would not qualify.

How would you get the ERTC tax credit if you do not pay taxes on the 2020 loss?

ERTC is a credit against payroll taxes.

 

If you have not yet applied for a Paycheck Protection Loan in the latest round of funding, you can simplify the process by contacting Restaurant365’s lending partner, Lendio.

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This post is to be used for informational purposes only.

Michelle Klement, CPA, is a partner, tax department lead and business advisor at at William Vaughan Company, a full-service accounting and advisory firm.  She has more than 25 years of diverse tax experience in federal and state tax compliance. Her practice primarily consists of serving the multi-disciplinary tax needs of middle market companies across a variety of industries, including healthcare and professional services.

Kristin Metzger, CPA, is the restaurant practice leader at William Vaughan Company  In addition to her leadership role, she also collaborates with the firm’s outsourced accounting affiliate, WVC RubixCloud. As part of that team, Kristin has been helping restaurant owners and operators gain a clear and accurate financial picture by streamlining the day-to-day accounting functions through hands-on expertise and advanced technology.

William Vaughan Company is a certified accounting partner of Restaurant365, a cloud-based, all-in-one restaurant accounting softwarerestaurant operations softwareinventory management softwarepayroll + HR software, and scheduling software platform. Schedule a demo today.

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