PPP FAQs - Loan Forgiveness
If you've received a Paycheck Program Protection (PPP) Loan, you need to ensure you're using the funds for eligible expenses and meeting other requirements in order to maximize your loan forgiveness amount. To achieve full loan forgiveness, you need to spend at least 60% of your PPP funds on allowable payroll costs spent during your covered period. Reach out to your lender prior to completing the PPP Loan Forgiveness Application to ensure they are ready to accept and process the forms.
PPP Loan Forgiveness FAQs
NOTE: The following information has been updated per revised US Treasury & SBA PPP FAQs posted on August 4, 2020.
- When does the PPP covered period begin?
- Can we delay the first disbursement?
- How is the PPP forgiveness amount calculated?
- Which payroll taxes are included in payroll costs?
- Are there any wages excluded from payroll costs?
- Do independent contractors count as employees for purposes of PPP loan forgiveness?
- How can I use my PPP loan?
- Are bonuses and hazard pay considered eligible payroll costs for forgiveness?
- What happens if PPP loan funds are misused?
- How do I get my PPP loan forgiven?
- What are the terms of the PPP loan amount that is not forgiven?
- Does PPP loan forgiveness count as taxable income?
- How is employee headcount or FTE calculated for PPP loan forgiveness?
- How does salary/hourly wage reduction factor into forgiveness?
- What happens if after the covered period and prior to June 30, 2020, we still cannot go back to work and thus must terminate all employees?
- What requirement updates were included in the PPP Loan Forgiveness Application released on May 15?
- What are the primary changes per the PPP Flexibility Act?
- Can ASAP Accounting & Payroll assist me with my PPP Loan Forgiveness Application?
- PPP Loan Guidance Documents & Forgiveness Applications
- PPP Forgiveness Webinars
When does the PPP loan covered period begin?
The PPP covered period begins on the first day you receive funds from the lender (aka loan disbursement or origination date). In general, you must spend your loan funds on allowable costs that are incurred or paid during the covered period to qualify for forgiveness.
The PPP Flexibility Act signed on June 5 extends the covered period from 8 to 24 weeks, or through December 31, 2020, whichever ends earlier. If you had your PPP loan prior to June 5, you may opt to use the original 8-week covered period instead.
If you have a biweekly (or more frequent) payroll schedule, you may calculate eligible payroll costs using an "Alternative Payroll Covered Period" that begins on the first day of your first pay period following the day you received your PPP loan funds.
Can we delay the first disbursement?
It may be possible to delay disbursement up to ten days after loan approval, but we recommend discussing with your lender immediately if you want to delay funding. Treasury specifically says, "The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval."
How is the PPP loan forgiveness amount calculated?
The loan forgiveness amount is proportionate to the number of employees and wage amounts during the covered period. You may also owe money if you use loan funds for anything other than payroll costs, mortgage and loan interest, rent, and utilities during the covered period. And if the loan amount is more than allowable expenses, that portion will not be forgiven.
Your forgiveness amount may be reduced if you do not restore full-time equivalent (FTE) employee headcount or salary/wage levels based on one of the following reference periods: Feb. 15, 2019 - June 30, 2019 or Jan. 1, 2020 - Feb. 29, 2020; seasonal employers may opt to use any consecutive 12-week period between May 1, 2019 - Sept. 15, 2019.
- Number of Staff: Your loan forgiveness will be reduced if you decrease your FTE headcount.
- Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee who made less than $100,000 annualized in 2019.
- Rehiring: You have until December 31, 2020 to restore your FTE and salary/wage levels for any changes made between February 15, 2020 and April 26, 2020.
- You may be exempt from the FTE and salary/wage level forgiveness requirement if you able document inability to rehire individuals or hire qualified replacements, or inability to return to pre-pandemic business activity due to federal public health requirements or guidance from March 1, 2020 to December 31, 2020.
Which payroll taxes are included in payroll costs?
Only state unemployment insurance and local employer taxes, such as Denver OPT, are included as allowable payroll costs. Using a "nontraditional" definition of payroll costs per the CARES Act, PPP loan and forgiveness amounts are calculated on a gross basis and exclude FICA (Social Security and Medicare), FUTA, and federal income tax withholding. We have developed custom reports to help our clients calculate these payroll costs.
Specifically, the definition of payroll costs under the CARES Act excludes "taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code of 1986 during the covered period."
Source: Treasury PPP Loan FAQs
Are there any wages excluded from payroll costs?
Yes. You may not use your PPP loan on the following payroll expenses: compensation to workers whose primary residence is outside the U.S.; FFCRA emergency paid sick or family leave; and compensation to individuals in excess of $100K on an annualized basis, which is capped at $15,385 per individual during the covered period.
Do independent contractors count as employees for purposes of PPP Loan forgiveness?
No, independent contractors have the ability to apply for a PPP Loan on their own, so they do not count for purposes of a borrower's PPP Loan forgiveness.
How can I use my PPP loan?
You need to spend at least 60% of your PPP funds on allowable payroll costs during the covered period to meet full forgiveness requirements. Payroll costs are defined in the Interim Final Rule, 2.f as gross wages, employer health premium costs, employer retirement match amounts, and state/local employer taxes. You are still eligible for partial forgiveness if you do not meet the 60% payroll cost threshold.
In addition, up to 40% of your forgiveness amount may be for eligible non-payroll costs, such as payments for rent, utility, or interest on mortgage and other debt obligations that were in place before February 15, 2020.
Specifically, Treasury states that PPP loan proceeds are to be used for the following expenses:
- Payroll costs (as defined in the CARES Act and in the Interim Final Rule 2.f.)
- Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
- Mortgage interest payments (but not mortgage prepayments or principal payments)
- Rent payments
- Utility payments
A few items to note:
- Refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020: "If you received an SBA EIDL loan from January 31, 2020 through April 3, 2020, you can apply for a PPP loan. If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan." (Source: US Treasury)
- The PPP Flexibility Act enacted on June 5 revised the program's non-payroll and payroll costs percentage thresholds from 25%/75% to 40%/60%.
- The CARES Act and some PPP guidance documents indicate that interest on other debts in place prior to February 15, 2020 may also be eligible for forgiveness. However, the forgiveness application forms do not have a line to include interest from other debt obligations.
Are bonuses and hazard pay considered eligible payroll costs for forgiveness?
Yes. As supplements to salary or wages, bonuses and hazard pay are eligible for PPP loan forgiveness.
Per IFR on Loan Forgiveness: “[If] an employee’s total compensation does not exceed $100,000 on an annualized basis, the employee’s hazard pay and bonuses are eligible for loan forgiveness because they constitute a supplement to salary or wages.”
What happens if PPP loan funds are misused?
Per Federal Registry, "If you use PPP funds for unauthorized purposes, SBA will direct you to repay those amounts. If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud. If one of your shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member, or partner for the unauthorized use."
How do I get my PPP loan forgiven?
You will have to request loan forgiveness from your lender and provide documentation to verify the number of full-time equivalent (FTE) employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.
You need to include the following documentation to qualify expenses during the covered period and/or alternative payroll covered period:
- Payroll documentation verifying the eligible cash compensation and non-cash benefit payments:
- Bank account statements or payroll service provider reports documenting the amount of cash compensation paid to employees
- Tax forms for the periods that overlap with the and/or Alternative Payroll Covered Period
- Payroll tax filings reported, or that will be reported, to the IRS (i.e., 941)
- State quarterly business and individual wage reporting and unemployment insurance tax filings reported or will be reported
- Payment receipts, cancelled checks, or account statements documenting employer contributions to employee health insurance and retirement plans that are included in the forgiveness amount
- FTE documentation showing the average number of FTE employees on payroll per month between Feb. 15 - June 30, 2019 or Jan. 1 - Feb. 29, 2020. Seasonal employers may opt to use any consecutive 12-week period between May 1 - Sept. 15, 2019.
- Documents may include payroll tax filings reported or will reported to the IRS, and state quarterly business and individual wage reporting and unemployment insurance tax filings reported or will be reported
- Non-payroll cost documentation verifying existence of obligations/services prior to Feb. 15, 2020 and proof of eligible payments from the Covered Period
- Business mortgage interest payments: Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments; or lender account statements from Feb. 2020 and the months of the Covered Period through one month after it ends that verifies interest amounts and eligible payments
- Business rent or lease payments: Copies of all lease agreements for real estate and tangible personal property and receipts or cancelled checks verifying eligible payments; or lessor account statements from February 2020 and the months of the Covered Period through one month after it ends that verifies interest amounts and eligible payments
- Business utility payments: Copy of invoices from February 2020 and those paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments.
What are the terms of the PPP loan amount that is not forgiven?
The PPP loan has a fixed interest rate of 1% and is due in 5 years. Payment is deferred during the covered period and up to 6 months after the forgiveness amount determination; interest will accrue over that period. You are responsible for paying accrued interest on any amount of the loan that is not forgiven.
Does PPP loan forgiveness count as taxable income?
No. Per the CARES Act, amounts forgiven on a PPP Loan "shall be excluded from gross income." However, expenses paid with PPP Loan funds may not be tax-deductible per IRS Notice 2020-32 released on April 30, 2020, which says that providing loan forgiveness and a tax deduction is considered a double tax benefit.
Legislators introduced the Small Business Expense Protection Act (HR 6821/S 3612), which, if passed, would clarify that the receipt and forgiveness of coronavirus assistance through the PPP does not affect the tax deductibility of ordinary business expenses. Please note that this bill is still pending in Congress.
How is employee headcount or FTE calculated for PPP loan forgiveness?
FTE means full-time equivalency employee, which is defined as 40 hours / week. For PPP forgiveness, FTE is calculated for each employee by averaging the number of hours worked per week over the Covered Period or the Alternative Payroll Covered Period, dividing it by 40, and rounding to the nearest tenth. Or, you may use a simplified method to calculate FTE: 1.0 FTE = 40 hours more / week; 0.5 FTE = fewer than 40 hours / week. Do not include independent contractors ("1099 workers") in your FTE count as they are excluded from eligible payroll costs.
While the CARES Act defines employees as "individuals employed on a full-time, part-time, or other basis" for the purposes of PPP loan application eligibility, it uses "the standard of full-time equivalent employees" to determine loan forgiveness amount. Therefore, the "straight" employee headcount you used to determine your loan eligibility may be different than the one used for forgiveness, which is based on full-time equivalency.
There is an exemption for forgiveness reduction based on employee availability if you are able to document an inability to rehire individuals who were employees prior to Feb. 15, 2020 and are unable to hire similarly qualified employees for unfilled positions by Dec. 31, 2020. In addition, you may be exempt from the FTE requirement if you are able to document the inability to return to pre-pandemic business activity due to federal public health requirements and guidance from March 1, 2020 - Dec. 31, 2020.
How does salary/hourly wage reduction factor into forgiveness?
Your loan forgiveness amount may be reduced if you decreased salaries and hourly rates by more than 25% for any employee* during your loan covered period compared to Q1 2020 (Jan. 1, 2020 - March 31, 2020). You may be exempt from this forgiveness requirement if you restore salary/wage levels by December 31, 2020.
*Employee in this context is defined as workers who made less than $100,000 annualized in 2019
The PPP Loan Forgiveness Application includes a calculation worksheet to determine if your forgiveness amount will be impacted by salary/wage reductions.
What happens if after the covered period and prior to June 30, 2020, we still cannot go back to work and thus must terminate all employees?
Originally, PPP loan forgiveness required FTE and wage/salary levels to be restored by June 30, 2020. The PPP Flexibility Act (PPFA) signed on June 5 extends the FTE level restoration deadline to December 31, 2020. PPFA also extended the loan covered period from 8 to 24 weeks.
What forgiveness requirement updates were included in the PPP Loan Forgiveness Application released on May 15?
On May 15, the SBA and the US Treasury released the first version of the PPP Loan Forgiveness Application, which clarifies some of the ambiguous rules. They released two new forgiveness applications on June 17 to align with revisions per the PPP Flexibility Act that was enacted on June 5.
PPP Forgiveness Application Guidance Update Summary:
- Full-Time Equivalency (FTE) is based on 40 hours/week for the purpose of maintaining staff levels for forgiveness. You may count part-time workers as 0.5 FTE or use an equivalency calculation.
- You may use an Alternative Payroll Covered Period to start the loan period on the first day of the pay period following your funding date. This also provides the ability to include payroll costs incurred at the end of the alternative covered period if paid by the next regular payroll date.
- “Costs incurred and payments made” allows eligible non-payroll expenses if they were incurred during the Covered Period but paid afterwards on regular billing cycle; this does not allow prepayment of non-payroll expenses incurred after the Covered Period.
- “Safe Harbor” provisions are in place to exempt reduction in loan forgiveness amount if FTE and/or salary/wage levels are restored by June 30, 2020 (revised to December 31, 2020 per PPPFA signed on June 30). In addition, there are FTE level exceptions for workers who decline a written offer to return to work, are terminated with cause, or voluntarily resign or request a reduction in hours.
What are the primary changes per the PPP Flexibility Act?
Enacted on June 5, the Paycheck Protection Program (PPP) Flexibility Act (Flexibility Act or PPPFA; H.R. 7010) eases some burdens for PPP loan forgiveness. Primary PPP changes per the Flexibility Act include:
- Covered period extended from 8 to 24 weeks (or through 12/31/2020, whichever ends earlier)
- New exemptions for FTE level forgiveness requirement based inability to rehire employees or restore business activity to pre-pandemic levels
- Forgiveness amount limit for non-payroll costs increased from 25% to 40% of PPP funds
- Loan maturity extended from 2 to 5 years
- Borrowers may now defer payment of employer portion of OASDI payroll taxes
- Are self-employed and have no employees; OR
- Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; OR
- Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.
Can ASAP Accounting & Payroll assist me with my PPP Loan Forgiveness Application?
Yes, we can assist if you are a current client of ASAP Accounting & Payroll. If you are eligible to use the PPP EZ Loan Forgiveness Form, you may be able to complete the application yourself using reports we provide as part of our payroll and accounting services. We are developing additional service options if you are interested in help with calculations, documentation, and advisory support. Please contact your account manager if you are interested in PPP Loan Forgiveness Application support.
Also, the SBA directed lenders to work with borrowers to resolve errors and other issues that may affect loan forgiveness. In addition, there is an appeals process if you do not agree with your loan forgiveness amount.
PPP Loan Guidance Documents & Forgiveness Applications
- PPP Loan Forgiveness FAQs (US Treasury/SBA, 8/4/2020)
- PPP Loan FAQs (US Treasury/SBA, 6/25/2020)
- PPP Loan Forgiveness Application Form 3508EZ (6/16/2020)
- PPP Loan Forgiveness Application (Revised 6/16/2020)
- PPP Interim Final Rule on Loan Forgiveness (5/22/2020)
- PPP First Interim Final Rule (4/15/2020)
PPP Loan Webinars
We've recorded a number of webinars with local CPA and lending experts to help small business owners stay-up-to-date on the frequent PPP rule changes, and understand how to best spend their PPP loans to achieve forgiveness. Please note that information shared in the following webinars is based on the latest PPP rules and guidance available at the time of the recording. However, the tips and guidance shared in these videos are generally still applicable to help you achieve maximum loan forgiveness.
ASAP WEBINAR: PPP Forgiveness EZ Form & Updates
On June 16, the SBA released a revised PPP Loan Forgiveness Application along with an "EZ" two-page version of the form for borrowers who meet certain criteria. During this webinar recorded on June 19, Mark Betts from ASAP Accounting & Payroll provides an overview of the PPP EZ Forgiveness Application and other updates per the PPP Flexibility Act. CPA Brad Tafoya and Alexander Price from Citizens State Bank also help field PPP questions and provide tips on how to maximize loan forgiveness (Hint: spend as much as you can on allowable payroll costs).
The revised PPP Interim Final Rule on Loan Forgiveness released on June 22 clarifies a few items discussed in this webinar:
- You may apply for forgiveness as soon as you spend all y our PPP funds and meet forgiveness requirements (or safe harbor exemptions)
- You are exempt from the FTE forgiveness requirement if your business activity was limited by local public health orders and regulations in place at any time between March 1 - December 31, 2020
- Compensation limits and guidance for owners, owner-employees, self-employed individuals, and general partners (essentially lesser of 8/52 of 2019 compensation or $15,285 if using an 8-week covered period; or 2.5/12 of 2019 compensation or $20,833 if using 24-week covered period); employer retirement and health insurance contributions may impact those amounts
ASAP WEBINAR: Unpacking the PPP Forgiveness Process
NOTE: Legislative updates and guidance issued after June 5 revises some of the rules and guidelines shared in this recorded on May 26, 2020. However, the general tips shared by experts from the SBA Colorado District Office, Citizens State Bank, and ASAP Accounting & Payroll are still relevant for understanding the PPP loan forgiveness process.
ASAP WEBINAR: PPP Loan Forgiveness - Part 1
NOTE: The information shared in this video is based on PPP rules and guidance available as of April 17, 2020, which changed on June 5 per the PPP Flexibility Act. Watch our latest webinar to learn about PPP forgiveness updates.
ASAP WEBINAR: PPP Loan Forgiveness - Part 2
NOTE: Recorded on May 8, 2020, this presentation provides updates on PPP Loan forgiveness guidance based on the latest US Treasury PPP FAQs posted May 6. PPP rules have since changed per PPP Flexibility Act enacted on June 5. This video is a follow-up to a presentation on loan forgiveness tips shared on April 17. Revised guidance and application instructions clarify some of the ambiguous rules shared in this video.
Disclaimer: This information is provided as a self-help tool and does not constitute legal or financial advice. Laws, regulations and lending products are changing daily and decisions as to whether or how to use this information and/or what actions to take in response to the COVID19 Pandemic are solely those of the employer. The providers of this information disclaim any and all responsibility and liability for its accuracy, completeness or fitness for your particular business purposes.