Calculating your Second Draw Paycheck Protection Program (PPP) loan amount and navigating the loan forgiveness process can be complicated. This episode of The Art of Dental Finance and Management podcast helps break down the details dentists need to know about the PPP.
The Small Business Administration (SBA) recently released guidance that helps provide clarity. This episode breaks down the details of the PPP program for dentists, how it may affect your dental practice and how you can maximize your PPP loan forgiveness, including:
- Understanding the new PPP loan forgiveness rules
- Completing the simplified one-page PPP loan forgiveness form for loans under $150,000
- Calculating maximum Second Draw PPP loan amount
- Registering on the HHS Provider Relief Fund online portal
- Qualifying for the Employee Retention Tax Credit (ERTC)
Reach out to Art if you have any questions regarding dental finance and management for your dental practice. More information about the Eide Bailly dental team can be found at www.eidebailly.com/dentist.
PPP funding is complex. Let us help you make sense of compliance and maximize loan forgiveness.
Show Notes and Resources
Art Wiederman CPA Hello, everyone, and welcome to another edition of the Art of Dental Finance and Management with Art Wiederman, CPA. That would happen to be me. My name is Art Wiederman and welcome to my podcast. And as I've been telling you all along, this journey that we've had since the middle of March, it's now been almost it's been over 10 months since the pandemic started. In fact, I heard on the news the other day that last week was the one year anniversary of the first recognized case of COVID-19 in the United States. So, boy, time flies. And we're all very, very hopeful that 2021 is going to bring us some real solutions to this horrible, horrible virus and that this vaccine will roll out and get to most of us, hopefully in the first 6 months of 2021 time will tell and we'll just keep our fingers crossed and stay positive, folks.
And as I told you, we we've been date stamping many of these podcasts. What I've been doing is, quite frankly, is I'm trying to keep all of you updated on the most recent information on all of the new rules that have come out. We have all the rules on the PPP, the first round, the second round, which is a lot of what we're going to be talking about tonight. We have the Employee Retention Tax Credit. We'll probably do a special show on that one. The IRS gives us guidance and we'll chat a little bit about that.
Tonight, we have the HHS Provider Relief Funds that you're going to have to deal with. So on the HHS Provider Relief Funds, folks. Remember the portal opened on January 15th. By the way, I'm coming to you tonight, January 24th here in Southern California in the evening. So this podcast will go up live on what would that be January 27, which is Wednesday. And we're going to talk about some of the new things that have come out in the last couple of weeks since I last came to you to talk about PPP. But back to the what am I trying to say here? Back to the HHS provider relief fund. You are going to have to report your expenses and lost revenues in their portal. The portal opened on January 15th, but it only opened for you to register and you should register now. It's January 24, tomorrow, January 25.
Given everything I've heard, I have spoken to actually somebody at HHS who has said that there's a very good chance that they're going to delay the portal because they have not put out the portion of the portal where you put all the numbers in and all of the information. And so that's coming. Actually, I think that when we get some real solid guidance, I'm probably going to bring on one of our partners at Eide Bailly, whose name is Tyler Bernier, who is he is our lead guy on HHS.
But tonight we're going to talk about the new forgiveness forms for under $150,000, which is going to take care of about 80 to 85 percent of you who got PPP loans. We're going to walk through the form. We're going to tell you what you can do, which can't do what you should do, what you need to know. Those forms came out last week and on January 19th, the SBA came out with some really good guidance on how you compute the amount of money you're going to get for a loan on round two. So we'll get to that in a minute.
Let me first give you some information, tell you about our wonderful, wonderful sponsor, Decisions in Dentistry magazine. Decisions in Dentistry has been a partner of ours for over a year now. They've been so wonderful in helping get the word out about our podcast. And I'm hopefully getting the word out to you that if you're not reading this magazine or going on the website, you need to go on their website. They've got some fantastic courses, some of the newest courses that you can get for a very reasonable price of 140 courses for one annual fee. Here's some examples of some courses. Differential Diagnosis for Acute Facial Paralysis is one course and Enamel Development and Vitamin D Deficiency in Breastfed Infants and finally Maximizing Utility of the Dental Hygienist, among many, many other courses. I think they come out with new courses every month, go to their website, www.DecisionsinDentistry.com, if you go on to the podcast, link in that website on that website, I should say, you'll be able to ask for a complimentary consultation with our Academy of Dental CPAs.
And speaking of the Academy of CPAs, of which I was a founding member. We're now in our 20th year. We're actually having a virtual meeting tomorrow, which is January 25 to talk about all this stuff. If you are not working with a dental CPA right now, whether it is me and my team at Eide Bailly, I am a dental director at the CPA firm of Eide Bailly. Why you need to be there's lots and lots of stuff that you should know and there's potentially a bunch of money out there on the table for you. So we're going to talk about some of that tonight.
If you're not working with a dental specific CPA, we have 24 CPA firms across the United States that represent over 10,000 dentists. And we've been emailing on our blog and texting and oh, my goodness, how some of these folks are still standing is beyond me. I mean, we have literally as CPAs, we're coming into tax filing season. So I always call February, March and April Be Kind to your CPA months. Well, this year, especially because we have all of these other things that we have taken on PPP, HHS, Employee Retention Tax Credit that quite frankly, folks, to be real blunt with you, we don't have time for we're trying to get your tax returns done and your estimated payments done and make sure we do a good job on all of that with all the rules and the state rules and the you know, it's crazy.
So if you're not working with a dental CPA and you're not getting really good information from your current CPA about any of this stuff, especially the Employee Retention Tax Credit, which could put tens of thousands of dollars in your pocket, go to our website, which is www.ADCPA.org. You can always call me 657.279.3243 or email me at awiederman@EideBailly.com.
All right. Well, let's get into our topic tonight. So we're going to cover a couple of things tonight, folks. The first thing we're going to cover are the forgiveness rules. Now, they've been talking for months and months and months and months about giving you simplified forgiveness. And as part of the Coronavirus Stimulus Act of 2021, I don't think it's exactly called that, but that's what we'll call it for tonight. That was signed by, I guess, now former President Trump on December the 27th of last year. This basically created many, many things, one of which is the ability for the SBA to provide a simplified forgiveness form A and it is required by law that it's a one page form. And I have it up here on my computer that I'm looking at right now. It says Paycheck Protection Program PPP Loan Forgiveness Application Form 3580S revised January 19th 2021.
So that was about 5 days ago because today's the 24. So this is all really, really brand new, which is why I'm bringing this to you tonight. So let's start off with there are not just one form, there's not 2 forms, there's 3, there's actually four. But you only have to worry probably about 2, but really about 3. So let's go through them one at a time.
We're going to cover the 3508S form, which is the simplified form that is for any of you who have a PPP loan of less than of 150,000 dollars or less. If it's 150,000 you get to use this forms 150,000 or less, you will use a form 3508S unless. OK, unless you have reductions that you have to deal with.
In other words, if you don't meet the 60 percent test, if you didn't spend 60 percent of your revenues now, actually you will be able to use this form. But you'll have reductions. You have to use some other forms. But as a general rule, if you have 150,000 or less and you meet all the rules, remember the rules, folks, 60 percent of the money had to be spent on payroll. Number two, you have to have the same number of full time equivalent employees when you file for forgiveness or December 31st 2020, as you had before the pandemic started. And you couldn't reduce salaries or hourly wages by more than 25 percent. If you did all of those, if you meet all those rules and we're not going to get into all these rules tonight, we've been talking about them ad infinitum. OK, if you met all those rules, you can use this form. number to. If your loan is over 150,000 dollars, you're going to use a 3508EZ form.
And on the 3508EZ form, you have to do a bunch of calculations to show how much did you use for payroll and non payroll and all these things. And this is generally for people who have over 150,000 dollars loans. If you have over 150,000 dollars alone, you cannot use the 3508S form. You'll file the 3805 EZ form and hopefully you didn't have any reductions in hourly wage. And I don't know any dentist that I've spoken to in the past nine or ten months who have reduced people's salaries, who've said, you know what, we're really not doing well. So you're Susie, you're making 25 bucks an hour now. You're making 22 dollars an hour. I have not heard of one dentist who has done that. So I don't think that is going to be a big issue for most people. And the FTE, the full time equivalent, if your practice was down in 2020 from where it was in 2019 and it was because of recommendations or guidance created by the HHS, the CDC or OSHA. Well go on the OSHA, go on to the CDC website folks. It'll give you all kinds of recommendations they were making about dentistry and how you should, you know, only provide emergency care to your patients.
To me that qualifies. And if you if you met that rule, then you don't have to worry about the FTE rule. Well, we don't have any guidance on that. But let's assume you did. So, you know, if your loans over 150,000 to make it really easy, you're going to use the EZ form. If for some reason, folks, you did you have reductions, you don't meet the FTE test, you didn't spend 60 percent of the money on payroll, which I don't think there'll be hardly anybody who will meet that.
And if you had reductions, you know, if you reduced wages to people of more than 25 percent, then you have to use you have to use the 38508 form, which is very long, 13 pages. You have to do a bunch of calculations. There's a schedule A and you know, if you did that, I again believe I think I might have misspoke earlier. If you have reductions that you have to take into account, I don't believe that you can use this form. I will have to check on that. But for most of you, you're going to use the 3508S form. If you have no reductions, you're going to use the 3508 EZ form if it's over 150,000. And if you have reductions in your forgiveness for whatever reason, these three rules we talked about, then you'll have to use the 3508 form.
OK, so I'm looking at this 3508S and you've got to put down whether it's a first draw or a second draw. For those of you filing it now, it's going to be first draw. You put down your loan number, your SBA PPP loan number and your PPP loan number and your lender PPP number and your PPP loan disbursement date and your phone number and your sister's phone number. No, I'm just kidding. You have to put all those down couple the only calculations that you have to do here, OK, the only numbers you got to do, you have to put down the number of employees you had at the time of loan application. It doesn't say full time. It doesn't say part time. It doesn't say seasonal. You don't have really seasonal employees in a dental office, but the number of employees that you had. So to figure out how many people were working for you on the date, you applied for the loan and put it down and then the employees at the time of forgiveness.
Well, those employees, you know, again, that's going to be the number of people that you had when you filed this form, which is going to be January, February of 2021 And remember, folks, you don't have to file for forgiveness until 10 months after your covered period is over. So we've got time for this. And because of the interaction with the Employee Retention tax Credit, my recommendation is for many of you not to file for forgiveness. Yet you put down the covered period. There's a box that says if you got a loan of more than 2 million bucks, check here. Do not check this box. You know, think of it as fishing. They're fishing because if you check this, they will come audit your loan, so the only other calculations you have to do is you have to put down the amount of your loan that you spent on payroll costs. So you put down that number and then you put down the requested loan forgiveness amount.
And you remember back when we had to reduce the amount of the forgiveness by the EIDL grant of a thousand dollars per person. We don't have to do that anymore as of December 27. So if you got 110,000 dollars PPP loan and you met all the rules and you spent the money on payroll, then put down 110,000 dollars and let's see what happens. So now it says here I'm reading this form by signing below. Now there's a one page form folks. By signing below you make the following representations and certifications and you have to check off on each of these. You have to actually you have to initial or it's going to be probably on a portal with your bank or however they have you mark an X or whatever it is. The borrower has complied with all the requirements in the Paycheck Protection Program rules, interim final rules, guidance issued by SBA through the date of this application, including user eligible uses of the loan proceeds, the amount of the proceeds that have to be used for payroll costs, that calculation and documentation of the borrower's revenue reduction if applicable, and the amount of the loan forgiveness amount.
So I want to be really clear here, folks. Many of you are going to look at this form and go, oh, this is great. All this stuff Art's been talking about as far as reductions and everything, I don't have to worry about that anymore. I can just sign this form and they're going to leave me alone. And that's not exactly what how this is going to work. Folks, you do have to read you and I'm going to read you something a little later on the form. It says here. Also, following submission of this forgiveness application, the borrower must retain all records necessary to prove compliance with Paycheck Protection Program rules for 4 years for employment records and 3 years for all other records, other records being your rent, utilities, interest and some of the new categories which I'm going to come up with here shortly.
OK, and you're going to follow the rules and then you're going to put down some demographic information, which I believe is optional. And basically they give you then the instructions, as you know, you apply for forgiveness, 150,000 dollars or it requires fewer calculations. However, SBA may request information and documents to review these calculations as part of its loan review or audit processes, complete the form in accordance with the instructions. And here we go. So they give you all the instructions.
I do want to look at this one particular they talked about. They give you the definition of payroll costs. And remember, folks, your payroll costs are going to be for you, the owner. If you made more than 100,000 dollars, basically 20,833 dollars for you and the maximum for 24 weeks for an employee for 100,000 dollars or less for any I'm sorry, an employee made more than 100,000 dollars. It's going to be a maximum of 46,154. And they talk about payroll plus employee benefits which and by the way, they did add for forgiveness purposes, employer contributions for employee group health, life, disability, vision or dental insurance, including employer contribution to a self-insured employer sponsored group health plan, but not including any pretax or after tax contributions by employees. OK, and when we get to talking about the different food groups of proprietors, et cetera, this will become a little more clear. You also get to take the employer retirement plan contributions as part of your payroll costs. And this is an important point that you get.
Remember, especially when you apply for the round two money, you are going to be able to apply. And I'm going to go through this in a second for two and a half to two and a half months of payroll costs based on either 2019 or 2020. You also get to add basically to payroll costs for your employees the amount of your retirement contributions. Here's the important thing you need to remember, I believe the way this is going to work. So let's say that when you apply for a PPP loan round two and you include in their 30,000 dollars of employee pension contribution, you can't wait until 2022 when your CPA or your TPA Third Party Administrator says this is how much you have to fund. You need to fund it during the covered period. We're hearing of some banks that are disallowing first round loan amounts that did not get funded.
So if you get 30,000 dollars, say, on February 15th for the first round, second round of the PPP, and that is intended for employee pension costs, you call your administrator and double check and then go ahead and fund that money as soon as you get it, put it in the pension plan, because if you don't, that will not be that will not be potentially forgiven.
And this may not come into play as much for most of you because of the fact that your payroll costs are going to be probably significantly higher than your loan again. But just to be safe, that's what I'm telling my clients to do. So that's your payroll costs. You compute for this 3508S. And then basically you put down your forgiveness amount, which is in most of your cases is going to be your loan. Now I want to mention another thing that got added by the new stimulus bill. So you remember we get to spend 60 percent of the money on payroll costs and then we get to spend 40 percent of the money on everything else while everything else is rent, utilities and interest.
Well, again, as I mentioned a couple of weeks ago, and I will mention again now when and this is why we want you to hold off on filing for forgiveness, some of the wages that you paid during the cover period. If you meet one of the Employee Retention Tax Credit rules, we may very well want to use some or much of those wages to apply for an Employee Retention Tax Credit, which is as much as 5,000 dollars for every employee that you had for 2020 when you qualify. I'm going to get to that a little bit. So this is why it's important that we may only want to put down 60 percent of your payroll costs for forgiveness this time. And that leaves me 40 percent because I wanted to leave the rest of the wages for the Employee Retention Tax Credit. Again, I'll get to that. That's my teaser again.
So. What can we add in. We have all these new categories of costs that we can use for the other 40 percent, so covered what we have mortgage, we have rent, we have utilities, OK? We have covered operation expenditures can now be used as a forgivable expense for the PPP, round one and round two. So covered operation expenses, payments for any business, software or cloud computing service that facilitates business operations, product or service delivery, the processing payment or tracking of payroll expenses, human resources, sales and billing functions, or accounting of tracking of supplies, inventory records and expenses. In other words, any additional computer expenses that you had to put into your system because of this pandemic.
Covered property damage costs. Unless somebody vandalized or looted your office during a riot that you might have seen on TV probably doesn't qualify. Covered supplier cost. I'm not sure that's going to qualify. Expenditures made to a supplier of goods for the supply of goods that are essential to the operations of the borrower at the time at which the expenditure is made. And they get into that.
But the one that I think that is really going to apply to many of you is covered worker protection expenditures. These are operating or capital expenditures that facilitate the adoption of a business activity of an entity to comply with the requirements established or guidance issued by the Department of Health and Human Services, Center for Disease Control or the Occupational Safety and Health Administration, or any equivalent requirements established or guidance issued by state or local government from March 1, ending on the date in which the national emergency declared by the President with respect to the coronavirus disease expires.
Now, this is relating to maintenance standards for sanitation, social distancing or any other worker or customer safety requirements relating to COVID-19. This is all your PPE folks. This is your plexiglass that you put up. These are all the air conditioning, the HVAC equipment that you purchased to purify the air and your dental office. These are all going to qualify now for round one and round two.
So this is basically how this works. You have to follow all the rules and you have to make sure that you have, you know, past all these rules we've talked about. You can't just sign the form and you're done. If your loan is under 50,000 dollars, folks, you only have to justify that you used 60 percent for payroll costs. You don't have to worry about full time equivalent employee and you don't have to worry about reduction of 25 percent, things like that.
So that's what this basic form works. And then they talk about, you know, what you're going to have to do with your bank and all this stuff. So that's forgiveness. Now what I want to do. So for forgiveness, I think before I get into some of the individual types of entities and how you apply for the new loan, I do want to bring up this Employee Retention Tax Credit. I spoke about it a couple of weeks ago on the program, but we might have a little more information on this now. Not a ton. We're still waiting, but I want you to be aware of it and I want you to hear this is really important.
So as part of the CARES Act, they created the Employee Retention Tax Credit, and that tax credit is basically going to give you a refund of your federal employer payroll taxes and then some up to 10,000 dollars times 50 percent. So for every employee in every quarter or period of time that you qualify, you could get as much as 5,000 dollars in 2020 for this.
Well, the reason we never spoke about this is because when the CARES Act passed, if you had taken out a PPP loan, you couldn't take advantage of this credit. And the PPP loan dwarfed the ERTC hands down. It was a much better deal. Well, that changed on December 27. On December 27 what happened was, was that they passed the stimulus and now anybody retroactive back to March 12th who had a PPP loan could also qualify for an Employee Retention Tax Credit.
Now we are reading and we are looking and listening. How do you qualify for this credit? Because what we're going to want to do, folks, and this is why you don't want to file for forgiveness yet. You don't want to put down 100 percent of your payroll costs on your forgiveness application, because if you do, you can't double dip. You can't use the same wages for PPP as you did for the ERTC. If you take the RTC but you put all your wages for the whole period of time down, then you won't get the ERTC. So here's what we want to do.
We want, here's how you qualify for the Employee Retention Tax Credit. Number one, if any of you had a greater than 50, a 50 percent or greater than reduction in your gross revenues for any calendar quarter in 2020. Now, for all of you, more than likely, that's only going to be quarter number two. But the way the rules are written, if it's under, if it's quarter number two, you're also going to get quarter number three, because you can keep going every single quarter until your revenues reduction for the next quarter is 20 percent or less.
So, for example, if my revenue reduction was 57 percent in the second quarter of 2020 over 2019, but then in the third quarter, my revenue came back strong and it wasn't a reduction at all it was a three percent reduction. You'll get the credit for the second quarter and you'll get the credit for the third quarter. So what we want to do, folks, is look at your covered period. We want to see what the wages were for your covered period. Maybe the wages were 300,000 dollars for the covered period for 24 weeks. I'm just going to pull a number out of the air and maybe you got 100,000 thousand dollars PPP loan. So you only need 60,000 dollars, 60 percent of 100,000 to meet the 60 percent rule for full forgiveness.
So if I paid 300,000 for my covered period and I only need 60,000 for the PPP, that gives me another 240,000 dollars of wages that we can use to go after this credit. It's 5,000 dollars for every employee. OK, so if you had a 50 percent reduction in a quarter, you qualify.
Here's the big one. If you did not have a 50 percent reduction, then you have to figure out was your office required to be shut down by a government order. This gets dicey, folks, OK? There was no federal government order, to my knowledge, that required dental offices to shut down. There were recommendations from the CDC. There were recommendations from the ADA. There were recommendations from state agencies, state dental societies.
But let me go back to the federal level. Nothing on the federal level. Some states have them. Some states don't. I literally spent the last hour and I've spent several hours on the Internet looking at California, which is where I'm from. I could not find anything. And folks, if you've got something, please send it to me. I'm not an attorney and we're going to be consulting with some attorneys on this. Didn't see anything for California as a required shutdown.
Now, some counties or cities might have required you, for example, San Francisco required that said that essential services are dental offices providing emergency care. Well, that qualifies you for the ERTC. So these are things that we are investigating. And I will report back to you shortly once we find out. But what you want to do is if you don't have the 50 percent reduction, check with your attorney, check with your state dental board. I am pretty sure that the state of New Mexico was shut down for a while. There are other states that were shut down. It's hit and miss. And it's not just a state, it's a state. Probably the health department, your county or your city.
If you can find any agency that shut you down, you qualify for that period, not for a quarter or two quarters. If they shut you down from March 19th until June 1st, that's when you qualify. And that's the deal. And it could be a lot of money. So that's something you want to look at it, talk to your CPA, talk to a member of the Academy. We will help you with all of this. OK, and I know there's a lot of information. And if you haven't figured it out, folks, I talk fast. I talk fast. That's just the way it goes.
But anyway, now I'm looking at guidance from the 19th of January, 5 days ago. And this is from the SBA and this is on the SBA website, if you want to go. What I do is I Google Treasury, Treasury.gov PPP. It will bring you to the website for the Paycheck Protection Program with the SBA and it will actually give you all the guidance if you are having trouble with insomnia or sleeping or whatever. Oh gosh, just read some of the stuff. It'll knock you right out.
So if you look under for borrowers, the for borrowers section, you will see a form as of January 19, 2021 and as of January 19 2021, they have the three new forms, the 3508S the 3508EZ and the 3508 as well as information on if you never taken a PPP loan, which we're not getting into tonight, your first draw or if you didn't get enough money the first time, you want to go back for some more, you can do that. But that's not what we're talking about tonight.
This document that I'm looking at right now is. Second Draw Paycheck Protection Program PPP loans, how to calculate revenue reduction and maximum loan amount, including what documentation to provide. So remember, round two of the PPP is out. We are recommending that our clients apply sooner rather than later. This money, I think, is going to go fast. Virtually every one of my clients is pretty much going to apply for it.
What are the rules? Real quick, the biggest rule is that you had to have used you had to have applied for a round one to get a round two. If you didn't apply for round one then you apply for as a new person applying and you apply using a different form. So you have to have less than 300 employees. That's pretty much a no brainer for most of the dentists that we're talking to. Here's the big rule you had. Well, two rules. You had to have used all of your round one money for its qualifying purposes. And the big rule is you have to show a greater than 25 percent reduction in any calendar quarter for 2020.
Most of you, if you were shut down like 90 percent of the dental offices in America were shut down for everything except emergency procedures from March the 6th, the week of March 16th, until anywhere from May, I've heard as early as dental offices opening May 7th to the 15th to as late as June 15th. So many of you, most of you were shutdown 8 to 12 weeks. Using the new math, your revenues are probably down by 25 percent. Remember, that does not include your EIDL grant or your PPP loan. You don't have to count that in the revenues for 2020 and all that stuff. So if you qualify, if you qualify for this loan, then you can apply, you can definitely apply.
So you have the 25 percent reduction. And let's go down to the quick because I'm going to go right to this form here. Um, you know, and this, this form by the way, will give you all the rules of how do you calculate the 25 percent. It's pretty straightforward. You do it off of your financial statements, look at your tax return. I mean, look at your financial statements quarter to quarter our Eide Bailly dental specific financial statements. We have some subsidiary schedules. And I can go look at April, May and June of 19 and April, May and June of 20. And we can tell pretty easily whether there's a 25 percent reduction.
OK, so what I'm going to do for the rest of the show folks, is I'm going to make this I'm going to try and make this easy for you. When they first came out with round one, we were all struggling, because remember that the CARES Act was passed on May 20, I'm sorry, March 27th, President Trump basically told Secretary of the Treasury, Mnuchin, you will have this open by it was either April 4th or April 5th. He gave them a week from the day that the law was passed to get the program open. I don't know how to describe I mean, imagine building the Sears Tower in Chicago in a week. That's what they tried to have them do.
349 billion dollars in this program that they didn't even have a portal set up for. Well, they've got about 10 months of experience now with all this. So what they did is they put this guidance out. They said, all right, here's what we're going to do. We're going to show you based on the different types of entities, how do you do the calculations? Well, I'm going to tell you right now, we're going to go through a sole proprietor, independent contractor, no employees. We're going to go through a sole proprietor with employees, we're going to go through a partnership in an S Corp.
So go on to this form, take a look at the guidance. And just if you're going to do the calculations yourself, just follow this form and it's on Treasury.gov. And again, the name of the form is, go back up to the top Second Draw Paycheck Protection Program, PPP loans, how to calculate revenue reduction and maximum loan amounts, including what documentation to provide. And it's an 18 page document. You want to go to page six. That's where this starts.
So question one, and I'm not going to read this verbatim to you. I'm going to paraphrase this. So let's start off with question one. I am self-employed and have and let me I'm looking at two, question one, I am self-employed and have no employees. How do I calculate my maximum Second Draw PPP loan amount? All right. And again, note that my PPP loan forgiveness amounts going to depend in part on the total spent during the covered period. Once I get the money. Answer, the following methodology should be used to calculate this maximum loan amount. You have to be your principal place of residences has to be in the United States, you are self-employed, no employees, these are my independent contractor dentists who are getting paid on a 1099 and who are filing a schedule C.
If you're an independent contractor and your filing in your S CORP, this is not you. This is my I get a 1099 I file a Schedule C on my form 1040. Step one. Go find your 2019 IRS form 1040 schedule C line 31 net profit amount. OK, if this amount is over 100,000, reduce it to 100,000 dollars. So if you made more than 100,000 2019.
By the way folks, for all these calculations, you can use the greater of 2019 or 2020. Many of you have not done your 2020, virtually all of you have not done your 2020 personal return. In fact, not virtually all of you, because the IRS will not be accepting 1040 forms until February 12th because they've got to get their software updated for the new laws. So you have to fill out a Schedule C for 2020. Well most of you probably made less money in 2020. Maybe you didn't. I don't know.
But if 2019 is bigger, you got to schedule C line 31 your net profit. OK, you basically, if the amount to zero or less for either one of these, you don't get a PPP loan. Sorry folks, you had to make money in 2019 or 2020. Maybe you didn't make money in 2019. Maybe you made money in 2020 I don't know. And by the way you have to be in business as of February 15th 2020 to get this. And there's all kinds of rules which I'm not going to get into which are in these documents. If you have a special situation, maybe you were only in business for two months of 2019 or one month of 2019. They tell you how to do the calculations.
So let's say that my, you know, let's say that my income was 100,000 dollars. That was my Schedule C. Calculate the average monthly net profit. That would be 100,000 divided by 12 is 8,333. We'll cut out the cents and take that by 2.5 and that's 20,833. That's the maximum that you can take. The maximum for that loan for you is going to because it's based on a 100,000 dollars is going to be 20,833. If your net profit from Schedule C as a proprietor was 50,000 dollars the highest amount, then you can apply for half of that. That's 10,416 dollars. That's how that works.
All right. Question two on this form. I'm a self-employed person and I have employees, so I'm filing a Schedule C, not a partnership, not an LLC, not a corporation. I'm a sole proprietor. How do I calculate my maximum? And remember, the most you can get is 2 million. Most of you are not going to get anywhere near that. So how do we do this? OK, number one, we do the same thing that we did before. Rinse, repeat. Right. So go to your 2019 or 2020 whichever is bigger and if it's against 2020, you're probably going to have to fill out your Schedule C and you've got your information from 2020 folks. You just have to fill it out and you submit it what you're going to put on your tax return. But let's say again we're using 2019 schedule C, my net profit. If it's over 100,000 use 100,000.
On top of that you're going to add your employees wages. So I start let's say you made 220,000 schedule C. OK, I'm going. So I'm going to start with 100,000 for me. I'm a sole proprietor, I've got a dental office, I do you know, 600,000 a year and I've got X number of employees. So I start with my 100,000 from 2019 then I go to my 2019 IRS form 941 line 5C column one from each quarter. And that's how that's your starting point for your employee. So if you had employee wages of I don't know, 120,000 dollars, you know that's going to be that number 120 We add it to your hundred of net profit plus any pretax employee contributions for health insurance like a flexible spending account, cafeteria plan, 125 plan, things like that. OK, and again, we're going to we're not going we're only going to include up to anybody, including your employees who made over 100,000 dollars.
Then we get to add your 2019 employer contributions for employee, not you, employee group health, life, disability, vision and dental insurance which is the portion of that that's on Schedule C, line fourteen for insurance. So don't take the whole insurance number, just take the portion that represents your employees, OK. Your health insurance you don't get.
2019 employer contribution to employee retirement plans this is the employee portion. If you have a simple IRA, that's the three percent that you put in for everybody, not you. You don't get it. Sole proprietors and partners don't get this, OK? So you get your wages, you get your Schedule C up to 100,000. You get your employees wages, you get your employer contribution for your employees group health, life, disability and dental insurance. And you get the employer contribution to the retirement plan for the employees, not for you. And on top of that, you get your 2019 employers, state and local employment taxes. So in California, that state unemployment SUTA, other states are named differently. It's not a big number, but you get that.
You do not get your federal the social, you don't get the Social Security taxes that you paid on your employees wages. The 6.2 percent. You don't get the Medicare, you don't get the federal unemployment. You don't get that. You get the state, you don't get the federal. Add all that up. Calculate the average monthly payroll. All right. Amount. Take it divided by, take the number divide it by 12 times 2.5. And that's the amount of the loan you're applying for. So that's the Schedule C, and you'll probably have to provide that information to the lender on the on whatever they require in the portal. And it even says if you're using 2020 payroll costs and have not yet completed a 2020 return, fill it out and complete the value, compute the value so the forms are out, you can use them.
OK, let's get to, I don't think we have any self-employed farmers or ranchers on this podcast that I am going to talk to if you are one. There's got to be CPAs out there that specialize in farming and ranching. Uh, not me. I specialize in dentistry, as do our members of the Academy of Dental CPAs. So let's go to question number three. I'm sorry, question number four. So on this form, you want to look at question one, question two, question four, and question five. Question four how do partnerships and that includes LLCs apply for second draw PPP loans and how is the maximum amount calculated up to two million. Should partner self employment income be included on the business entity level second draw PPP loan application or on a SEP separate application.
This was a big confusion item, a big item of confusion when everybody was applying the a lot of people apply for the loans and they didn't put their owners K1 amounts in there and they got, you know, they were shorted. And this may be why you want to go back for some more money again we're not going to talk about that tonight. So the answer is going to be you are going to include your partner's income in this. So I'm going to walk you through it here.
So you're going to start by figuring the payroll costs. So, number one, again, just assuming that you use 2019 and not 2020, and if I haven't mentioned it, you have to March 31st to do this folks. Now if they run out of money, if I were a betting man, they're going to add some more to it, but no guarantee. So you have till March 31st. So most of you may not be filing your tax returns. The partnership returns are due by March 15th. You may file it. You may not, we'll see. But let's just assume we're using 2019 You use the 2019 form K1, schedule K1 from IRS, form 1065 and you use, this is important, net earnings from self employment of individual US based general partners that are subject to self employment tax. OK, that is on line fourteen. It's at the bottom of the K1 form. It'll tell you net earnings from self employment tax, your CPA can tell you exactly what that number is and then you're going to multiply that number by .9235. And if it's over 100,000 a quarter for each partner. So if there's three partners and everybody, you know, each of the partners made 300,000 dollars, you're going to put down 100,000 for each of you. See, your starting point is going to be 300,000 per partner, OK?
And it says, compute the net earnings from self employment of individual partners subject to self employment tax. It's actually a box. It's your box 14A for folks for I didn't remember which letter was 14A of IRS form 1065. Subtract any Section 179 expense you took. Most of you didn't take 179 because you probably took bonus depreciation. But if you did take 179, subtract that, subtract any unreimbursed partnership expenses and any, well you don't have depletions. So any unreimbursed partnership expenses. That would be for example if you had a car as a partner and you took that as a separate line item on your personal return, that's called a reimbursed partnership expense. So you figure out your number. For most of you, it's going to be 100,000 dollars.
Same concept as the proprietorship. I'm going to take on the proprietorship. I'm going to take 100,000 of the Schedule C here we're taken up to 100,000 of the K1. And again, if you guys need help, that's what your CPA needs to help you with. And again, if your CPA says, I don't know, www.ADCPA.org or awiederman@EideBailly.com and we got this covered for you.
2019 now we so we got your say it's 100,000. Same concept as the schedule C gross wages in tips paid to the employees. Same exact calculation as the proprietorship. 2019 IRS form 941 remember this four of them taxable Medicare wages in tips line 5C column one from each quarter plus pretax employee contributions minus any amount paid to individuals in excess of 100,000. So you had 200, you had 300,000 dollars in wages for employees and you have three partners. You have two partners. Let's just say two partners. 200,000 dollars. 100,000 each for the partners. Plus say let's just say 300,000 for employees. That's 500,000 dollars is my base number. Add the 2019 employer contribution for employees, for group health, life, disability, vision and dental insurance, not for the partner. Partners in a partnership don't get health insurance or retirement. And that's the portion of IRS form 1065 line 19 again not the whole thing. And then you're 2019 employer contributions to employees but not partner.
So remember that if you're a partnership and you've got a profit sharing plan or a defined benefit plan or a simple IRA, those contributions are going to go on page one of your 1040. You don't get them for this calculation. That's what the law says. Plus, you get your state and local taxes. So say we end up with 500,000 for wages and then let's just say 50,000 dollars for pension contribution and all these things. And we come to 530,000 dollars. So I take 530,000 dollars divided by 12 times 2.5. And let's try to get 525,000 dollars times 2.5. Let's try one more time. 525,000 dollars divided by 12 equals times 2.5 Equals 109,375. That's the loan that you're applying for. That's if you're a partnership. All right.
Let's go to the last one, OK? And it says the partnerships before I do that, the partnerships 2019 IRS form 1065, including K1, has to be provided to substantiate the apply for Second Draw PPP loan amount. If you have employees you'll have to provide this. The bank will tell you what they need. Work with your CPA, work with your office manager, whoever's handling this. All right.
Question five, and this is going to be a lot of you. How is the maximum Second Draw PPP loan amount calculated for S corporations and C corporations? Because in this case, it's pretty much well, it's going to be a little different here. I'll explain that. All right. So for S corporations and C corporations. 2019 gross. Because, OK, so remember, if you're a corporation, you don't get a K1, you don't get a schedule C, you get a W-2 form, folks. So 2019 gross wages and tips paid to your employees. Well that includes you. You are the owner. If you have a million dollar practice and you took a salary of 200,000 dollars that's included in there, but it's only included up to 100,000 per employee.
So you look at all your W-2s, anybody over 100,000, you limit to 100,000 and anybody under 100,000, you put in that amount of money, OK? And then you add the same things we've been talking about. All right. With the partnership and the proprietorships, the 941 taxable wages, line five C column one pretax employee contributions for health insurance or other fringe benefits, again, minus any wages over 100,000 dollars plus again. Now this is where it's a little well, it's not a little different for the S and the C it's different.
For the S corporation, employer group health, life, disability, vision and dental insurance. The S corporation doctor owner shareholder doesn't get it because technically you're supposed to take that amount, call it in your W-2 and it's already included in your W-2. So you're not going to get it. For the C Corp shareholder, you are going to get it because it is not included in your W-2. And I believe you get it for a C Corp shareholder.
OK, now for employer retirement. Again, you only, now you are going to get that for the S corporation because let's assume that the not assume the maximum amount for a profit-sharing plan is about 57,000 dollars. If you have a 401k and you're basically taking out let's just round the number to 20,000 dollars, you have 37,000 dollars that's going to go on there. So you are going to get that contribution. So for S corporation shareholders, you're going to get the pension amount and you're going, but you're not going to get your health insurance amount, but you're going to get your state and local taxes. So I would go through this form if you're doing this on your own, I have sent this to all of our partners and managers and our dental group to have all of this. So you come up with your number for the S corporation. So again, it's you all the wages limited to 100,000, including yours, plus the health insurance, not including yours, plus the pension which will include yours, which is on form 1120s line 17 and 1120 line 23. According to this document I have a cross check to make sure that the right lines but I'm sure they do. Plus the state tax.
You take that number again, same calculation. Let's say it's comes to be 700,000 dollars for all of this. OK, divided by 12 months times 2.5 And that's 145,833. That is the amount of your PPP loan. So this is a really good document, folks. And again, I usually don't ramble like this. I do apologize if I've kind of rambled on a little bit threw a lot of stuff out. You go to that document on the Treasury's website. If you're going to do this calculation on your own. It's pretty straightforward. If you need help again, your CPA should be able to help you with this. If your CPA again, can't help you with us, give us one of us a call. And that's how you apply.
So I would apply sooner rather than later. There is no requirement that you have to file for your first round forgiveness before you apply for round two. You do not have to do that. So, folks, this is free money. You still have to be under the same rules as we were under before, which is you have to spend 60 percent of the money on payroll. You're going to have this full time equivalent role.
Now, remember, I told you that if you all mostly got to get out of jail free card for the full time equivalent rule because most all of you had less revenues in 2020 than you did in 2019 because of the pandemic. And they have this special rule that was passed. As part of the rule that expanded from 8 weeks to 24 weeks back in June, they had that. Well, we don't have shut downs anymore. We don't have any kind of edicts.
The bottom line is, folks, is probably you've got to count the number of full time equivalent employees you have today and you've got to count the number of full time equivalent employees that you have when you file for forgiveness, which is, again, you have anywhere between 8 and 24 weeks.
So you could you know, you could say, you know, maybe after 15 weeks you had to shut down for whatever reason, OK, maybe, God forbid half of your team got the virus or something and you have to shut down. You could call a 15 week covered period and meet all the rules after 15 weeks. These are things that you have to be thinking about and we will be waiting for some additional guidance on round two. OK, so you're going to get this money, you're going to spend it on payroll. We're probably going to recommend 24 weeks. And then at the end you're going to use the same forgiveness forms that we talked about, either 3508S 3805 EZ or in some rare cases 3508. And you're going to apply for PPP forgiveness on round two, probably sometime later this year or maybe even into 2022.
So I hope this has been helpful. One thing I do want to go back on, the Employee Retention Tax Credit is that you also have it for 20 for the first two quarters of 2021 and for 2021 it is 7,000 a quarter and you only have to show a 20 percent reduction in revenue.
So, you know, we've seen what's happened, folks, in November, December and January. Uh, sadly, sadly, sadly, the hospitalizations are up. The cases are up. I think we just passed. I think it's 25 million cases of COVID-19 in this country. We just passed that. We just passed. I think we're at 415,000 people have lost their lives over this.
So it's real and it's happening. And in November, December, January, you know what, they told everybody, stay home. Don't go visit your loved ones for Thanksgiving. Don't go visit your loved ones for Christmas. Don't go to New Year's parties. Don't celebrate national championships or playoff championships or basketball team. Don't do any of this. Well, uh, not everybody listened to that. And we have a lot of people and I'm hearing here in California at least, that some of my doctors are getting more openings and they've got people who are canceling. So we may have 20 percent reductions.
If you have this, then we've got plenty of time to play with the employee retention credit is the PPP get you forgiveness and get you the credit, which is now going to be up to 14,000 dollars, potentially, up to 14,000 dollars for every employee that works for you. So if you have 30 employees, that's 420,000 dollars. And folks, you file these returns, these amended payroll returns, you get three years to file amended payroll returns. And there's even a mechanism, if you know you're going to get this, you can even ask for advance payment of these. We're not going to get into this tonight.
OK, so, you know, you have all of this. You spend 60 percent of the money on payroll. You use the rest for the ERTC. It's only for the first two quarters, folks. We could be talking tens of thousands of dollars in your pocket. We are waiting for IRS guidance. I hope I have good news for you when that guidance comes out and we'll see what happens.
So bottom line, OK, hold off on filing for your forgiveness unless you absolutely have to. Let's see where this Employee Retention Tax Credit comes out. I will tell you folks that we at the ADCPA and we at Eide Bailly are already developing mathematical spreadsheets to try and figure out the best mix between what to file for PPP and what to file for the Employee Retention Tax Credit. If you meet the rules. We're already working on it. We don't have all the tools yet from the IRS, but we're working on. So we are going to be at Eide Bailly and at the ADCPA. I guarantee you we're going to be in the cutting edge of all of the stuff. So please follow us. If I end up doing any webinars on this, I will let you know.
And again, the big takeaways from today are the forgiveness forms are out. If you want to file and you don't apply for the, you don't qualify for the Employee Retention Tax Credit. You can go ahead and file for forgiveness and get it over with if you meet the rules. If you think you might apply for this tax credit, you might be a candidate for it. By all means, hold off. Let's figure out what's best and file this forgiveness form correctly and make sure that we follow the IRS rules, whatever they come out with.
If you are going to be applying for a PPP round two loan, I would suggest you do it sooner rather than later. Again, 25 percent reduction in your in your gross revenues for any calendar quarter in 2020 versus 2019. And you had to use the money from round one and all this kind of stuff. I would apply as soon as possible because if you know everything is going well, hopefully knock wood and you know, God willing we'll have viruses that are distributed, we'll have herd immunity by I don't know, summer time I would hope maybe a little later and we get back to as much of a normalcy as we're going to see, and put this horrible experience behind us.
You know, folks, this is, again, free money. And if we can get this Employee Retention Tax Credit to you, wow, this could be huge, but it takes a little bit of planning and a little bit sophistication, and that's what we got.
So. All right. Again, I'm exhausted. I am about ready to go take a nap or something like that. I want to tell you that in future podcasts, we are going to be covering all kinds of different cool topics. We're going to be covering, we've got some fraud and embezzlement stuff coming out. We've got cost segregation coming out. I've got my good friend Clint Johnson is coming back. We're going to be talking about an update on how do you deal with PPOs. So we have PPP, we have PPE, and now we have PPOs. And, you know, how do you work with them? How do we reduce our dependence on them? And how do we get the best bang for our buck if we are contracting with PPOs?
We have another special podcast coming up in February, which, again, I'm not going to jinx it until I have it in the can. And I'll let you know about that. Well, with that, folks, I will again, thank you for the value of your time, the privilege of being able to present this information, present this information to you. We have we're getting thousands and thousands of people who listen to this podcast. And I am honored and humbled by it. I very much hope that the information has been helpful to you. I've been fortunate enough to get some emails from many of you who have said, oh, my goodness, if I didn't hear this stuff, I wouldn't know where to start. That's great. This is my legacy, folks. This is what I'm leaving as part of my contribution to my profession. 36 years in serving the dental profession. And I'm very, very proud to do so. And I am very, very appreciative of all of you who listen, please tell your friends about the podcast.
If you need to get a hold of me in my office in Tustin, I'm at area code 657.279.3243. I'm also at awiederman@EideBailly.com. And I think that is about going to do it for this episode of The Art of Dental Finance and Management with Art Wiederman, CPA. Remember my five words, folks? Failure is not an option. God bless every one of you. Please stay safe. We're so close, hopefully to the end of this. Don't take any unnecessary chances and stay healthy, stay safe, stay sane. And this is Art Wiederman for the Art of Dental Finance and Management with Art Wiederman, CPA. Have a wonderful week and we'll see you later. Bye bye.