How To Get The Maximum Paycheck Protection Program (PPP) Loan Legally Possible

May 2020 ISSUE April 7, 2020 Updated April 29, 2020
Practice Management Financing
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President Trump signed The Coronavirus Aid, Relief, and Economic Security (CARES) Act into law on Friday, March 27, 2020. The $2.2 trillion economic rescue is the largest relief package in U.S. history, offering aid to many struggling Americans through direct payments and expanded unemployment insurance, while providing loans and grants, including the Paycheck Protection Program (PPP), to practices that have been deeply impacted by the coronavirus.

On April 6, 2020, the Treasury Department provided additional guidance on the PPP program in the form of frequently asked questions (FAQs), resolving many questions and conflicting information.

The PPP loan amount is capped at 2.5 times your average monthly payroll cost. Originally, the law stated that payroll data from the 12-month period immediately prior to the loan application date should be used. The recent Treasury Department release confirms our earlier recommendation that the calculations should be based on your financial information for the 2019 tax (calendar) year (Q&A #14), so that all amounts can be tied to the W-2s your practice issued, payroll tax returns your practice filed, and practice retirement plan reports received for that time period. Using this time period, rather than the 12-month period just before the loan application is filed, will likely increase your potential loan amount, since the wages you paid during March 2019 will likely exceed those paid in March 2020 when your practice was probably closed or substantially cut back due to the coronavirus impact.

In order to qualify for the maximum PPP loan amount, you need to understand what’s included in “total payroll costs.” This includes salaries and wages paid to all employees including staff, doctors, associates, and family members during 2019. Some banks and consultants had taken the position that payroll costs included only the employee’s net pay (after 401(k) salary deferrals, FICA, and federal and state income tax withholdings), which would dramatically reduce your potential loan amount. The Treasury Department guidance confirmed our recommended approach that payroll costs include each employee’s gross salary, calculated before 401(k) salary deferrals, payroll taxes, and federal and state income taxes are deducted (Q&A #16). This represents the amount shown on Box 5 of Form W-2 issued to the employee (Medicare wages and tips), and are aggregated for the entire practice in Box 5C of Form 941.

The law limits the compensation which can be taken into account to no more than $100,000 per employee. The Treasury Department release made it clear that the
$100,000 per employee compensation limit applies only to the employee’s salary (Q&A #7). The term “total payroll costs” also includes employee benefits such as vacation, medical, sick, and family leave, group health benefits, including health insurance premiums, medical reimbursement, HRA reimbursements, and contributions by the practice to staff HSA accounts, as well as retirement plan contributions, and state and local taxes paid by the practice on the compensation, including unemployment. Since these benefits and payroll taxes will be in addition to the $100,000 salary for those that are capped (usually the doctors), it will allow your practice to qualify for a substantially larger loan.

In order to assure that you qualify for the maximum loan amount legally possible, use our revised PPP loan calculator linked below.

Template Calculator for PPP Loan (download Excel file)

Example Calculation for PPP Loan

Example Calculation for-PPP Loans (revised 4-7-2020)

This guidance also confirms your practice should not include amounts paid to an independent contractor or sole proprietor in your eligible payroll costs (Q&A #15). This will avoid “double-dipping,” since the independent contractor (Form 1099) or sole proprietor (Schedule C) will be eligible for a PPP loan in its own name, provided it satisfies the applicable requirements.

Already filed a PPP application that hasn’t yet been processed? If so, you can revise your application based on this recent Treasury Department guidance (Q&A #17), which could substantially increase your potential loan amount.

PPP loans are issued on a first-come, first-served basis, and funding is expected to run out quickly. As a result, we recommend you apply for a PPP loan immediately.

Updated April 29, 2020. Originally published April 7, 2020.

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