Insurance: A Utility For Ppp?

The Paycheck Protection Program (PPP) loan forgiveness includes a range of expenses, such as payroll, rent or lease payments, mortgage interest, and utilities. While traditionally, utilities refer to electricity, water, gas, and sewage, the PPP has expanded this definition to include telephone, internet, and transportation costs. This broader scope of utility expenses offers small businesses greater flexibility in utilising the PPP loan funds. However, it is important to note that the agreements for these utility services must have been in place before February 15, 2020, to be eligible for loan forgiveness.

PPP loans can be used to cover insurance premiums for group healthcare plans

The Paycheck Protection Program (PPP) was a major initiative included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help small businesses keep going through the economic downturn associated with the COVID-19 public health crisis. PPP loans were available to small businesses that were in operation on February 15, 2020, with 500 or fewer employees, including not-for-profits, veterans' organizations, Tribal concerns, self-employed individuals, sole proprietorships, and independent contractors. Businesses with more than 500 employees in certain industries were also eligible to apply for loans.

PPP loans could be used to cover insurance premiums for group healthcare plans. The amount an employer pays for group health plan coverage for employees, such as a portion of group health plan premiums, is considered a payroll cost for PPP loan purposes. There is no specific definition of group health plans for this purpose, so qualifying group health plans are not limited to plans that provide minimum essential coverage. Other types of group health plans, such as those covering only dental and vision, and other health excepted benefits, such as hospital indemnity, other fixed indemnity coverage, and critical illness or other specific disease coverage, may also qualify.

According to the Small Business Administration (SBA), employer expenses for employee group health care benefits that are paid or incurred by the borrower during the Covered Period or the Alternative Payroll Covered Period are payroll costs eligible for loan forgiveness. However, payroll costs do not include expenses for group health care benefits paid by employees (or beneficiaries of the plan) either pre-tax or after-tax, such as the employee share of their health care premium. Forgiveness is not provided for expenses for group health benefits accelerated from periods outside the Covered Period or Alternative Payroll Covered Period.

If a borrower has an insured group health plan, insurance premiums paid or incurred during the Covered Period or Alternative Payroll Covered Period qualify as "payroll costs," as long as the premiums are paid during the applicable period or by the next premium due date after the end of the applicable period. Only the portion of the premiums paid by the borrower for coverage during the applicable Covered Period or Alternative Payroll Covered Period is included, not any portion paid by employees or beneficiaries or any portion paid for coverage for periods outside the applicable period.

At least 60% of PPP funds must be used on payroll expenses, and no more than 40% may be used for "covered" mortgage interest, utilities, rent, and certain other interest payments that were established (contract in place) as of February 15, 2020. The amount of loan forgiveness will be reduced if less than 60% of loan proceeds are used toward defined "payroll costs." Forgiveness may be further reduced if full-time employee headcount or wages paid to employees earning less than $100,000 annually are reduced by 25% or more.

Retirement plan funding is a forgivable expense

Retirement plan contributions made during the 8-week qualified period are eligible PPP expenses. This includes employer contributions to Defined Benefit Plans, Defined Contribution Plans, and SEP IRAs. However, it is important to note that only employer contributions are considered forgivable payroll costs, and employee salary deferrals or after-tax contributions do not count towards loan forgiveness.

The SBA has provided guidance clarifying that retirement plan contributions made during the Covered Period are eligible for loan forgiveness if they are attributable to that period. For example, if you are using the 24-week Covered Period, you can make employer contributions for retirement plans that accrue before and during this period and have those contributions count as forgivable payroll costs. On the other hand, retirement contributions accrued for periods after the Covered Period are not eligible for loan forgiveness.

To prepare for requesting loan forgiveness, borrowers should maintain detailed records of eligible expenses and payments. This includes documentation such as payroll reports, proof of payroll payments, cancelled checks, ACH confirmations, wire confirmations, or other forms of receipt. Additionally, it is recommended to gather lease agreements, mortgage documents, and utility bills from before February 15, 2020, to confirm the existence of those obligations and services.

PPP funds can be used to cover transportation costs

The SBA has yet to release detailed guidance on which transportation expenses are included under the category of "transportation". However, it is understood that eligible expenses for loan forgiveness must fall under transportation utility fees.

It is important to note that PPP funds must be used for qualifying purposes and must be spent within a specified period to be eligible for loan forgiveness.

Telephone expenses, including cell phones and landlines, are covered

PPP loans are intended to cover compensation paid to employees, with a minimum of 75% of the forgivable amount going towards payroll. The remaining 25% can be used for non-payroll expenses, such as rent and utilities.

Utilities under the PPP include telephone (cell phone and landline), internet, electricity, gas, water, and transportation costs. These expenses must be supported by service contract agreements that predate February 15, 2020.

To maximize loan forgiveness, it is important to keep track of expenses and have proper documentation, such as proof of payment and service contracts.

Internet costs are also considered a utility

The internet is considered a utility, just like telephone, electricity, water, and gas services. It is a necessary service that allows people to carry out their daily activities and routines. Internet access is vital for many people, and its usage is expected to grow as more devices and appliances rely on it for connectivity.

Internet bills are considered utility bills for both businesses and households. They are often classified as utilities when they are required for a business's operations and regular servicing of customers. In such cases, internet expenses are defined as office utilities.

However, when the internet is used as a supporting service and is not mandatory for efficient business operations, it is considered an office expense rather than a utility. For example, if you run a daycare that accepts cash or check payments and does not require internet use, it may not be considered a mandatory utility for your business.

For tax purposes, it is important to accurately categorise internet expenses as either office expenses or utilities. Consulting a tax professional can help ensure that these expenses are properly categorised and deducted.

In the context of PPP loans, internet costs are specifically mentioned as a forgivable utility expense. This means that internet expenses can be included in the calculation for loan forgiveness, provided that the service agreement was in place before the specified date.

Therefore, internet costs are indeed considered a utility, particularly when they are essential for daily activities or business operations.

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