In the current uncertain environment, many small companies are relying upon government loans and grants that became available through the economic stimulus (CARES) act. One potentially helpful loan for small businesses is the Payroll Protection Program (PPP).
According to the Small Business Administration, the PPP “is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll.” A big appeal of this loan is the potential for not having to repay the full amount. The SBA “will forgive loans if all employees are kept on the payroll for 24 weeks and the money is used for payroll, rent, mortgage interest, or utilities.”
This all sounds great, but getting through the loan application is never as easy as we wish, especially regarding some of the necessary forms. You may have found yourself deep in the nitty gritty of payroll reporting when applying for the PPP loan, and the different forms can get confusing. What is a Form 940? 941? What is the difference, and which should I rely on for my PPP calculations? Even if you have an outsourced company handling your payroll and all the required taxes and witholdings, you are responsible for your PPP application and need to figure out how and which forms to include with your application.
To help understand the differences between these forms, here’s a quick summary.
940 – Annual IRS Federal Unemployment Tax form.
941 – Quarterly Federal Tax Return – used to report, four times per year, the businesses total wages and FICA taxes. FICA taxes are social security and Medicare.
944 – Annual Federal Tax Return, same as a 941 but only used by very small businesses that do not report quarterly.
(943 – Agriculture withholding)
The majority of businesses will include the 940 and the 941 with their PPP application. The PPP application is easier if the 2019 calendar year is used to calculate annual payroll since the related form 940 will have been filed.
Recently the SBA guidelines changed, and companies who received the PPP funding can still use the Employee Tax Credit. When you (or your accounting team) reconciles bank statements, be sure to account for the 941 taxes that were not withdrawn from your bank account. My advice is to book them as a liability.