AICPA-led coalition supports gross pay approach as calculation standard for PPP loans

By Kim Nilsen

An AICPA-led small business funding coalition, in conjunction with the National Payroll Reporting Consortium, issued a statement supporting the use of gross payroll based on 2019 data in calculations for Paycheck Protection Program (PPP) pandemic relief loan applications.

Applications opened Friday for the PPP, which was funded by the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. PPP is offering $349 billion in forgivable loans that small businesses impacted by the coronavirus pandemic can use to cover costs including payroll and rent.

The U.S. Small Business Administration (SBA) issued a 31-page interim final rule outlining aspects of the PPP on Thursday.

For the calculation of the average monthly payroll cost, the AICPA-led coalition recommended in a statement released Saturday that payroll providers and CPAs use gross payroll based on 2019 data versus net payroll (defined as gross payroll less federal withholding and employee FICA). Neither the CARES Act nor the SBA guidance instructs the PPP applicant to exclude federal withholding and employee FICA for the 2019 period. The average monthly payroll cost includes gross payroll and the other defined PPP payroll cost elements such as health care.

The AICPA also said that its discussions with Treasury, SBA, banks and payroll processors to address these and other issues are ongoing and that it will keep its members, coalition partners, and small businesses updated on the small business funding efforts.

Mark Koziel, CPA, CGMA, the AICPA’s executive vice president of firm services, said, “Based upon statements from members of Congress, it appears that the intent of the PPP was to base the salary calculation on gross wages with no adjustment for federal taxes. This ensures that payroll tax expenses are not passed on to the small businesses in need. In a program of this magnitude, it’s expected that guidance will evolve and terms will be clarified.”

The CARES Act established the PPP as a new 7(a) loan option overseen by the Treasury Department and backed by the SBA, which is authorized to provide a 100% guarantee to lenders on loans issued under the program. The full principal amount of the loans and any accrued interest may qualify for loan forgiveness if the borrower maintains or rehires staff and maintains compensation levels. However, not more than 25% of the loan forgiveness amount may be attributable to nonpayroll costs.

Loan payments will be deferred for six months; however, interest will continue to accrue during the six-month deferment. No collateral or personal guarantees are required.

The program is available to small businesses that were in operation on Feb. 15 with 500 or fewer employees, including not-for-profits, veterans’ organizations, Tribal concerns, self-employed individuals, sole proprietorships, and independent contractors. Businesses with more than 500 employees in certain industries also can apply for loans, according to the SBA and Treasury.

The application can be found here on the Treasury site.

Small businesses applying for PPP loans must submit documentation, such as but not limited to payroll processor records or payroll tax filings, that establish their eligibility for the loans. The interim final rule issued Thursday clarified that the SBA will allow lenders to rely on the borrower’s documentation to determine if the borrower is eligible for the loans. Lenders can accept e-signatures and e-consents. Lenders who comply with the obligations laid out in the interim final rule will not be held responsible if the borrower submits fraudulent or inaccurate information.

Visit the AICPA Coronavirus Resource Center for information and resources related to the pandemic.

Kim Nilsen ( is the JofA’s publisher.

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