SBA Paycheck Protection Program (PPP)

The recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act created the new Paycheck Protection Program (PPP) to help struggling small businesses impacted by the COVID-19 pandemic and appropriates $349 billion for this purpose. The PPP provides vital cash-flow assistance through 100 percent federally guaranteed loans to small businesses who maintain their payroll during the COVID-19 crisis. If the small business borrower maintains its payroll, the portion of the loan used for certain covered expenses including payroll, interest on mortgage obligations, rent, and utilities would be forgiven.

The following Questions and Answers provide more detail on this new lending program. ICBA will continue to update this document as more information becomes available. For more information and updates: visit Treasury.gov/CARES and SBA.gov/PayCheckProtection.

Here are key links to important information from SBA and Treasury:

PPP Basics (Updated April 14)

  • A1) What is the Paycheck Protection Program (PPP)?

    The PPP is a small business loan program designed to assist in allowing small businesses to keep workers on the payroll during the COVID-19 pandemic. When workers are kept on the payroll for the qualifying period, the loan could be forgiven if the small business incurs eligible expenses.

  • A2) What is the start date of the program?

    The program commences on April 3, 2020.

  • A3) What is the last day of the program?

    The last day to apply for and receive a loan is June 30, 2020.

  • A4) Are PPP loans guaranteed?

    PPP loans are 100% guaranteed by the SBA.

  • A5) Who can get a loan?

    Small businesses, including self-employed persons, independent contractors, sole proprietorships, nonprofit (501(c)3) organizations, veterans’ organizations (501(c)19), and tribal business concerns with less than 500 employees. Businesses with the NAICS Code beginning with 72, such as restaurants and hotels, receive further expansions of eligibility for PPP. Small businesses are eligible when they meet the definition of a small business concern as defined in section 3 of the Small Business Act and subject to SBA’s affiliation rules under 13 CFR 121.301(f). These businesses must submit such documentation as is necessary to establish eligibility such as payroll processor records or payroll tax filings, or Form 1099-MISC.

    For independent contractors, sole proprietors, or self-employed individuals, the applicant had to be in operation on February 15, 2020 and must be able to supply payroll tax filings, Form 1099-MISC filings, or income and expenses. Alternatively, these applicants can supply other supporting documentation like bank records.

    Borrowers must have 500 or fewer employees with a principal residence in the United States or meet the SBA employee-based size standards for the industry in which they operate. Borrowers must have been in operation on February 15, 2020 and had employees with paid salaries and payroll taxes or paid independent contractors as reported on Form 1099-MISC.

  • A6) Can my local church or other nonprofit organization get a PPP loan?

    PPP loans are available to a tax-exempt nonprofit organization covered under 501(c)(3) of the Internal Revenue Code, a tax-exempt veterans organization described in 501(c)(19) of the Internal Revenue Code, or a tribal business concern described in section 31(b)(2)(C) of the Small Business Act. Churches are eligible but lenders should refer to the SBA's FAQ Regarding Participation of Faith-Based Organizations in the PPP and EIDL for further guidance.

  • A7) Is a small business required to have 500 or fewer employees to be eligible to participate in the PPP?

    No. Small businesses are eligible for the PPP even if they have more than 500 employees if they meet the definition of a small business concern under section 3 of the Small Business Act, 15 U.S.C. 632. A business can qualify if it meets the SBA employee-based or revenue-based size standard corresponding to its primary industry. The industry size standards can be found at www.sba.gov/size.

    A businesses can also participate in the PPP as a small business if it meets two tests in the SBA’s alternative size standard as of March 27, 2020:

    1. Maximum tangible net worth of the business is not more than $15 million

    2. Average net income after Federal income taxes (excluding any carryover losses) of the business for the two full fiscal years before the date of the application is not more than $5 million.

    A business that qualifies as a small business concern under section 3 of the Small Business Act, 15 U.S.C. 632, may truthfully attest to its eligibility for PPP loans on the borrower application form, unless otherwise ineligible.

  • A8) Does the business need to prove that it has a hardship to qualify for the loan?

    The borrower will have to provide a good faith certification that the uncertainty of current economic conditions makes the loan request necessary to support ongoing operations.

  • A9) Who is prohibited from receiving a PPP loan?

    The following businesses are ineligible for a PPP loan:

    -the applicant engages in activity that is illegal under federal, state, or local law

    -the applicant is a household employer (for example, employers of nannies or housekeepers)

    -any owner of 20% or more of the equity of the applicant is incarcerated, on probation, on parole, subject to indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction, or convicted of a felony within the last five years

    -the applicant, or a business owned or controlled by the applicant or the applicant’s owners has ever obtained a direct or guaranteed loan from SBA or any other Federal agency that is currently delinquent or has defaulted within the last seven years with a loss to the government

    -the business is one of 18 types of businesses that are ineligible for SBA loans under 13 CFR 120.110 including banks (or other similar financial services companies), and tax-exempt nonprofits other than those authorized under the CARES Act (e,g., 501(c)(3) or 501(c)(19) veterans organizations or tribal business concerns)

  • A10) Can an applicant receive a PPP loan if they pleaded guilty to a felony crime a long time ago?

    Yes. The business would only be ineligible if an owner of 20 percent or more of the equity of the applicant is presently incarcerated, on probation, on parole; subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or, within the last five years, for any felony, has been convicted; pleaded guilty; pleaded nolo contendere; been placed on pretrial diversion; or been placed on any form of parole or probation (including probation before judgment).

  • A11) Is a bank director, officer, key employee or significant shareholder (20% or more) eligible to apply for a PPP loan through the affiliated bank?

    Eligible businesses owned in whole or in part by an outside director or holder of less than 30% equity interest in a PPP lender can obtain a PPP loan from that lender, provided that the eligible business owned by the director or equity holder follows the same process as any similarly situated customer or account holder of the lender. Favoritism by the lender in processing time or prioritization of the director’s or equity holder’s PPP application is prohibited. Lenders should comply with all other applicable state and federal regulations concerning loans to associates of the lender. Lenders should also consult their own internal policies concerning lending to individuals or entities associated with the lender. Officers and key employees of the PPP lender (including directors and owners that are officers or employees, may obtain a PPP loan from another lender, but may not obtain a PPP loan from the PPP lender with which they are associated. Also note that the authorized lender official for each PPP loan is subject to the limitations described in the lender application form.

    Specifically, it says, “Lender certifies that none of the Lender’s Associates, including but not limited to its employees, officers, directors, or substantial stockholders (more than 10%), has a financial interest in the Applicant.” Also, the eligibility rules that the SBA PPP Interim Final Rule refers to—13 CFR 120.110—includes a similar prohibition.

    While ICBA has heard that Treasury and SBA will change this, we are reluctant to advise bankers that bank directors, officers and key employees or significant shareholders are eligible to apply for a PPP loan through an affiliated bank.

  • A12) Are there situations where ownership interests, control interests, common agreements, and other affiliations could restrict the ability of a small business or a non-profit organization to receive a PPP loan?

    Yes. Entities that could be considered under common control or have affiliations should consult the interim final rule on affiliation rules applicable to the PPP and the affiliation rules guide to determine if they have affiliates. In most cases, a borrower will be considered together with its affiliates for purposes of determining eligibility for the PPP. Under SBA rules, entities may be considered affiliates based on factors including stock ownership, overlapping management, and identity of interest.

  • A13) Is the bank required to make their own independent determination regarding applicability of affiliation rules under 13 C.F.R. 121.301(f) to borrowers?

    No. The bank can rely on the borrower’s certifications. It is the responsibility of the borrower to determine which entities are affiliates and determine the employee headcount of the of the borrower and its affiliates.

  • A14) What is the borrower’s responsibility with regard to the affiliation rules?

    The borrower must apply the affiliation rules as discussed in the interim final rule on affiliation rules. The borrower must certify on the borrower application form that the borrower is eligible to receive a PPP loan, and that certification means that the borrower is a small business concern as defined in section 3 of the Small Business Act 15 U.S.C. 632, meets the applicable SBA employee-based or revenue-based size standard, or meets the tests in SBA’s alternative size standard, after applying the affiliation rules, if applicable. SBA’s existing affiliation exclusions apply to the PPP, including, for example the exclusions under 13 CFR 121.103(b)(2).

  • A15) If a minority shareholder in a business irrevocably waives or relinquishes an existing right under 13 CFR 121.301(f)(1) that would otherwise allow that shareholder to control the business by preventing a quorum or otherwise block action by the board of directors or shareholders, is that minority shareholder still considered to be an affiliate of the business?

    No. Upon irrevocably waiving or relinquishing such existing rights the minority shareholder would no longer be an affiliate of the business (assuming no other relationship triggers the affiliation rules).

  • A16) Is the bank required to validate the applicant’s payroll documentation when it is being confirmed?

    No. It is the responsibility of the applicant to provide accurate payroll cost information and the borrower will need to attest to the accuracy of the information. Lenders must complete a good faith review of the borrower’s calculations and supporting documentation for average monthly payroll cost. It would be reasonable, for example, for a bank to conduct a minimal review of the calculations provided on a payroll report from a recognized third-party payroll processor. If the lender discovers errors in the applicant’s payroll cost calculations or lack of supporting documentation, the lender should work with the borrower to fix the error.

  • A17) How does the bank validate the terms and conditions applicable to borrowers for loan eligibility?

    Lenders will rely on certifications made by the borrowers to determine eligibility of the borrower. Lenders must confirm receipt of borrower certifications contained in the PPP application form, confirm receipt of information demonstrating that a borrower had employees for whom the applicant paid salaries and payroll taxes on or around February 15, 2020, confirm the dollar amount of average monthly payroll costs for the preceding calendar year.

  • A18) Are PPP loans for existing customers considered new accounts for FinCEN Rule CDD purposes? Are lenders required to collect, certify, or verify beneficial ownership information in accordance with the rule requirements for existing customers?

    If the PPP loan is being made to an existing customer and the necessary information was previously verified, you do not need to re-verify the information. Furthermore, if federally insured depository institutions eligible to participate in the PPP program have not yet collected beneficial ownership information on existing customers, such institutions do not need to collect and verify beneficial ownership information for those customers applying for new PPP loans, unless otherwise indicated by the lender’s risk-based approach to BSA compliance.

  • A19) What requirements do banks have under this program regarding the Bank Secrecy Act?

    Banks are required to follow existing Bank Secrecy Act protocols when making loans to new or existing customers who are eligible to borrow. However, PPP loans for existing customers will not require reverification under applicable BSA requirements unless otherwise indicated by the bank’s risk-based approach to BSA compliance.

  • A20) What is the lender’s underwriting obligation when an applicant submits an application for a PPP loan?

    The lender must do the following:

    -confirm receipt of the borrower’s certifications contained in the PPP application form;

    -confirm receipt of information demonstrating that the borrower had employees for whom the borrower paid salaries and payroll taxes on or around February 15, 2020;

    -confirm the dollar amount of average monthly payroll costs for the preceding calendar year by reviewing the payroll documentation submitted with the borrower’s application;

    -follow existing BSA protocols as discussed above;

    -review the PPP application form to ensure that the borrower has submitted such documentation as is necessary to establish eligibility such as payroll processor records, payroll tax filings, or Form 1099-MISC, or income and expenses from a sole proprietorship; and

    -review other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount for borrowers that do not have the needed documentation.

  • A21) Does the information lenders are required to collect from PPP applicants regarding every owner who has a 20% or greater ownership stake in the applicant business (i.e., owner name, title, ownership %, TIN, and address) satisfy a lender’s obligation to collect beneficial ownership information (which has a 25% ownership threshold) under the Bank Secrecy Act?

    For lenders with existing customers: With respect to collecting beneficial ownership information for owners holding a 20% or greater ownership interest, if the PPP loan is being made to an existing customer and the lender previously verified the necessary information, the lender does not need to re-verify the information.

    Furthermore, if federally insured depository institutions eligible to participate in the PPP program have not yet collected such beneficial ownership information on existing customers, such institutions do not need to collect and verify beneficial ownership information for those customers applying for new PPP loans, unless otherwise indicated by the lender’s risk-based approach to Bank Secrecy Act (BSA) compliance.

    For lenders with new customers: For new customers, the lender’s collection of the following information from all natural persons with a 20% or greater ownership stake in the applicant business will be deemed to satisfy applicable BSA requirements and FinCEN regulations governing the collection of beneficial ownership information: owner name, title, ownership %, TIN, address, and date of birth. If any ownership interest of 20% or greater in the applicant business belongs to a business or other legal entity, lenders will need to collect appropriate beneficial ownership information for that entity.

    If you have questions about requirements related to beneficial ownership, go to https://www.fincen.gov/resources/statutes-and-regulations/cdd-final-rule. Decisions regarding further verification of beneficial ownership information collected from new customers should be made pursuant to the lender’s risk-based approach to BSA compliance.

  • A22) What certifications must the applicant make to receive a PPP loan?

    The applicant must certify in good faith the following:

    -the applicant was in operation on February 15, 2020 and had employees with paid salaries and payroll taxes or paid independent contractors on Form 1099-MISC;

    -current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant;

    -funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments;

    -not more than 25% of loan proceeds will be used for non-payroll costs;

    -documentation verifying the number of full-time equivalent employees on payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight-week period following this loan will be provided to the lender; and

    -during the period from February 15, 2020 to December 31, 2020 the applicant has not and will not receive another PPP loan

  • A23) Do lenders have to use a promissory note provided by SBA or may they use their own?

    Lenders may use their own promissory note or an SBA form of promissory note.

  • A24) Do lenders need a separate SBA Authorization document to issue PPP loans?

    No. A lender does not need a separate SBA Authorization for SBA to guarantee a PPP loan. However, lenders must have executed SBA Form 2484 (the Lender Application Form for the Paycheck Protection Program) to issue PPP loans and receive a loan number for each originated PPP loan.

  • A25) What terms and conditions must a lender include in the promissory note for a PPP loan?

    Lenders may include in their promissory notes for PPP loans any terms and conditions, including relating to amortization and disclosure, that are not inconsistent with Sections 1102 and 1106 of the CARES Act, the PPP Interim Final Rule and guidance, and SBA Form 2484. For example, the CARES Act, the PPP Interim Final Rule, and SBA Form 2484 specify the 1% interest rate, two-year maturity and six-month payment deferral.

  • A26) When must the lender make its first disbursement of the PPP loan?

    The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval

  • A27) Is the loan forgivable?

    Up to 100% of the loan amount is forgivable if the borrower uses the proceeds to pay for qualifying expenses.

  • A28) When does the required eight-week period begin that the borrower uses to determine their payroll costs?

    The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower.

  • A29) Under what conditions would the loan not be forgiven by SBA?

    Loans will not be forgiven if the borrower does not use the proceeds for qualifying expenses under the program including the requirement that 75% of the proceeds be used for payroll costs. Loans will not be fully forgiven if a borrower reduces their full-time employee headcount. For salary levels and employment changes made between February 15, 2020 and April 26, 2020, the employer will have until June 30, 2020 to restore those salary levels and employment changes. Additionally, loans will not be fully forgiven if a borrower decreases salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.

  • A30) What risk does the lender incur if the borrower does not follow the program’s criteria?

    Banks will be held harmless for borrower failure to comply with the terms of the program if they meet all lender obligations.

  • A31) Who can make PPP loans?

    Both current SBA lenders and non-SBA lenders will be able to participate. For those not currently participating in SBA lending, the legislation includes a provision directing the Secretary of the Treasury to establish criteria for non-SBA lenders to participate in PPP lending.

  • A32) How does a bank that is currently not an SBA lender sign up to issue PPP loans?

    Banks will be able to submit a PPP Lender Agreement to register with SBA to be eligible to issue PPP loans to borrowers. Further information on the signup process is scheduled to be available on April 3, 2020.

  • A33) What is the interest rate and term of the PPP loan?

    The interest rate on a PPP loan is 1.0% and the term is two years.

  • A34) Can the bank use its own online portal and electronic form to collect information and certifications that are in the borrower application form?

    Yes, as long as the lender asks for the same information using the same language as the borrower application form. Lenders will still be required to send data to SBA using SBA’s interface.

  • A35) Who is responsible for the loan documentation regarding the PPP loan?

    The Lender must ensure that a note and all other loan documents and additional documents are properly executed and take such other actions necessary to fulfill the requirements of the Paycheck Protection Program. SBA is entitled, at any time, to examine and obtain copies of all notes, certifications and documentation and all other records held by Lender which relate to covered loans made pursuant to the Paycheck Protection Program.

  • A36) Are PPP loans guaranteed by the government?

    PPP loans have a 100 percent SBA guarantee.

  • A37) What is the maximum loan amount?

    The maximum loan amount is the applicant’s average monthly payroll costs from the last twelve months multiplied by 2.5. To calculate the average monthly payroll costs the applicant must exclude any compensation paid to any employee in excess of $100,000 per year or any amounts paid to an independent contractor or sole proprietor in excess of $100,000 per year. The maximum loan amount can be increased by the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 less the amount of an advance under the EIDL. The total loan amount can never exceed $10 million.

  • A38) How do the $10 million cap and affiliation rules work for franchises?

    If a franchise brand is listed on the SBA Franchise Directory, each of its franchisees that meets the applicable size standard can apply for a PPP loan. (The franchisor does not apply on behalf of its franchisees.) The $10 million cap on PPP loans is a limit per franchisee entity, and each franchisee is limited to one PPP loan. Franchise brands that have been denied listing on the Directory because of affiliation between franchisor and franchisee may request listing to receive PPP loans. SBA will not apply affiliation rules to a franchise brand requesting listing on the Directory to participate in the PPP, but SBA will confirm that the brand is otherwise eligible for listing on the Directory.

  • A39) How do the $10 million cap and affiliation rules work for hotels and restaurants (and any business assigned a North American Industry Classification System (NAICS) code beginning with 72)?

    Under the CARES Act, any single business entity that is assigned a NAICS code beginning with 72 (including hotels and restaurants) and that employs not more than 500 employees per physical location is eligible to receive a PPP loan. In addition, SBA’s affiliation rules (13 CFR 121.103 and 13 CFR 121.301) do not apply to any business entity that is assigned a NAICS code beginning with 72 and that employs not more than a total of 500 employees.

    As a result, if each hotel or restaurant location owned by a parent business is a separate legal business entity, each hotel or restaurant location that employs not more than 500 employees is permitted to apply for a separate PPP loan provided it uses its unique EIN. The $10 million maximum loan amount limitation applies to each eligible business entity, because individual business entities cannot apply for more than one loan.

    The following examples illustrate how these principles apply.

    Example 1. Company X directly owns multiple restaurants and has no affiliates. Company X may apply for a PPP loan if it employs 500 or fewer employees per location (including at its headquarters), even if the total number of employees employed across all locations is over 500.

    Example 2. Company X wholly owns Company Y and Company Z (as a result, Companies X, Y, and Z are all affiliates of one another). Company Y and Company Z each own a single restaurant with 500 or fewer employees. Company Y and Company Z can each apply for a separate PPP loan, because each has 500 or fewer employees. The affiliation rules do not apply, because Company Y and Company Z each has 500 or fewer employees and is in the food services business (with a NAICS code beginning with 72).

    Example 3. Company X wholly owns Company Y and Company Z (as a result, Companies X, Y, and Z are all affiliates of one another). Company Y owns a restaurant with 400 employees. Company Z is a construction company with 400 employees. Company Y is eligible for a PPP loan because it has 500 or fewer employees. The affiliation rules do not apply to Company Y, because it has 500 or fewer employees and is in the food services business (with a NAICS code beginning with 72). The waiver of the affiliation rules does not apply to Company Z, because Company Z is in the construction industry.

    Example 3. Company X wholly owns Company Y and Company Z (as a result, Companies X, Y, and Z are all affiliates of one another). Company Y owns a restaurant with 400 employees. Under SBA’s affiliation rules, 13 CFR 121.301(f)(1) and (3), Company Y and Company Z are affiliates of one another because they are under the common control of Company X, which wholly owns both companies. This means that the size of Company Z is determined by adding its employees to those of Companies X and Y. Therefore, Company Z is deemed to have more than 500 employees, together with its affiliates. However, Company Z may be eligible to receive a PPP loan as a small business concern if it, together with Companies X and Y, meets SBA’s other applicable size standards,”.

  • A40) When the applicant calculates the amount of compensation to be deducted from employees making more than $100,000 per year, does the applicant need to deduct all employee benefits?

    No. The applicant is only required to deduct cash compensation. Non-cash benefits like employer contributions to defined benefit or defined contribution retirement plans, payment for the provision of employee health benefits consisting of group health care coverage (including insurance premiums), and payment of state and local taxes assessed on compensation of employees.

  • A41) When calculating payroll costs, does the applicant include paid sick leave?

    Yes. The PPP loan includes costs for employee vacation, parental, family, medical, and sick leave. However, the CARES Act excludes qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.

  • A42) How do applicants show payroll costs when they utilize a third-party payer for payroll costs such as a payroll provider or a Professional Employer Organization (PEO) to process payroll and report payroll taxes?

    When the applicant uses a PEO or similar payroll provider to report wage and other data on the EIN of the payroll provider, the applicant would use the payroll documentation provided by the payroll provider that indicates the amount of wages and payroll taxes reported to the IRS by the payroll provider for the borrower’s employees. The applicant should use information from Schedule R (Form 941), Allocation Schedule for Aggregate Form 941 Filers, attached to the PEO’s or other payroll provider’s Form 941, Employer’s Quarterly Federal Tax Return if these forms are available. Otherwise, the applicant should obtain a statement from the payroll provider documenting the amount of wages and payroll taxes. Employees of the applicant will not be considered employees of the applicant’s payroll provider or PEO.

  • A43) What time frame does the applicant use to determine the average of monthly payroll costs?

    To calculate monthly payroll costs, applicants will compute the average using 2019 calendar year payroll. Alternatively, they can aggregate payroll cost data from the previous twelve months. For seasonal businesses, applicants can elect to use their average monthly payroll for the time period between February 15, 2019 and June 30, 2019. For new businesses, applicants can elect to use their average monthly payroll for the time period between January 1, 2020 and February 29, 2020. In all cases the applicant must make deductions for employees with payroll amounts that exceed $100,000 on an annualized basis.

  • A44) When an applicant needs to determine the number of employees for the employee-based size standard, what method should they use?

    Borrowers may use their average employment over the same time periods to determine their number of employees, for the purposes of applying an employee-based size standard. Alternatively, borrowers may elect to use the average number of employees per pay period in the 12 completed calendar months prior to the date of the loan application (or the average number of employees for each of the pay periods that the business has been operational, if it has not been operational for 12 months).

  • A45) What is considered “payroll cost”?

    “Payroll costs” include more than simple base salary. Payroll costs include salary, payment of cash tips, vacation, parental, family medical or sick leave, payments for the provisions of group health care, benefits including insurance premiums, retirement payments, and the payment of state and local tax assessed on the compensation of employees. For an independent contractor or sole proprietor who is applying for a loan, payroll cost includes wages, commissions, income, or net earnings from self-employment or similar compensation.

  • A46) What is expressly excluded from the definition of payroll cost?

    The following forms of compensation are expressly excluded from the definition of payroll cost:

    -any compensation of an employee whose principal place of residence is outside the United States;

    -individual employee compensation in excess of $100,000 annually;

    -amounts paid to independent contractors, as independent contractors can apply for their own PPP loan;

    -Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020 including the employer’s share of FICA and income taxes required to be withheld from employees; and

    -certain qualified sick and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act

  • A47) What can PPP loans be used for?

    PPP loans can be used for payroll costs, group healthcare costs, mortgage interest payments, utilities, rent, interest on debt that existed as of February 15, 2020, and to refinance an SBA EIDL loan made between January 31, 2020 and April 3, 2020. Note, however, that 75 percent of the PPP loan must be used for payroll purposes. Only 25 percent may be used for the other permissible purposes.

  • A48) How does the applicant consider federal payroll taxes when determining payroll costs to compute the maximum loan amount, allowable uses of the loan, and loan forgiveness?

    Payroll costs are calculated on a gross basis without regard to (i.e., not including subtractions or additions based on) 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, but payroll costs do not include the employer’s share of payroll tax. For example, an employee who earned $4,000 per month in gross wages, from which $500 in federal taxes was withheld, would count as $4,000 in payroll costs. The employee would receive $3,500, and $500 would be paid to the federal government. However, the employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from payroll costs under the statute.

  • A49) How does PPP loan forgiveness operate?

    Under the PPP, a borrower will be eligible for loan forgiveness up to the full principal amount and any accrued interest. The forgiveness amount is equal to the amount spent by the borrower during an 8-week period after the origination date of the loan on payroll costs, interest payments (but not principal) on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020. The amounts forgiven may not exceed the principal amount of the loan. The maximum amount of loan forgiveness for non-payroll expenses is 25% of the loan amount.

    Eligible payroll costs include compensation up to $100,000 in prorated wages per employee. Aggregate payroll cost must not exceed payroll costs incurred during the equivalent 8-week period in the previous year, proportionate to the number of employees.

    The amount of loan forgiveness may be reduced if there is a reduction in the number of employees or a reduction more than 25 percent in wages paid to employees. To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period. The PPP also allows forgiveness for additional wages paid to tipped workers.

    Borrowers will verify through documentation to the lender their payments during the period, and lenders that receive the required documentation will not be subject to an enforcement action or penalties by the Administrator relating to loan forgiveness for eligible uses.

    A lender may request that the SBA purchase the expected forgiveness amount of a PPP loan or pool of PPP loans at the end of week seven of the covered period. The lender must submit a report requesting advance purchase with the expected forgiveness amount to the SBA. The report shall include the Paycheck Protection Program Application Form and information about how the forgiveness amount was determined. The SBA will purchase the expected forgiveness amount of the PPP loan(s) within 15 days of the date on which the SBA receives a complete report that demonstrates that the expected forgiveness amount is indeed reasonable.

  • A50) Who determines borrower eligibility and creditworthiness?

    The PPP provides all participating lenders delegated authority, which is the ability for lenders to make determinations on borrower eligibility and creditworthiness without going through all of SBA’s channels.

  • A51) Can a community bank receive a PPP loan?

    No, the PPP is part of SBA’s 7(a) program and lenders are not eligible borrowers under that program. See 13 CFR 120.110 and the SBA’s Standard Operating Procedure (SOP) 50 10, Subpart B, Chapter 2.

  • A52) What processing fees are payable to the lender?

    The program includes a processing fee payable to lender within 5 days of loan disbursement, based on the loan’s size:

    · Five percent for loans of less than $350,000

    · Three percent for loans of between $350,000 and $2,000,000; and

    · One percent for loans of more than $2,000,000

  • A53) Can a small business apply for more than one PPP loan?

    An eligible borrower can only receive one PPP loan.

  • A54) Can a small business receive more than one loan under the COVID-19 lending programs?

    For borrowers who received an economic injury disaster loan (EIDL) between January 1, 2020 and the first availability date of the PPP can receive a PPP loan. Borrowers may be able to refinance an EIDL into a PPP loan in order to participate in loan forgiveness. If an EIDL loan was not used for payroll costs, eligibility for a PPP loan is not impacted. If an EIDL was used for payroll costs, the PPP loan must be used to refinance the EIDL loan with any advance up to $10,000 on the EIDL being deducted from eligible loan forgiveness.

  • A55) Can borrowers who receive PPP loans participate in tax relief programs under the CARES Act?

    Section 2301 of the CARES Act states that borrowers that receive PPP loans under Section 1102 cannot receive the employee retention tax credit. Section 2302 of the CARES Act states that the payroll tax deferral benefit is not available to taxpayers that participate in loan forgiveness under the PPP.

  • A56) Can a bank use e-signatures or e-consents regardless of the number of owners of the borrower?

    Yes, e-signatures and e-consents can be used regardless of the number of owners.

  • A57) Can the bank rely on the signature of a single individual who is authorized to sign on behalf of the borrower?

    Yes, but only an authorized representative of the business seeking the loan may sign on behalf of the business. An individual who signs is making a representation to the lender and to the U.S. government that the signer is authorized to make such certifications, including with respect to the applicant and each owner of 20% or more of the applicant’s equity, contained in the borrower application form. Lenders may rely on that representation and accept a single individual’s signature on that basis.

  • A58) Is there a payment deferral period for the payment of principal and interest on the PPP loan?

    There is a six-month payment deferral from the date of disbursement of the loan. Interest continues to accrue during the deferral period.

  • A59) Under this program do lenders have to apply the “credit elsewhere” test, require collateral, or require a personal guarantee?

    Under this program none of these terms apply.

  • A60) Does the program require an upfront guarantee fee, lender’s annual service fee, subsidy recoupment fee or SBA fee for loans sold into the secondary market?

    None of these fees are to be paid under this program.

  • A61) How are borrower agent fees paid?

    Agent fees are paid by the lender out of the fees received from SBA. Agents may not collect fees from the borrower or be paid from the PPP loan proceeds. Maximum agent fees collected from the lender are as follows:

    -1% for loans of not more than $350,000

    -0.50% for loans of more than $350,000 and less than $2 million

    -0.25% for loans of at least $2 million

  • A62) Who can be considered an agent under the program?

    The following authorized representatives can be agents under the program:

    -attorneys

    -accountants

    -consultants

    -someone who prepares an applicant’s application for financial assistance and is employed and compensated by the applicant

    -someone who assists a lender with originating, disbursing, servicing, liquidating, or litigating SBA loans

    -loan brokers

    -any other individual or entity representing an applicant by conducting business with the SBA

  • A63) What is the bank’s obligation to pay CPA firms and others who demand an agent fee from the bank for providing information on the borrower’s behalf?

    The obligation of a lender to pay the appropriate agent fee does not commence unless the bank has agreed that the accounting firm/CPA is acting as an agent for the bank. Please see guidance provided below from the American Institute of Public Accountants (AICPA) to their members in support of best industry practices.

    “The law is clear that agents cannot collect a fee from an applicant but must instead collect a fee from the lender. If you choose to be an agent, we suggest you (the Accounting Firm) contact the lender before embarking on the engagement and get a written agreement with them so you get paid. You should have a conflict waiver in the agreement with the lender, just like in your loan assistance engagement letter with the client. Disclose this arrangement with your client as well.”

  • A64) Can a PPP loan be sold into the secondary market?

    Yes, PPP loans can be sold at a premium or discount in the secondary market.

  • A65) Can a PPP loan be purchased by SBA?

    A lender can request that SBA purchase the expected forgiveness amount of a PPP loan at the end of week seven of the covered period.

  • A66) If the bank filed or approved a PPP loan application based on the PPP interim final rule published April 2, 2020, does the bank need to take any action based on information received in SBA’s frequently asked question document published April 6, 2020?

    No, both lenders and borrowers can rely on information available at the time of the application. However, lenders who have submitted loan applications that have not yet been processed may revise their applications based on the April 6, 2020 FAQs.

  • A67) Does the Federal Reserve now have a PPP Lending Facility to help fund banks with their PPP lending?

    Yes, the Federal Reserve announced on April 8, 2020 that there is now a PPP Lending Facility intended to facilitate lending by eligible borrowers to small businesses under the PPP. Under the Facility, the Federal Reserve Banks will lend to eligible borrowers on a non-recourse basis, taking PPP Loans as collateral. All depository institutions that originate PPP Loans are eligible to borrow under the Facility. Eligible borrowers can participate in the Facility through the Reserve Bank in whose district the eligible borrower is located.

  • A68) What would be the terms of such loans from the Fed’s new PPP Lending Facility?

    The maturity date of the credit from the Facility will equal the maturity date of the PPP loan pledged to secure the extension of credit. The maturity date of the Facility’s extension of credit will be accelerated if the PPP loan goes into default or to the extent that any loan forgiveness reimbursement is made. Extensions of credit under the Facility will be made at the rate of 35 basis points. There will be no fees associated with the Facility and the PPP loans pledged as collateral will be valued at the principal amount of the PPP loan. Further information about the Federal Reserve’s term sheet is at: https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200409a6.pdf

  • A69) What is the capital impact to the bank if the bank participates in the Facility and borrows from the Fed?

    The banking agencies have issued an interim final rule that would permit banking organizations to exclude exposures pledged as collateral to the PPPL Facility from a banking organization’s total leverage exposure, average total consolidated assets, standardized total risk-weighted assets, and the community bank leverage ratio (CBLR) as applicable.

  • A70) If the bank filed or approved a PPP loan application based on the PPP interim final rule published April 2, 2020, does the bank need to take any action based on information received in SBA’s frequently asked question document published April 6, 2020?

    No, both lenders and borrowers can rely on information available at the time of the application. However, lenders who have submitted loan applications that have not yet been processed may revise their applications based on the April 6, 2020 FAQs.

  • A71) Do the requirements for loan pledges under 13 CFR 120.434 apply to PPP loans pledged for borrowings from a Federal Reserve Bank (FRB) or advances by a Federal Home Loan Bank (FHLB)?

    No. Pursuant to SBA regulations at 13 CFR 120.435(d) and (e), a pledge of 7(a) loans to a FRB or FHLB (among others) does not require SBA’s prior written consent or notice to SBA.

  • A72) What documentation will a self-employed individual be required to submit to the lender when requesting loan forgiveness?

    1. Borrower certification to substantiate the request for loan forgiveness 2. For self-employed individuals with employees, Form 941 and state quarterly wage unemployment insurance tax reporting forms or equivalent payroll processor records that best correspond to the covered period (with evidence of any retirement and health insurance contributions) 3. Business rent, business mortgage interest payments on real or personal property, or business utility payments during the covered period (if loan proceeds used for these purposes)

  • A73) For self-employed individuals, what amounts are eligible for forgiveness?

    Loan forgiveness cannot exceed the full principal amount of the loan plus accrued interest. Seventy-five percent of the amount forgiven must be attributable to payroll costs. The following items that are spent during the covered period are eligible for forgiveness:

    1. Payroll costs including salary, wages, and tips up to $100,000 annualized pay per employee (for eight weeks, a maximum of $15,385 per individual) as well as covered benefits for employees including health care expenses, retirement contributions, and state taxes imposed on employee payroll paid by the employer (such as unemployment insurance premiums) (note: seventy-five percent of the total loan forgiveness must be attributable to payroll costs)

    2. Owner compensation replacement, calculated based on 2019 net profit, with forgiveness of such amounts limited to eight weeks’ worth (8/52) of 2019 net profit, excluding any qualified sick leave equivalent amount for which a credit is claimed under section 7002 of the Families First Coronavirus Response Act (FFCRA) or qualified family leave equivalent amount for which a credit is claimed under section 7004 of FFCRA

    3. Payments of interest on mortgage obligations on real or personal property incurred before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C (business mortgage payments)

    4. Rent payments on lease agreements in force before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C (business rent payments) 5. Utility payments under service agreements dated before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C (business utility payments)

  • A74) Can self-employed individuals in a partnership receive a PPP loan?

    Yes. However, a partner in a partnership may not submit a separate PPP loan application for his or herself as a self-employed individual. Rather, the partnership would file a PPP loan and use the self-employment income of the general active partners to determine eligible payroll costs.

  • A75) How does a self-employed individual calculate the maximum borrowing amount if they do not have employees?

    If the self-employed individual does not have employees, the maximum loan amount is calculated as follows:

    Step 1: Locate the 2019 IRS Form 1040 Schedule C line 31 net profit amount (Note: if this amount is over $100,000 it should be reduced to $100,000; if this amount is zero or negative, the self-employed individual is not eligible for a PPP loan)

    Step 2: Calculate the average monthly net profit amount by dividing the amount from Step 1 by 12

    Step 3: Multiply the average monthly net profit amount calculated in Step 2 by 2.5

    Step 4: Add the outstanding amount of any EIDL made between January 31, 2020 and April 3, 2020 that the applicant seeks to refinance, less the amount of any advance under an EIDL COVID-19 loan

    Even if the self-employed individual has not filed a 2019 tax return with the IRS, the applicant must provide the 2019 Form 1040 Schedule C with their PPP loan application to substantiate the PPP loan amount applied for and a 2019 IRS Form 1099-MISC detailing nonemployee compensation received (box 7), invoice, bank statement, or book of record that establishes self-employment. Additionally, the applicant must provide a 2020 invoice, bank statement, or book of record to establish that he or she was in operation on or around February 15, 2020.

  • A76) How does a self-employed individual calculate the maximum borrowing amount if they do have employees?

    If the self-employed individual has employees, the maximum loan amount is calculated as follows:

    Step 1: Compute payroll by adding together the following items:

    a. The 2019 IRS Form 1040 Schedule C line 31 net profit amount (Note: if this amount is over $100,000 it should be reduced to $100,000; if this amount is zero or negative, the amount should be set at zero)

    b. 2019 gross wages and tips paid to employees whose principal place of residence is in the United States computed using 2019 IRS Form 941 Taxable Medicare wages & tips (line 5c- column 1) from each quarter plus any pre-tax employee contributions for health insurance or other fringe benefits excluded from Taxable Medicare wages & tips; subtract any amounts paid to any individual employee in excess of $100,000 annualized and any amounts paid to any employee whose principal place of residence is outside the United States

    c. 2019 employer health insurance contributions (health insurance component of Form 1040 Schedule C line 14), retirement contributions (Form 1040 Schedule C line 19), and state and local taxes assessed on employee compensation (primarily under state laws commonly referred to as the State Unemployment Tax Act or SUTA from state quarterly wage reporting forms).

    Step 2: Calculate the average monthly amount by dividing the amount from Step 1 by 12

    Step 3: Multiply the average monthly amount calculated in Step 2 by 2.5

    Step 4: Add the outstanding amount of any EIDL made between January 31, 2020 and April 3, 2020 that the applicant seeks to refinance, less the amount of any advance under an EIDL COVID-19 loan

    Even if the self-employed individual has not filed a 2019 tax return with the IRS, the applicant must provide the 2019 Form 1040 Schedule C with their PPP loan application to substantiate the PPP loan amount applied for and a 2019 IRS Form 1099-MISC detailing nonemployee compensation received (box 7), invoice, bank statement, or book of record that establishes self-employment. The applicant must also supply the 2019 Form 1040 Schedule C, Form 941 or other tax forms or equivalent payroll processor records and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or equivalent payroll processor records, along with evidence of any retirement and health insurance contributions, if applicable. Additionally, the applicant must provide a 2020 invoice, bank statement, or book of record to establish that he or she was in operation on or around February 15, 2020.

  • A77) For individuals applying for a PPP loan that have income from self-employment who file a 2019 Form 1040, Schedule C, what can the PPP loan be used for?

    For these individuals a PPP loan can be used for the following: 1. Owner compensation replacement calculated based on 2019 net profit 2. Employee payroll costs 3. Mortgage interest payments on any business mortgage obligation on real or personal property, business rent payments, and business utility payments (note: the applicant must have claimed or be entitled to claim a deduction for these expenses on 2019 Form 1040 Schedule C for them to be a permissible use during the eight-week period following the disbursement of the loan) 4. Interest payments on other debt obligations incurred before February 15, 2020 (these amounts would not be eligible for debt forgiveness) 5. Refinance an SBA EIDL made between January 31, 2020and April 3, 2020 (note: if the EIDL was used for payroll costs, the PPP loan must be used to refinance the EIDL; proceeds from any advance up to $10,000 on the EIDL will be deducted from the loan forgiveness amount on the PPP loan)

  • A78) Can an individual with self-employment income receive a PPP loan?

    A self-employed individual with self-employment income can receive a PPP loan if all of the following conditions are met: -the self-employed individual was in operation on February 15, 2020 -the self-employed individual has self-employment income (such as an independent contractor or a sole proprietor) -the principal place of residence is in the United States -the self-employed individual filed or will file a Form 1040 Schedule C for 2019

  • A79) Are businesses that receive revenue from legal gaming eligible for a PPP loan?

    Businesses that receive legal gaming revenue are eligible for a PPP loan if they are not ineligible under the existing standard in 13 CFR 120.110(g) (i.e., not more than one-third of gross annual revenue is from legal gambling activities), or if the following two conditions are satisfied: 1. The business’s legal gaming revenue (net of payouts but not other expenses) did not exceed $1 million in 2019; and 2. Legal gaming revenue (net of payouts but not other expenses) comprised less than 50 percent of the business’s total revenue in 2019.

  • A80) Is a Lender permitted to submit a PPP loan application to SBA through ETran before the Lender has fulfilled its responsibility to review the required borrower documentation and calculation of payroll costs?

    No. Before a Lender submits a PPP loan through E-Tran, the Lender must have collected the information and certifications contained in the Borrower Application Form and the Lender must have fulfilled its obligations set forth in paragraphs 3.b.(i)-(iii) of the PPP Interim Final Rule. Please refer to the SBA Interim Final Rule, SBA FAQ 1, and ICBA’s FAQs for more information on the Lender’s responsibility regarding confirmation of payroll costs. Lenders who did not understand that these steps are required before submission to E-Tran need not withdraw applications submitted to E-Tran before April 14, 2020, but must fulfill lender responsibilities with respect to those applications as soon as practicable and no later than loan closing.

Economic Impact Payments (EIPs) (Updated April 10)

The following is based on our best, current information It will be updated as ICBA obtains additional information. You may also check the IRS website (IRS.gov/coronavirus) for updated information. In addition, Nacha has posted a set of frequently asked questions.

  • B1) I’m concerned about my branches being flooded with EIP checks. What is the plan for distributing these payments?

    · Treasury plans to issues as many of these payments as possible electronically. Treasury anticipates that 95 percent of payments (or 143 million payments) will be ACH payments.

    · The IRS database will be used to determine routing and bank account numbers for qualified individuals. If a taxpayer has not yet filed a return for tax year 2019, the IRS will use the 2018 return for both payment calculation and direct deposit information.

    · Treasury has indicated that a website will be set-up for people to provide routing and account numbers if the government doesn’t already have that information. This website will be available in the coming weeks.

  • B2) How will people who do not typically file returns (e.g., some seniors) receive their rebate payments?

    Current Social Security recipients will receive EIPs based on direct deposit information held by the Social Security Administration.

  • B3) What is the timing of the payments?

    · The first tranche of ACH transactions will be sent on Friday evening, April 10th with an effective date of April 15. This tranche will contain an estimated 75 million payments to be broken out in batches in windows across Friday - Monday. Treasury is planning the next tranche on April 17 with an effective date of April 22 containing about 30 million payments. The following tranche will be released on April 24 with an effective date of April 29 containing about 30 million payments. ICBA will update this Q&A as we receive more detailed information about the payment distribution plan.

    · Those who have not yet filed a return for 2018 or 2019 will have until year-end 2020 to do so in order to claim a rebate payment.

  • B4) Who qualifies for a payment and how is the amount calculated?

    · Eligible taxpayers who filed tax returns for either 2019 or 2018 will automatically receive a payment of up to $1,200 for individuals or $2,400 for married couples. Parents also receive $500 for each qualifying child.

    · Tax filers with adjusted gross income up to $75,000 for individuals and up to $150,000 for married couples filing joint returns will receive the full payment.

    · For filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds. Single filers with income exceeding $99,000 and $198,000 for joint filers with no children are not eligible.

    · There is no exclusion for lower income individuals who are not subject to income tax. An individual who has been claimed as a dependent on the return of another taxpayer in the current tax year is not eligible for a payment.

  • B5) Is the payment taxable?

    · The payment is not taxable because it is structured as an advanced, refundable credit against the taxpayer’s 2020 tax liability.

    · The final amount of the payment will be determined based on 2020 income and settled on the 2020 tax return. A taxpayer who ultimately qualifies for a larger payment (e.g., an individual whose income dropped from 2019 to 2020 or who had a child in 2020) will be compensated with a larger refund or smaller tax liability in 2021. However, a taxpayer who ultimately qualifies for less money will not have to pay back the overpayment.

  • B6) Is there a way for my bank to verify an EIP check?

    · Treasury provides a check verification site at https://tcva.fiscal.treasury.gov/

    · Files are uploaded daily to update status of payments.

    · After entering payment information, site will return one of four responses:

    • Issued for amount entered
    • Paid
    • Amount entered doesn’t match
    • No Match
  • B7) What do I need to know about the routing numbers associated with EIPs?

    · Treasury’s Bureau of the Fiscal Service is adding seven (7) new Routing Transit Numbers (RTNs) for issuing Tax Refund Payments.

    · EIPs will appear as a standard tax refund payment by Automated Clearing House (ACH) with “TAX Ref” in the Company Entry Description field.

    · Financial Institutions should be prepared to receive payments using these RTNs as early as April 8, 2020.

    · In accordance with Nacha operating rules, Tax Refund and Economic Impact Payments will be issued with the one-position Identification Code Designator (ICD) followed by the RTN in the Company Identification field.

  • B8) What should an RDFI do if a U.S. Treasury payment is made to a closed account?

    · According to information in the Green Book (page 4-2), the RDFI should return the payment. The Green Book states in Chapter 4 that all ACH payments must be returned in accordance with the Nacha Operating Rules and Guidelines, including when an account is closed or does not exist.

    · Most ACH returns to the IRS will result in a paper check being issued; therefore, RDFIs must make appropriate use of Return Reason Codes. Please see: https://fiscal.treasury.gov/reference-guidance/green-book/chapter-4.html.

  • B9) Is the payment taxable?

    · The payment is not taxable because it is structured as an advanced, refundable credit against the taxpayer’s 2020 tax liability.

    · The final amount of the payment will be determined based on 2020 income and settled on the 2020 tax return. A taxpayer who ultimately qualifies for a larger payment (e.g., an individual whose income dropped from 2019 to 2020 or who had a child in 2020) will be compensated with a larger refund or smaller tax liability in 2021. However, a taxpayer who ultimately qualifies for less money will not have to pay back the overpayment.

Loan Modifications/Accounting

  • C1) Do federal bank regulators support lender modifications of loans?

    Federal regulators do encourage banks to work with borrowers when they are experiencing problems making loan payments. Specific to COVID-19, regulators have reinforced their encouragement of banks to work with borrowers who may be experiencing economic difficulties.

  • C2) What types of modifications can a bank make to a loan when requested by the borrower?

    A bank can make any contractual modification to a loan when it is the creditor in the contractual relationship. Banks can reduce interest rates, forgive principal and interest, delay the receipt of regularly scheduled monthly payments, accept additional collateral as a security interest, swap collateral, create additional loan arrangements, and many other options. How and when a bank chooses to modify a loan will often depend greatly on the type of loan, the type of borrower, the financial condition of the borrower, the bank’s current loan systems, and the bank’s willingness to be flexible in payment arrangements. Banks should document policies for how and when modifications are made and share those policies with their independent accountants and state and federal regulators as needed.

  • C3) Can the bank make a minor loan modification that does not result in a significant financial impact on the contractual relationship or the bank’s accounting for that loan?

    Banks must evaluate all loan modifications for impairment. Generally, when a modification to the contractual cash flows does not materially impact the yield on the loan, the bank can make a contractual modification to the loan without needing to impair the loan. In this instance the bank is deemed to have not granted a concession to the borrower. FASB states that an insignificant delay or insignificant shortfall in the amount of payments does not result in impairment if the creditor expects to collect all contractual amounts due. Examples of such minor modifications include the deferral of one or more payments to the end of the loan term and deferral of one or more payments with an adjustment to the payment schedule going forward.

  • C4) How do I know if my loan modification results in an insignificant delay or insignificant shortfall in cash flows to determine what type of modification I am making?

    A bank’s determination of insignificant delay or insignificant shortfall is a matter of accounting policy and is dependent on agreement with management, the bank’s audit committee, the independent accountants, and its primary federal and state regulators. Generally, payment delays of up to three months would not be expected to have a significant impact on cash flows for long-term loan arrangements like residential mortgage loans. Only by running contractual cash flows and discounting those cash flows at the loan’s effective interest rate can a bank determine what impact a modification will have on yield.

  • C5) If I make a minor loan modification what happens to my interest accruals?

    The subject of interest accruals is not addressed under generally accepted accounting principles, so banks generally rely on regulator guidance to determine if they place the loan on nonaccrual status. The FFIEC 051 call report instructions define nonaccrual status for the following conditions:

    (1) The loan is maintained on a cash basis because of deterioration in the financial condition of the borrower

    (2) Payment in full of principal or interest is not expected

    (3) For commercial loans, principal and interest has been in default for a period of 90 days or more unless the asset is both well secured and in the process of collection

    Therefore, loans that do not meet the call report definition for nonaccrual should continue to accrue interest in accordance with its contractual terms during the payment delay. A bank’s determination of when it places a loan on nonaccrual is a matter of accounting policy and should be shared with the independent accountants and state and federal regulators as needed.

  • C6) What if the bank grants a concession to the borrower or modifies a loan that results in a significant delay or shortfall in contractual cash flows? See also Q7. and Q8.

    Once the bank reaches the conclusion that a loan modification is not minor it must evaluate the loan as a troubled debt restructuring (TDR). A TDR is a loan modification that results when both of the following conditions are present:

    (1) The borrower is experiencing financial difficulty

    (2) The bank grants a concession to the borrower that it would not otherwise consider

    When the bank concludes that the modification results in a TDR, the bank generally records impairment equal to the present value of expected future cash flows discounted at the loan’s effective interest rate. In some cases, the observable market price of the loan can be used as a practical expedient.

  • C7) When can a loan classified as a TDR be returned to accrual status? See also Q8.

    Loans classified as TDRs can be placed on accrual status when the bank concludes that the borrower will be able to make payments under the revised terms. The bank must perform an analysis that considers the borrower’s historical repayment performance under the loan’s modified terms, which generally would include a period of at least six months.

  • C8) Does my bank need to consider and reflect the impact of TDRs on modifications that are made to loans based on the impact of the COVID-19 pandemic?

    Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted on March 27, 2020, a financial institution may elect to suspend the application of generally accepted accounting principles as it pertains to TDRs. Under CARES Act, loans that are modified due to the COVID-19 coronavirus pandemic would not be impaired. The additional considerations of accrual status and applicable financial statement and regulatory disclosures would be ignored.

    Suspension of TDR application would apply for the remaining contractual life of the loan. Eligible loans are those were impacted by the pandemic starting on March 1, 2020 and ending on the earlier of December 31, 2020 or 60 days after the date on which the national emergency is terminated. Additionally, the loan could not be 30 days or more past due on December 31, 2019. Loans modified pursuant to the Act that would otherwise be considered TDRs should be tracked in the financial institution’s systems and banks should be prepared to provide selected data to prudential bank regulators for supervisory purposes.

  • C9) What is the impact of amendments made by both Congress through legislation and the federal banking regulators on the implementation of the current expected credit loss model (CECL)?

    Under the CARES Act, a bank that would otherwise be required to apply the provisions of CECL on January 1, 2020 has the option to defer the initial application of the standard to the earlier of December 31, 2020 or the date on which the national emergency is terminated.

    Additionally, on March 27, 2020 the federal banking regulators issued an interim final rule that provides an option for 2020 adopters to delay the regulatory impact of CECL for two years from the date of adoption. The already existing three-year transition period for regulatory recognition of the cumulative impact of adopting CECL would start once the two-year delay ends. Under the three-year transition period, the retained earnings impact of the implementation of CECL for regulatory capital calculations would be reversed at 75% in year one, 50% in year two, and 25% in year three.

Mortgage Lending (Updated April 13)

Federal Reserve Lending Support

  • E1) What changes has the Federal Reserve made to the discount window in response to the current crisis?

    · The Federal Reserve is encouraging depository institutions to use the discount window to help meet demands for credit from households and businesses.

    · The Board announced that it has lowered the primary credit rate by 150 basis points to 0.25 percent, effective March 16, 2020.

    · In addition, the Board extended the borrowing period from the discount window to as long as 90 days, prepayable and renewable by the borrower on a daily basis.

    · The Federal Reserve continues to accept the same broad range of collateral for discount window loans.

    · The banking agencies announced that discount window borrowing will receive favorable treatment under the liquidity coverage rule.

    · The banking agencies announced that that loans that have been restructured as described in accordance with their recent guidance will continue to be eligible as collateral at the discount window based on the usual criteria.

  • E2) What is the Main Street Small Business Lending Program?

    · The Federal Reserve announced that it will create a Main Street Small Business Lending Program to provide credit support to community banks and other lenders for lending to small businesses.

    · Details of the new program have not been announced, nor has a timeframe for implementation, but the Fed has indicated that it is a high priority and more information will be available soon.

    · Funding for the program is appropriated in the CARES Act in an unspecified amount as part of a larger Coronavirus Economic Stabilization fund of $500 billion.

    · While details of the Main Street Small Business Lending Program are not yet available, the CARES Act does specify terms and conditions for a new Federal Reserve facility for nonprofit organizations and businesses between 500 and 10,000 employees. These terms and conditions include a 90% employee retention requirement, a prohibition on offshoring for the term of the loan plus two years and other labor restrictions; a 2% annual interest rate and no collection of principal or interest payments for at least the first six months.

  • E3) Is the Federal Reserve supporting the SBA’s Paycheck Protection Program?

    · On April 6, the Federal Reserve announced that it would create a facility to facilitate lending in the PPP program by providing term financing backed by PPP loans. ICBA will update this document as details become available.

    · The Federal Reserve’s announcement follows ICBA’s call for the creation of secondary market facility in which the Fed would purchase PPP loans from participating banks to facilitate additional lending.

  • E4) Will the Federal Reserve support mortgage servicers?

    · The CARES Act provides that any borrower with a federally backed mortgage (e.g., Fannie, Freddie, VA, FHA, USDA) may request forbearance for up to one year.

    · ICBA believes it is likely that the Federal Reserve will create a liquidity facility for mortgage servicers that service federally backed loans.

  • E5) What else is the Federal Reserve doing to support credit in the broader economy?

    · The Federal Reserve announced that it will use a range of authorities to support credit markets. These include: the Primary Market Corporate Credit Facility (PMCCF); the Secondary Market Corporate Credit Facility (SMCCF); the Term Asset-Backed Securities Loan Facility (TALF); the Money Market Mutual Fund Liquidity Facility (MMLF); and the Commercial Paper Funding Facility (CPFF). Link here for more information.

    · These programs are not likely to be used by community banks.

Deposit Insurance, Exams and Reporting

  • F1) Does the CARES Act authorize the FDIC to fully insure noninterest bearing transaction accounts?

    Yes. The CARES Act authorizes the FDIC to establish a new Transaction Account Guarantee (TAG) program that would fully guarantee all noninterest bearing transaction accounts until December 31, 2020. NCUA is also authorized to establish a similar TAG program for credit unions. It will be up to the FDIC and the NCUA to decide when/if to exercise this authority and to establish any limits to the guarantee.

  • F2) How will the FDIC define a noninterest bearing transaction account?

    The FDIC will define what a noninterest bearing transaction account is when it establishes a TAG program. During the financial crisis when the FDIC established the first TAG program, it defined a “noninterest bearing transaction account” as a transaction account that doesn’t accrue or pay interest, and on which the bank does not reserve the right to require advance notice of withdrawal. However, FDIC also determined that low-interest bearing transaction accounts (at the time chiefly NOW accounts) and Interest on Lawyers Trust Accounts (IOLTAs) were covered, but not interest bearing money market deposit accounts or MMDAs.

  • F3) Does the CARES Act also authorize the FDIC to insure the debt of banks and bank holding companies?

    Yes, the same authorization for a new TAG program also includes authorization for a new Temporary Liquidity Guarantee Program (TLGP) that would insure other non-deposit debt of banks and bank holding companies. During the financial crisis, this guarantee was used mainly by large banks, but was available to all banks. This authorization also expires on December 31, 2020.

  • F4) Can community banks use a lower community bank leverage ratio?

    Yes. Beginning the first quarter of this year, qualifying community banks under $10 billion in assets may opt in to a new community bank leverage ratio (CBLR) of 9 percent by completing a CBLR reporting schedule on their call reports or Form FR Y-9Cs. The election allows the bank to forego calculating capital requirements using risk-based capital rules. The CARES Act requires regulators to temporarily set the CBLR at 8 percent rather than at 9 percent, and also requires the agencies to provide a grace period to banks that fall below the ratio. This mandate expires at the earlier of the end of the COVID-19 emergency declaration or December 31, 2020.s

  • F5) Does the CARES Act provide any authority for lowering lending limits?

    Through the earlier of December 31, 2020 or the end of the national COVID-19 emergency, the CARES Act authorizes the OCC to exempt loans or other extensions of credit made to any “nonbank financial company” (those with 85 percent of gross revenue or assets derived from activities that are “financial in nature” as defined under the Bank Holding Company Act) from the lending limits stated under federal law. Further, the OCC also has the authority to exempt, by order, any transaction or series of transactions from legal lending limits if it finds that it is in the public interest.

    While this provision of the CARES Act only applies to national banks and federal savings associations since state-chartered bank lending limits are determined by state law, nevertheless, many states have “wild card” statutes that give state-chartered banks the same powers as national banks. Depending on how the state law is written, if the OCC exempts certain transactions from the lending limit, state banks may be able to take advantage. Note, however, that the OCC will act by order which may impact whether the state wild card statute is invoked.

  • F6) Will the banking agencies reduce their focus on exams during the COVID-19 outbreak?

    The FDIC has said that it will work with affected financial institutions to reduce burden when scheduling examinations, including making greater use of off-site reviews, consistent with applicable legal and regulatory requirements.

    The OCC is evaluating alternative options to conduct supervisory activities. These include working remotely and maximizing the use of electronic records and communication. The OCC encourages banks to discuss the exam schedule with their Examiner-in-Charge.

    According to recent guidance, the Federal Reserve is reducing its focus on exams and inspections during this time. For banks with less than $100 billion in total consolidated assets, the Federal Reserve will cease all regular exam activity, except where the exam work is critical to safety and soundness or consumer protection, or is required to address an urgent or immediate need. The Federal Reserve will reassess its approach to exams in the last week of April to see if circumstances have changed. The Federal Reserve is also extending the time periods for remediating existing supervisory findings by 90 days, unless the Federal Reserve otherwise notifies the bank.

    The CFPB says it will work with banks over $10 billion in assets in scheduling exams and other supervisory activities to minimize disruption and burden, and will keep in close contact with affected banks to determine when supervisory events can be appropriately scheduled. When conducting exams and other supervisory activities, the CFPB will consider the circumstances banks may face as a result of the COVID-19 pandemic and will be sensitive to good-faith efforts demonstrably designed to assist consumers.

  • F7) Did the banking agencies extend the deadline for filing call reports for the first quarter of 2020?

    Guidance released by the FFIEC on March 25, 2020 indicate that the federal banking agencies will not take action against any institution for submitting its March 31, 2020, Reports of Condition and Income (Call Report) after the respective filing deadline, as long as the report is submitted within 30 days of the official filing date. Institutions are encouraged to contact their primary federal regulator in advance of the official filing date if they anticipate a delayed submission.

    In addition the Federal Reserve has indicated that it will not take action against a bank holding company with $5 billion or less in assets for submitting March 31, 2020, bank holding company reports (FR Y-9C or FR Y-11) after the filing deadline, as long as the report is submitted within 30 days of the filing date. Institutions are encouraged to contact their Reserve Bank in advance of the normal filing deadline if they anticipate a delayed submission. Institutions anticipating difficulty submitting their reports within the 30 days following the official filing due date, or experiencing challenges in obtaining director attestations, should likewise contact their Reserve Bank.

  • F8) Can we get relief from filing Bank Secrecy Act (“BSA”) documents such as suspicious activity reports (SARs) and currency transaction reports (CTRs)?

    On March 16th, FinCEN issued guidance encouraging banks to communicate with them and their functional regulator if the bank has concerns about any potential delay in its ability to file required BSA reports. Financial institutions should call FinCEN’s Regulatory Support Section at 1-800-949-2732 and select option 6 or e-mail at FRC@fincen.gov. ICBA, along with other trade associations, has requested an extension for filing these types of reports. ICBA’s letter can be found here.

Compliance FAQs (Updated April 13)

Note: An additional 2,500 compliance Q&As can be found in ICBA's Compliance Vault


  • G1) Can we allow our savings deposit customers to go over the six-per-month withdrawal and transfer limit?

    According the Reserves Central—Reserve Account Administration Application Frequently Asked Questions issued on March 15th, yes. However, banks must report the account as a “transaction account” and should work with their local Reserve Banks to support their efforts to accurately report on the FR 2900 on a timeline that makes sense relative to the current situation.

  • G2) Can we get relief from beneficial ownership data collection requirements to expedite the processing of small business loans?

    Banks are required to follow existing Bank Secrecy Act protocols when making loans to new or existing customers who are eligible to borrow. However, Payment Protection Program (“PPP”) loans for existing customers will not require reverification under applicable BSA requirements unless otherwise indicated by the bank’s risk-based approach to BSA compliance. Furthermore, banks that have not yet collected beneficial ownership information on existing customers do not need to collect and verify such information for those customers applying for new PPP loans, unless otherwise indicated by the lender’s risk-based approach to BSA compliance.

  • G3) Does the information lenders are required to collect from PPP applicants regarding every owner who has a 20% or greater ownership stake in the business satisfy a lender’s obligation to collect beneficial ownership information which has a 25% ownership threshold?

    If the PPP loan is being made to an existing customer and the bank previously verified the necessary information, re-verification is not required.

    However, for new customers, the banks collection of the following information from those with a 20% or greater ownership stake will satisfy the collection of beneficial ownership information: owner name, title, ownership %, TIN, address, and date of birth. If any ownership interest of 20% or greater in the applicant business belongs to a business or other legal entity, banks will need to collect appropriate beneficial ownership information for that entity.

    For additional guidance, ICBA recommends that financial institutions call FinCEN’s Regulatory Support Section at 1-800-949-2732 and select option 6 or e-mail at FRC@fincen.gov regarding questions about the collection of beneficial ownership data.

  • G4) Can we get relief from filing Bank Secrecy Act (“BSA”) documents such as suspicious activity reports (SARs) and currency transaction reports (CTRs)?

    On March 16th, FinCEN issued guidance encouraging banks to communicate with them and their functional regulator if the bank has concerns about any potential delay in its ability to file required BSA reports. Financial institutions should call FinCEN’s Regulatory Support Section at 1-800-949-2732 and select option 6 or e-mail at FRC@fincen.gov. ICBA, along with other trade associations, has requested an extension for filing these types of reports. ICBA’s letter can be found here.

    Additionally, on April 3rd, FinCEN issued notice to suspend implementation of the February 6, 2020, ruling on CTR filing obligations when reporting transactions involving sole proprietorships and entities operating under a “doing business as” (DBA) name. FinCEN will issue further information on these types of CTR filings at a later date. However, until then, financial institutions should continue to report transactions involving sole proprietorships and DBAs under prior practice. Those financial institutions that have already made the necessary changes to comply with the 2020 Ruling need not revert to prior practice and may report CTRs in accordance with the now-suspended ruling.

  • G5) What are banks’ responsibilities for credit reporting under the newly passed CARES Act?

    Under section 4021 of the CARES Act, if a bank makes a late-payment accommodation for one or more payment obligations on a debt, then the bank may not report a negative change in status to a reporting agency. So for example, if a borrower does not make a payment because a payment deferral accommodation was made, the bank cannot report the delinquency to the credit reporting agency. However, if a bank charges-off the obligation, then the bank may furnish that information to a credit reporting agency.

  • G6) Can we get relief from fulfilling Home Mortgage Disclosure Act (HMDA) requirements?

    Large volume lenders are relieved from new quarterly reporting; however, all entities should continue collecting and recording HMDA data in anticipation of making annual submissions in March 2021. On March 26, The Consumer Financial Protection Bureau (Bureau) issued a statement that it will not expect quarterly information reporting by certain mortgage lenders as required under the HMDA and Regulation C (generally financial institutions that report for the preceding calendar year at least 60,000 covered loans and applications (excluding purchased loans) must report their HMDA data quarterly (except for the fourth quarter) in addition to annually).

  • G7) Will the CFPB delay the 1071 rulemaking as a result of COVID-19?

    The Bureau has not stated whether it will delay the small business loan data collection rulemaking, but it has stated that it has temporarily postponed the publication of a survey of initial costs. This survey is a prerequisite to subsequent considerations in a 1071 rulemaking.

  • G8) Has the NCUA delayed its deadline for comments in response to its proposed rulemaking on credit union combinations with non-credit unions?

    Yes, the NCUA voted on Friday, March 27 to delay the comment deadline for 60 days.

Federal Home Loan Banks

Operations

  • J1) Are bank employees considered essential workforce?

    Yes. The Department of Homeland Security issued guidance on essential workforce which includes the following financial services employees:

    o Workers who are needed to provide, process and maintain systems for processing, verification, and recording of financial transactions and services, including payment, clearing, and settlement; wholesale funding; insurance services; consumer and commercial lending; and capital markets activities).

    o Workers who are needed to maintain orderly market operations to ensure the continuity of financial transactions and services.

    o Workers who are needed to provide business, commercial, and consumer access to bank and non-bank financial services and lending services, including ATMs, lending and money transmission, and to move currency, checks, securities, and payments (e.g., armored cash carriers).

    o Workers who support financial operations and those staffing call centers, such as those staffing data and security operations centers, managing physical security, or providing accounting services.

    o Workers supporting production and distribution of debit and credit cards.

    o Workers providing electronic point of sale support personnel for essential businesses and workers.

    · ICBA has posted this guidance, along with a letter from Treasury Secretary Mnuchin and a template letter banks can use to provide local authorities with details describing the essential nature of their business, on its Crisis Preparedness webpage. Bank employees are encouraged to carry all three documents when traveling to and from work.

  • J2) What should employees do with respect to handling cash?

    The CDC has not issued any guidance specific as to how long COVID-19 survives on cash. Any employee frequently handling cash should sanitize their hands frequently and avoid touching their face after handling cash.

  • J3) What procedures should banks follow if an employee or customer has tested positive for COVID-19?

    Steps to take if an outbreak occurs in your workplace include:

    o Separate sick employees.

    o If an employee is confirmed to have COVID-19, employers should notify other employees of their possible exposure and suggest they self-monitor for symptoms.

    o Close off all areas visited by the ill person. Open outside doors and windows and use ventilating fans to increase air circulation in the area.

    o Wait 24 hours or as long as practical before beginning cleaning and disinfection

    o Cleaning staff should clean and disinfect all areas such as offices, bathrooms, common areas, and shared electronic equipment (touch screens, keyboards, remote controls, ATMs, etc.) used by the ill persons.

    o More information on proper cleaning procedures can be found here: https://www.cdc.gov/coronavirus/2019-ncov/community/organizations/cleaning-disinfection.html

  • J4) Are there any benefits for farmers and ranchers in the coronavirus aid bill?

    Yes, in addition to adding $14 billion to USDA’s Commodity Credit Corporation (CCC), USDA’s funding arm, to replenish that account to fund USDA’s farm safety net, the COVID-19 aid package provides a separate $9.5 billion to assist producers who raise: livestock, dairy, and specialty crops. Local food markets are also eligible for aid under this package.

    The aid package also provides funding for a multitude of rural programs and initiatives including: hiring of temporary staff at Farm Service Agency field offices, lowering the costs for rural development programs, an additional $1 billion for the Business & Industry (B&I) loan program, telemedicine, rural hospitals, broadband and other needs.

    USDA Resources

    USDA Resource Home
    Rural Development Resource Home
    USDA-Food and Nutrition Service (FNS) Resource Home
    Food Product Dating Guide

  • J5) Are farmers and ranchers eligible for the SBA paycheck protection loan program?

    Farmers and ranchers who otherwise meet the qualifications for the new SBA program are eligible.

  • J6) Are there any coronavirus related cyber threats?

    Yes. Unfortunately, criminals thrive during chaos and are looking to take advantage of employees and customers. The most common threat during the crisis has been socially engineered phishing emails using COVID-19 as a lure to get people to click on malicious links. Banks should consider proactively letting their customers know what they can and cannot expect from the banks via phone calls and email.

Agriculture

All Tax Q&As

  • L1) What do I, as an employer, need to know about the payroll tax deferral provision of the CARES Act?

    • The CARES Act allows employers to defer payroll taxes incurred between March 27, 2020 (the date of enactment of the Act) and January 1, 2021. Deferral is open to all employers.

  • L2) What happens in 2021?

    • The CARES Act allows employers to defer payroll taxes incurred between March 27, 2020 (the date of enactment of the Act) and January 1, 2021. Deferral is open to all employers.

    • 50 percent of deferred taxes are due December 31, 2021. The remaining 50 percent is due December 31, 2022.

    • No interest accrues on deferred amounts.

  • L3) So this is like a tax-free loan from the government?

    • Effectively, yes.

  • L4) Are any employers excluded from deferral?

    • A small business employer with forgiven indebtedness under the Paycheck Protection Program is not eligible for payroll tax deferral.

  • L5) Unanswered questions regarding PPP borrowers and payroll tax deferral.

    As noted above, PPP borrowers with forgiven indebtedness are not eligible for payroll tax deferral. However, this exclusion gives rise to a number of unanswered questions. For example:

    • Would a PPP borrower continue to pay payroll taxes during the loan term prior to obtaining loan forgiveness?

    • Or would the borrower defer payroll taxes until the borrower obtains loan forgiveness and then make a payment for the deferred amount? In other words, does a borrower’s anticipated loan forgiveness cancel their payroll tax deferral benefit?

    • After a PPP loan is forgiven, is the borrower eligible for payroll tax deferral for the remainder of 2020? In other words, does loan forgiveness cancel a borrower’s payroll tax deferral only retrospectively to the beginning of the loan or also prospectively for the remainder of 2020?

  • L6) How does payroll tax deferral interact with new paid sick leave and paid family and medical leave mandates?

    · The costs of emergency paid sick leave and emergency paid family and medical leave (as created by the Families First Coronavirus Response Act) result in a dollar-for-dollar payroll tax credit for employers. An employer may take advantage of both this tax credit and payroll tax deferral at the same time. Below are two scenarios:

    o If the value of the tax credit exceeds payroll tax liability in a given quarter, the excess amount is refundable to the employer.

    o However, if payroll taxes exceed the tax credit, the remainder can be deferred, as provided for by the CARES Act.

  • L7) Who is eligible for the employee retention tax credit?

    · The credit is available to any employer that meets one of two conditions: (i) operations were fully or partially suspended as a result of a COVID-19 shut-down order; or (ii) gross receipts declined by more than 50 percent compared to the same quarter in the prior year.

    · An employer may continue to claim the credit until the end of the first quarter in which the employer’s gross receipts are greater than 80 percent of the gross receipts of the same quarter in the prior year, or December 31, 2020, whichever is first.

    · The credit is available to a taxable organization as well as most tax-exempt organizations, including 501(c)(6) trade associations which are not eligible for Paycheck Protection loans.

  • L8) What is the amount of the credit?

    · The credit is equal to 50 percent of “qualified wages” up to $10,000 per employee paid between March 13, 2020 and December 31, 2020.

    · “Qualified wages” are defined differently for employers above and below a threshold of 100 employees, based on the average number of employees in 2019.

    · For an employer with more than 100 employees, “qualified wages” are wages paid to employees who did not work or worked part time but were paid full time during the quarter due to COVID-19-related circumstances.

    · For an employer with fewer than 100 employees, all wages paid are “qualified wages.”

    · In either case, “qualified wages” include a portion of employer-paid health benefits.

  • L9) How is the credit applied or redeemed?

    · The credit is used to reduce the employer’s portion of Social Security taxes (6.2 percent).

    · If the credit exceeds the amount of these taxes due in a given quarter, the excess amount is refundable.

    · The process for claiming a refund is the same as that used by employers that pay emergency sick leave or emergency family and medical leave under the Families First Coronavirus Response Act in excess of payroll tax liability.

    · An employer may use IRS Form 941 to claim the refund as part of their quarterly tax return or an employer may claim an immediate advance refund based on anticipated credit using IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19.

  • L10) How is the credit applied or redeemed?

    · The credit is used to reduce the employer’s portion of Social Security taxes (6.2 percent).

    · If the credit exceeds the amount of these taxes due in a given quarter, the excess amount is refundable.

    · The process for claiming a refund is the same as that used by employers that pay emergency sick leave or emergency family and medical leave under the Families First Coronavirus Response Act in excess of payroll tax liability.

    · An employer may use IRS Form 941 to claim the refund as part of their quarterly tax return or an employer may claim an immediate advance refund based on anticipated credit using IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19.

  • L11) Can an employer receive both the Employee Retention Tax Credit and the tax credit for payment of emergency paid sick leave and emergency paid family and medical leave under the Families First Coronavirus Response Act?

    Yes, but not for the same wages. Amounts paid as emergency paid sick leave and emergency paid family and medical leave are not “qualified wages” for the purpose of the Employee Retention Tax Credit.

  • L12) Can an employer in receipt of a Paycheck Protection Loan claim the credit?

    No.

  • L13) Can I benefit from the NOL provision of the CARES Act?

    Potentially.

    · Prior to enactment of the CARES Act, losses could only be carried forward to offset income tax otherwise due in future years. Moreover, loss carry forwards could offset no more that 80 percent of tax liability in a given year. These limitations were put in place by the 2017 Tax Cuts and Jobs Act.

    · The CARES Act provides that losses incurred in tax years 2018, 2019, and 2020 may be carried back to offset taxes paid up five years prior. Moreover, these losses can offset 100 percent (not 80 percent) of taxes paid in prior years.

    · A business with losses in 2018 or 2019 can file an amended return for taxes paid in prior years and claim a refund.

    · A business with losses in 2020 will have to wait until 2021 to claim a refund for taxes paid in prior years.

    · The benefit is greater for tax years prior to 2018 when the 35 percent corporate tax rate was in effect.

    · ICBA specifically advocated for NOL carryback as part of the CARES Act.

  • L14) My bank is an S-corp. How can I benefit from the NOL changes?

    · S-corp income and losses are passed through to the individual tax returns of shareholders.

    · Prior to the TCJA, there was no limitation on the ability of an active S-corp shareholder to use S-corp losses to offset taxable income from sources outside of the business. TCJA provided that an S-corp or other pass-through business owner could use no more than $250,000 (or $500,000 for a married couple) in business losses to offset non-business income. Unused losses could be carried forward.

    · The CARES Act lifts this dollar limitation for tax years 2018, 2019, and 2020. A taxpayer with unused losses from those years may file an amended return and claim a refund.

    · If a shareholder does not participate in the business, the tax treatment of their losses is not changed by the CARES Act. Their losses are passive and may only be used to offset passive gains. Any excess passive losses are carried forward.

  • L15) If I have a loss, how do I file for a refund of prior year taxes paid and when can I expect to see the refund?

    • If your bank is a C corporation, you can file for a quick refund using Form 1139, Corporate Application for Tentative Refund.

    • Your refund may be available in 90 days.

  • L16) How does the CARES Act expand the business interest deduction?

    · Businesses with annual gross receipts of more than $25 million will be allowed to deduct interest paid up to 50 percent of earnings before interest, tax, and amortization (EBITA). Under prior law, these businesses were limited to deducting no more than 30 percent of EBITA.

    · This higher limitation applies in 2019 and 2020.

    · A business may apply its 2019 EBITA for the purpose of determining its 2020 business interest cap. This will help businesses that experience reduced earnings in 2020 as a result of COVID-19 economic restrictions.

    · The higher limitation on the business interest deduction may create net operating losses (NOL) for some businesses, which, under another provision of the CARES Act, may be carried back for up to five years, creating refunds of taxes paid in prior years. (See separate Q&A on NOL Carryback.)

  • L17) What about businesses with gross receipts of less than $25 million?

    As before, these businesses have no cap on their business interest deduction.

  • L18) Does my bank have any limitation on its ability to deduct interest?

    The limitation is on net interest paid. Most banks are net interest positive.

  • L19) When are my 2019 taxes due?

    • The CARES Act delayed filing and payment of 2019 taxes from April 15 to July 15.

    • Many states have delayed filing and payment as well.

Remittance Transfers

Economic Impact Payments (Updated April 13)

On March 27, 2020, the president signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This $2 trillion aid package will provide financial aid to families and businesses impacted by the coronavirus, or COVID-19, pandemic.

The CARES Act provides direct government payments to eligible Americans to offset the economic impact of the virus. The Treasury Department and the IRS have announced that distribution of these Economic Impact Payments will begin in April 2020. For most people, no action will be required. Official IRS information about the COVID-19 pandemic and EIPs can be found at this link to the IRS Coronavirus Tax Relief page.

  • N1) When will I receive my payment?

    If you are eligible (more on that below), you may expect to receive your payment as soon as the middle of April, according to the Treasury Department.

  • N2) How will I know if I am eligible? How large a payment will I receive?

    The IRS is responsible for determining eligibility for Economic Impact Payments.

    U.S. residents will receive Economic Impact Payments of up to $1,200 for individual or head of household tax filers, and up to $2,400 for married couples filing jointly. Parents also receive $500 for each qualifying child. Filers with adjusted gross income below the thresholds specified below will receive a full payment.

    • $75,000 for individuals
    • $112,500 for head of household filers
    • $150,000 for married couples filing joint returns

    Taxpayers will receive a reduced payment if their adjusted gross income is between:

    • $75,000 and $99,000 if their filing status is single or married filing separately
    • $112,500 and $136,500 for heads of household
    • $150,000 and $198,000 if their filing status is married filing jointly

    Taxpayers above the maximum thresholds indicated above will receive no payment.

    Payment calculations will be based on taxpayers’ 2019 returns or on their 2018 returns if they have not yet filed for 2019. (The 2019 filing and payment deadline has been delayed from April 15 until July 15.)

    To qualify for a payment, an individual must have a work-eligible Social Security number and must not be claimed as a dependent by another taxpayer in the current tax year. Lower-income individuals who are not subject to income tax will also receive payments.

    For complete eligibility information, please visit the IRS website.

  • N3) Will college students be eligible to receive a payment?

    A college student who is claimed as a dependent on the tax return of a parent is not be eligible for a payment, though a financially independent student would be. For complete eligibility information, please visit the IRS website.

  • N3) Will college students be eligible to receive a payment?

    A college student who is claimed as a dependent on the tax return of a parent is not be eligible for a payment, though a financially independent student would be. For complete eligibility information, please visit the IRS website.

  • N4) How will I receive my payment? Will it be sent as a paper check or electronically?

    Most individuals will receive their payment electronically. This is faster and safer than mass distribution of paper checks.

    If you filed taxes in 2018 or 2019 and provided on your tax return your bank routing and account number for payments or refunds, and this information has not changed, the IRS has the information it needs to send your payment electronically, with no action required on your part.

    If you are a Social Security recipient, the IRS will use the direct deposit information held by the Social Security Administration. If the direct deposit information you have provided in the past is for a bank-issued, prepaid debit card, you will receive your funds on that card account.

    If the IRS does not have your information on file and you are not a Social Security recipient, a check will be mailed to you. Check payments will be distributed weeks or possibly months after the direct deposits are sent. For additional information, please visit the IRS website.

    To receive payment more quickly, we strongly recommend you file a 2019 tax return and provide direct deposit information.

    If you do not typically file a tax return because you are not required to do so (for example, you may have low income or receive veterans disability compensation, a pension, or survivor benefits from the Department of Veterans Affairs), the IRS has created an online portal, called “Non-Filers: Enter Payment Info,” for the provision of direct deposit information. Visit this link to do so.

  • N5) I file a tax return every year, but the IRS does not have my current information on file. Can I receive my payment electronically?

    Yes. The IRS is planning to create a new, online portal called “Get My Payment” where people can obtain details about their payment and provide direct deposit information if the IRS does not already have it. At this time, the IRS online portal is under development. For updated information, please visit the IRS website.

    The IRS has extended the tax-filing deadline this year from April 15 to July 15. If you file your 2019 taxes as soon as possible with your bank routing and account number on the form, the IRS may be able to use that information to send you an electronic payment.

  • N6) What if I am typically not required to file a tax return?

    Social Security recipients who have not been required to file tax returns will not be required to do so to receive their payments. People who typically do not file a tax return and are not Social Security beneficiaries will need to provide their information to the IRS at the website referenced in Question 4 above, “Non-Filers: Enter Payment Info.”

  • N7) What is a bank routing and account number?

    Bank routing and account numbers are used to direct payments to the right bank account at the right financial institution. If you have a checking account at a financial institution, the information is on the paper check. The bank routing number is on the lower left-hand side of the check and tells Treasury the correct bank to send the payment. Your individual account number is to the right of the routing number. That tells the bank to credit your specific account. Bank-issued reloadable prepaid debit card accounts have the same numbers, but the way they are provided to you will vary.Check

  • N8) How do I find my bank routing and account number if I don’t have checks?

    Log in to your bank account online or through your bank’s mobile app. Bank routing and account numbers may be located in different places, depending on your bank. If you can’t find it easily, search “bank routing” within the app or website. If you still can’t find the information or can’t log on, call your bank for more information. Please remember banks will not provide your account number over the phone in order to safeguard your account from fraudsters.

  • N9) I have a reloadable prepaid card with a bank. Can I direct the payment to that account?

    Yes, follow the same instructions to gather the routing and bank account numbers to provide via the IRS online portal.

  • N10) I have a bank account. Can I still receive a paper check?

    Yes, but be aware that your payment will be slower than an electronic transfer. Paper checks may be sent out weeks after the electronic checks are sent. Many customers will prefer depositing the check through remote deposit capture. If your bank offers this service, you can take a picture of your check through your bank’s smartphone app to make the deposit from the comfort and safety of your home the same day the check arrives in the mail. Alternatively, you can make the deposit at your bank’s ATM. If you want to deposit the check in person, you may be required to visit a bank drive-through location because many bank branches are temporarily closed or offering restricted hours due to the pandemic. Check your bank’s website for hours of operation.

  • N11) I don’t have a bank account, but I want to receive my money faster. What can I do?

    Some banks will open accounts for customers online without requiring an in-person visit to a bank branch. Search online for banks that offer digital account opening. Please check with the bank to understand all of the terms and conditions of opening an account online. Another option is a bank-issued reloadable prepaid card, which may be used to accept a direct deposit. These cards are available at retailers that partner with a bank. Please make sure that the card is “reloadable” in order to receive a direct deposit payment. After opening the account, you will be provided with a bank routing and account number to provide to the IRS.

  • N12) What can I do to prevent fraudsters from accessing my funds?

    A large amount of funds will be disbursed in the coming weeks to qualifying individuals. Accordingly, there is a risk for fraud of various types. The IRS has announced various ways individuals can be on guard against fraudulent activities. See the notice.

    It is important to remember that banks or the federal government will never contact you by telephone, text or email asking for your account information. Do not provide any banking information to anyone claiming to be “registering you for your relief payment.” This is a red flag.

    For security reasons, the IRS plans to mail letters about Economic Impact Payments to taxpayers’ last known address within 15 days after the payment is paid. The letter will provide information on how the payment was made and how to report any failure to receive the payment. If you are unsure you are receiving a legitimate letter, the IRS urges you to visit IRS.gov to protect yourself against fraudsters.

  • N13) What should I do if I receive an unsolicited email or text appearing to be from the IRS?

    Those who receive unsolicited emails, text messages or social media contacts attempting to gather information that appear to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), should forward them to phishing@irs.gov. Taxpayers are encouraged not to engage potential fraudsters online or on the phone. Learn more about reporting suspected scams by going to the Report Phishing and Online Scams page on IRS.gov.

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