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 PPP forgiveness, you need to spend at least 60% of your loan on allowable payroll costs during your 24-week covered period.
PPP Loan Forgiveness FAQs
Please Note: While we are doing our best to keep up with continuous PPP updates, we recommend visiting the SBA's PPP Forgiveness web page for the most-up-to-date guidance.
- Can I deduct eligible business expenses paid with PPP funds?
- Does PPP loan forgiveness count as taxable income?
- Can ASAP Accounting & Payroll assist me with my PPP Loan Forgiveness Application?
- 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?
- Are bonuses and hazard pay considered eligible payroll costs for forgiveness?
- What happens if PPP loan funds are misused?
- What are the terms of the PPP loan amount that is not forgiven?
- How is employee headcount or FTE calculated for PPP loan forgiveness?
- PPP Loan Forgiveness Resources
Can I deduct eligible business expenses paid with PPP funds?
Yes, eligible expenses paid with PPP funds may be deducted from tax filings. In January 2021, Treasury and the IRS issued revised guidance allowing deductions for payments of eligible expenses that are forgiven under PPP. Per the IRS: "The COVID-related Tax Relief Act of 2020 amended the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to say that no deduction is denied, no tax attribute is reduced, and no basis increase is denied by reason of the exclusion from gross income of the forgiveness of an eligible recipient's covered loan. This change applies for taxable years ending after March 27, 2020."
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."
Can ASAP Accounting & Payroll assist me with my PPP Loan Forgiveness Application?
Yes. If you are a current ASAP client we can help with calculations, documentation, and advisory support for PPP forgiveness. Please complete this form if you are interested in ASAP's PPP Loan Forgiveness Application support services.
How is the PPP loan forgiveness amount calculated?
Your PPP loan may be 100% forgiven if you spend at least 60% on allowable payroll costs and not more than 40% on allowable non-payroll costs that were incurred or paid during your Covered Period. Reductions to salary/wages or full-time equivalent (FTE) levels during your Covered Period may reduce your forgiveness amount. There are several exceptions and 'safe harbor' exemptions for these requirements.
Average FTE Reduction: Your forgiveness amount may be reduced if your average weekly number of full-time equivalent (FTE) employees during your Covered Period is less than during your chosen reference period.
- For PPP purposes, FTE is based on an average of 40 hours worked/week. Thus, one full-time employee equals 1.0 FTE. Part-time employees may be counted as 0.5 FTE or by using an equivalency calculation (average hours worked by employee per week divided by 40; round result to the nearest tenth).
- FTE Reduction Exceptions: You do not have to count employees who declined a written offer to return to work, were fired for cause, voluntary resigned, or requested a reduction in hours.
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 PPP Loan 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.
Source: Page 4 of Federal Register Vol. 85, No. 73
Are bonuses and hazard pay considered eligible payroll costs for PPP loan 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."
What are the terms of the PPP loan amount that is not forgiven?
Refer to your loan's promissory note to review the terms. In general, PPP loans have a fixed interest rate of 1%. If you received your PPP loan number on or after June 5, your loan has a 5-year maturity. Loan numbers issued prior to June 5, 2020, have a 2-year maturity, however, you may request a 5-year term from your lender. Interest starts accruing on the loan disbursement date. You are responsible for paying accrued interest on any amount of the loan that is not forgiven.
You must apply for PPP forgiveness within 10 months of receiving your loan. If you do not receive full forgiveness, your lender will notify you when your first loan payment is due.
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.
PPP Loan Forgiveness Resources
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.