Forgiveness

Womply is not involved with PPP forgiveness. Please contact your PPP lender for information on their forgiveness process. If your lender has opted-in you can apply via the SBA’s direct forgiveness portal.

No, if your loan was for $150K or less and your lender has opted in to the SBA’s direct forgiveness portal. As you enter the system and start a new forgiveness request you will be prompted to enter the SSN, or EIN, or ITIN you used to apply for your loan, and the approximate amount of your loan (the amount doesn’t have to be exact). The SBA’s system will be able to locate your loan and provide you with your SBA loan number/s.

In order to receive full loan forgiveness, you must use at least 60% of your loan to cover payroll costs for employees (this includes compensation for owners, partners, etc.). The remaining 40% should be used on other approved costs, such as rent, utilities, and operations costs, etc. See our article about forgivable PPP loan expenses for more details. 

Beyond ensuring that you are spending your loan on the approved costs for the PPP loan, you must also maintain your employment and compensation levels (with certain exceptions; see below)

There are certain exceptions to the “maintaining employees levels and compensation” rule.

If you received a PPP loan of $50,000 or less

If you received a PPP loan that was $50,000 or less, you are exempt from having to maintain your employee and compensation levels in order to receive loan forgiveness. Your loan must still be spent on approved costs and you will still need to document that you spent at least 60% of your funds on payroll expenses. 

When you’re ready to apply for loan forgiveness, you will want to contact your lender to receive the simplified loan forgiveness form. 

An employee quit, retired, or was fired (with just cause), or refused your offer to be rehired

If you couldn’t maintain employee levels due to someone quitting or being fired with just cause, then you can still qualify for full loan forgiveness. You can also get full loan forgiveness if you have written proof that you offered to rehire employees who refused your offer (if your offer was at their former pay). But, it’s very important that you document each of these instances so that you can verify this when you apply for loan forgiveness. 

You’ll need documentation to explain why your employee was fired or other supporting documents to verify an employee’s termination or refusal to be rehired.

No. PPP Loans received after December 27th, 2020 are not required to “rehire” any employees in order to receive forgiveness. You will, however, need to maintain current payroll levels during the forgiveness period. (Exceptions to this would include employees who resign or are terminated with cause).

The PPP loan program was designed to provide forgivable loans in order to encourage businesses to maintain payroll and stay open. However, you may spend your PPP funds on any legitimate business expense, and if you are unable to spend at least 60% on payroll costs, you will need to pay back at least a portion of your loan. 

As you receive your PPP loan and prepare for loan forgiveness, be sure that you are spending your loan only on approved costs (and at least 60% of that should be on payroll costs to reach full forgiveness). 

Approved costs include:

• Payroll (this includes the money you pay yourself)
• Costs related to group healthcare, life, disability, vision, or dental benefits
• Mortgage interest payments
• Rent payments
• Utility payments
• Interest payments on other debts incurred prior to February 15, 202
• Refinancing and SBA EIDL loan made between January 31, 2020 and April 3, 2020
• Covered operations expenses
  • Payments for software that helps with business operations
  • Product or service delivery
  • Processing, payment, or tracking of payroll costs
  • Sales and billing functions
  • Accounting
  • Tracking of supplies, inventory, records, and expenses
• Property damage costs that occurred due to public disturbances in 2020 and were not covered by insurance
• Costs for suppliers
  • Must be essential to business operations at the time which the expenditure is made
  • Is made in accordance with a contract, order, or purchase order that was in effect before the covered period or with respect to perishable goods
• Covered worker protection costs
  • Operating costs to meeting DHHS, CDC, and OSHA guidelines for COVID-19. This may include:
    • Purchasing, maintaining, or renovating your space
      • A drive-through window facility
      • An indoor, outdoor, or combined air or air pressure ventilation or filtration system
      • Physical barriers such as a sneeze guards
      • An expansion of additional indoor, outdoor, or combined business space
      • An onsite or offsite health screening capability
      • Other assets relating to the compliance with the requirements or guidance as determined by the Administrator in consultation with the Secretary of Health and Human Services and the Secretary of Labor
    • Purchasing PPE (protective equipment)

It is important that you keep good records of all expenses that you cover with your PPP loan if you want to receive forgiveness on the loan. Keep receipts, invoices, and other documentation that you need in order to verify your expenses.

In order to receive full loan forgiveness, at least 60% of your loan must be used towards payroll costs. 

The Treasury Department outlines payroll costs as the following:

• Compensation to employees (whose principal residence is in the United States) in the form of salary, wages, commissions, or similar compensation
• Cash tips or the equivalents (based on employer records of past tips or good-faith employer estimate of such tips if there are no records)
• Payments for vacation, parental, medical, family, or sick leave
• Allowance for separation or dismissal (severance packages)
• Payment for employee benefits like group health care or group life, disability, vision, or dental insurance (including premiums), and retirement
• Payment of state and local taxes assessed on compensation of employees

For independent contractors or sole proprietors, payroll costs consist of:

• Wages, commissions, income, or net earnings from self-employment, or similar compensation

Note from the Treasury Department: Payroll costs that are qualified wages taken into account in determining the Employer Retention Credit are not eligible for loan forgiveness.

If you don’t spend at least 60% of your loan on approved payroll costs, you can still qualify for partial loan forgiveness. But you will be ineligible for full loan forgiveness. 

You will need comprehensive documentation to accompany your loan forgiveness application in order to verify that you spent your loan on approved expenses.

This documentation may include:

• Bank account statements or third-party payroll service provider reports
• Tax forms for the covered period, or that overlap the covered period
• Payment receipts, cancelled checks, or account statements
• Business mortgage interest payments: copy of lender amortization schedule and receipts verifying payments
• Business rent or lease payments: copy of current lease agreement and receipts or cancelled checks verifying payment
• Business utility payments: Copies of invoices and receipts, cancelled checks, or account statements
• Other invoices, receipts, account statements for covered costs

This list isn’t all-inclusive, so be sure that you have good documentation for each of the expenses that you used your loan for. Basically, if it’s a legitimate business expense, it’s likely allowed so be sure to keep track of receipts and records.

You can apply for PPP loan forgiveness as soon as all of your loan proceeds have been used, which at the earliest is the first day after your selected “covered period” (the 8-24 week period after your PPP loan is funded). 

However, you must apply for loan forgiveness within 10 months of the last day of your covered period in order to receive a deferment on your loan payments. If you wait longer, you’ll have to start making payments on the balance and deferred interest of your loan (unless your forgiveness application has been submitted within the deadline).

The SBA has established an online PPP forgiveness platform called the SBA PPP Direct Forgiveness Portal. If your PPP loan was for $150,000 or less, AND if your lender has opted-in to the use of the platform, you will be able to submit your PPP loan forgiveness application online directly to the SBA, using the electronic equivalent of SBA Form 3508S. For full details, read our post about the new SBA PPP Direct Forgiveness Portal and other recent rule changes. Check the SBA’s list of PPP lenders who have opted-in to the SBA PPP Direct Forgiveness Portal.

Here’s the SBA’s recording of a training webinar for use of the direct forgiveness portal.

If your lender has not opted-in, you’ll want to get together all of your documentation as outlined here and then contact your PPP lender. IMPORTANT NOTE: Womply is not involved with PPP forgiveness. Please contact your PPP lender for information on their forgiveness process. If your lender has opted-in you can apply via the SBA’s direct forgiveness portal. If your lender has not opted-in, you will submit the appropriate form and documentation to your PPP lender and continue to communicate with your lender throughout the loan forgiveness process. They will provide you with the correct loan forgiveness form to fill out for your application—either the SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S, or a lender equivalent. (Forms 3508EZ and the 3508S are shortened versions of the application for borrowers who meet specific requirements.) Your lender can provide further guidance on which form you should use.

Your lender will notify you of the forgiveness amount that the SBA pays and if you will have any payments due on your loan. 

Sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form automatically qualify to use the Loan Forgiveness Application Form 3508EZ or lender equivalent and should complete that application if they borrowed over $150,000. 

If they borrowed $150,000 or less, they should use the new streamlined form 3508S (or lender equivalent) with January 19, 2021 revision date.

(ALL PPP borrowers who received $150,000 or less should use form 3508S or the lender equivalent.)

Yes. All PPP lenders may accept scanned copies of signed loan forgiveness applications and documents containing the information and certifications required by SBA Form 3508, 3508EZ, or lender equivalent. Lenders may accept any form of Econsent or E-signature that complies with the requirements of the Electronic Signatures in Global and National Commerce Act (P.L. 106-229).

As with all documents in the PPP process, it’s important to make sure that any documents you send to your lender are easy to read and are as high-quality as you can make them. This will make the process significantly faster and easier.

If electronic signatures are not feasible, then when obtaining a wet ink signature without in-person contact, lenders should take appropriate steps to ensure the proper party has executed the document. This guidance does not supersede signature requirements imposed by other applicable law, including by the lender’s primary federal regulator.

Be sure to provide good-quality copies of all your documents, and make sure they’re legible, properly filled out, and accurate.

for loan forgiveness?

Yes. If only a portion of your loan is forgiven, or if your forgiveness application is denied, then you must repay any remaining balance due on the loan and accrued interest on or before the maturity date of the loan (either 2 or 5 years after your loan is approved, depending on when you got your loan… 2021 loans have a 5 year maturity date). There is no prepayment penalty for paying your loan off early.

NOTE: Interest accrues during the time between the disbursement of the loan and SBA remittance of the forgiveness amount. If your loan is forgiven, you will not be responsible for that interest. However, you are responsible for paying the accrued interest on any amount of the loan that is not forgiven. Your lender is responsible for notifying you when the SBA remits the loan forgiveness amount (or when the SBA determines that no amount of the loan is eligible for forgiveness) and the date on which your first payment is due, if applicable.

No. You can submit a PPP loan forgiveness application any time before the maturity date of the loan, which is either two or five years from loan origination. (Two years if you applied early in 2020, before the loan maturity date for PPP loans was extended to 5 years.)

However, if you don’t apply forgiveness within 10 months after the last day of the loan forgiveness covered period, loan payments are no longer deferred and the you will need to start making payments on the loan. For example, if your covered period ended on October 30, 2020, you have until August 30, 2021 to apply for forgiveness before you need to start repayment on your loan.

The expiration date in the upper-right corner of the posted PPP loan forgiveness application forms is displayed for purposes of the SBA’s compliance with the Paperwork Reduction Act, and reflects the temporary expiration date for approved use of the forms. This date will be extended, and when approved, the same forms with the new expiration date will be posted.

First Draw PPP Loans qualify for full loan forgiveness if during the 8- to 24-week covered period following loan disbursement:

• Employee and compensation levels are maintained
• The loan proceeds are spent on payroll costs and other eligible expenses; and
• At least 60 percent of the proceeds are spent on payroll costs

Second Draw PPP Loans qualify for full loan forgiveness if during the 8 to 24 week covered period following loan disbursement:

• Employee and compensation levels are maintained in the same manner as required for the First Draw PPP loan
• The loan proceeds are spent on payroll costs and other eligible expenses; and
• At least 60 percent of the proceeds are spent on payroll costs

A borrower can apply for forgiveness once all loan proceeds for which the borrower is requesting forgiveness have been used. Borrowers can apply for forgiveness any time up to the maturity date of the loan. If borrowers do not apply for forgiveness within 10 months after the last day of the covered period, then PPP loan payments are no longer deferred, and borrowers will begin making loan payments to their PPP lender.

To apply for loan forgiveness:

1. Contact your PPP Lender and complete the correct form

Your Lender can provide you with either the SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S, or a Lender equivalent.

The 3508EZ and the 3508S are shortened versions of the application for borrowers who meet specific requirements. Your Lender can provide further guidance on how to submit the application.

2. Compile your documentation

Payroll (provide documentation for all payroll periods that overlapped with the Covered Period or the Alternative Payroll Covered Period):

• Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.
• Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period or the Alternative Payroll Covered Period:
  • Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and
  • State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.
• Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the borrower included in the forgiveness amount.

Non-payroll (for expenses that were incurred or paid during the covered period and showing that obligations or services existed prior to February 15, 2020):

• Business mortgage interest payments: Copy of lender amortization schedule and receipts verifying payments, or lender account statements.
• Business rent or lease payments: Copy of current lease agreement and receipts or cancelled checks verifying eligible payments.
• Business utility payments: Copies of invoices and receipts, cancelled checks or account statements. This list of  documents required to be submitted to the Lender is not all-inclusive. Please refer to www.sba.gov/ppp for a complete list of requirements, instructions and forms.

3 . Submit the forgiveness form and documentation to your PPP Lender

Complete your loan forgiveness application and submit it to your Lender with the required supporting documents  and follow up with your Lender to submit additional documentation as requested. Consult your Lender for additional guidance and provide requested documentation in a timely manner.

4. Continue to communicate with your Lender throughout the process

If SBA undertakes a loan review of your loan, your Lender will notify you of the review and the SBA loan review decision. You have the right to appeal certain SBA loan review decisions. Your Lender is responsible for notifying you of the forgiveness amount paid by SBA and the date on which your first payment will be due, if applicable.

Please Note: If applicable, SBA will deduct any EIDL advance amount you have received from the forgiveness amount remitted to the Lender, as required by section 1110(e)(6) of the CARES Act. Borrowers are required to retain certain documents for six years after the date the loan is forgiven or repaid in full.

Yes. The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest. An eligible borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgivable purposes and employee and compensation levels are maintained or, if not, an applicable safe harbor or exemption applies. 

The actual amount of loan forgiveness will depend, in part, on the total amount of payroll costs (including employer contributions for group health, life, disability, vision and dental insurance), payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, utility payments for service that began before February 15, 2020, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures over the loan forgiveness covered period.

Payroll costs that are qualified wages taken into account in determining the Employer Retention Credit are not eligible for loan forgiveness. The ‘‘loan forgiveness covered period’’ is the period beginning on the date the lender disburses the PPP loan and ending on any date selected by the borrower that occurs during the period 

• beginning on the date that is 8 weeks after the date of disbursement and
• ending on the date that is 24 weeks after the date of disbursement. 

To receive full loan forgiveness, a borrower must use at least 60 percent of the PPP loan for payroll costs, and not more than 40 percent of the loan forgiveness amount may be attributable to nonpayroll costs. For example, if a borrower uses 59 percent of its PPP loan for payroll costs, it will not receive the full amount of loan forgiveness it might otherwise be eligible to receive. Instead, the borrower will receive partial loan forgiveness, based on the requirement that 60 percent of the forgiveness amount must be attributable to payroll costs. For example, if a borrower receives a $100,000 PPP loan, and during the covered period the borrower spends $54,000 (or 54 percent) of its loan on payroll costs, then because the borrower used less than 60 percent of its loan on payroll costs, the maximum amount of loan forgiveness the borrower may receive is $90,000 (with $54,000 in payroll costs constituting 60 percent of the forgiveness amount and $36,000 in nonpayroll costs constituting 40 percent of the forgiveness amount). 

Because the Economic Aid Act changed the loan forgiveness covered period from either an 8- or 24-week period to a covered period between 8 and 24 weeks at the election of the borrower, SBA is eliminating the ‘‘alternative covered period’’ as defined in the interim final rule published at 85 FR 33004, 33006 (June 1, 2020), as amended. 

Additionally, an eligible borrower that received a loan of $150,000 or less shall not, at the time of its application for loan forgiveness, be required to submit any application or documentation in addition to the certification and information required by paragraph 7A(l)(1)(A) of the Small Business Act. Such borrowers must retain records relevant to the form that prove compliance with the PPP requirements—with respect to employment records, for the 4-year period following submission of the loan forgiveness application, and with respect to other records, for the 3-year period following submission of the loan forgiveness application. All other borrowers must follow the existing requirements for loan forgiveness applications and records retention. 

SBA may review and audit PPP loans of $150,000 or less and access any records the borrower is required to retain. All borrowers with loans of any size must provide documentation independently to a lender to satisfy relevant Federal, State, local or other statutory or regulatory requirements or in connection with an SBA loan review. The Economic Aid Act repealed the CARES Act provision requiring SBA to deduct EIDL Advance Amounts received by borrowers from the forgiveness payment amounts remitted by SBA to the lender. The EIDL Advance Amount received by the borrower will not reduce the amount of forgiveness to which the borrower is entitled and will not be deducted from the forgiveness payment amount that SBA remits to the lender. Any EIDL Advance Amounts previously deducted from a borrower’s forgiveness amount will be remitted to the lender, together with interest to the remittance date.

The eight-week or 24-week period starts on the date your lender makes a disbursement of the PPP loan to the borrower. The lender must disburse the loan no later than 10 calendar days from the date of loan approval. The Paycheck Protection Program Flexibility Act of 2020, which became law on June 5, 2020, extended the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks after the date of loan disbursement, providing substantially greater flexibility for borrowers to qualify for loan forgiveness. The 24-week period applies to all borrowers, but borrowers that received an SBA loan number before June 5, 2020, have the option to use an eight-week period

No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.

Sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form automatically qualify to use the Loan Forgiveness Application Form 3508EZ or lender equivalent and should complete that application if they borrowed over $150,000. 

If they borrowed $150,000 or less, they should use the new streamlined form 3508S (or lender equivalent) with January 19, 2021 revision date.

(ALL PPP borrowers who received $150,000 or less should use form 3508S or the lender equivalent.)

Yes. All PPP lenders may accept scanned copies of signed loan forgiveness applications and documents containing the information and certifications required by SBA Form 3508, 3508EZ, or lender equivalent. Lenders may accept any form of Econsent or E-signature that complies with the requirements of the Electronic Signatures in Global and National Commerce Act (P.L. 106-229).

If electronic signatures are not feasible, then when obtaining a wet ink signature without in-person contact, lenders should take appropriate steps to ensure the proper party has executed the document.

This guidance does not supersede signature requirements imposed by other applicable law, including by the lender’s primary federal regulator.

Yes. If a borrower that was eligible for a First Draw PPP Loan files for bankruptcy protection after disbursement of the First Draw PPP Loan, that borrower is eligible for loan forgiveness, provided it meets all requirements for loan forgiveness set forth in the PPP Interim Final Rules, including but not limited to, loan proceeds are used only for eligible expenses and at least 60% of the loan proceeds is used for eligible payroll costs.

No. Each applicant for a Second Draw PPP Loan must certify on the Second Draw Borrower Application Form (SBA Form 2483-SD) that the applicant and any owner of 20% or more of the applicant is not presently involved in a bankruptcy proceeding. Thus, a borrower that received a First Draw PPP Loan and files for bankruptcy protection after disbursement of the First Draw PPP Loan is not eligible to apply for a Second Draw PPP Loan.

As long as a borrower submits its loan forgiveness application within ten months of the completion of the Covered Period (as defined below), the borrower is not required to make any payments until the forgiveness amount is remitted to the lender by SBA. If the loan is fully forgiven, the borrower is not responsible for any payments. If only a portion of the loan is forgiven, or if the forgiveness application is denied, any remaining balance due on the loan must be repaid by the borrower on or before the maturity date of the loan. Interest accrues during the time between the disbursement of the loan and SBA remittance of the forgiveness amount. The borrower is responsible for paying the accrued interest on any amount of the loan that is not forgiven. The lender is responsible for notifying the borrower of remittance by SBA of the loan forgiveness amount (or that SBA determined that no amount of the loan is eligible for forgiveness) and the date on which the borrower’s first payment is due, if applicable.

No. Borrowers may submit a loan forgiveness application any time before the maturity date of the loan, which is either two or five years from loan origination.

However, if a borrower does not apply for loan forgiveness within 10 months after the last day of the borrower’s loan forgiveness covered period, loan payments are no longer deferred and the borrower must begin making payments on the loan. For example, a borrower whose covered period ends on October 30, 2020 has until August 30, 2021 to apply for forgiveness before loan repayment begins.

The expiration date in the upper-right corner of the posted PPP loan forgiveness application forms is displayed for purposes of SBA’s compliance with the Paperwork Reduction Act, and reflects the temporary expiration date for approved use of the forms. This date will be extended, and when approved, the same forms with the new expiration date will be posted.

Yes. Forgiveness is capped at 2.5 months’ worth (2.5/12) of an owner-employee or self-employed individual’s 2019 or 202038 compensation (up to a maximum $20,833 per individual in total across all businesses). The individual’s total compensation may not exceed $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred. For example, for borrowers that elect to use an eight-week covered period, the amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation is capped at eight weeks’ worth (8/52) of 2019 or 2020 compensation (i.e., approximately 15.38 percent of 2019 or 2020 compensation) or $15,385 per individual, whichever is less, in total across all businesses.

For borrowers that elect to use a ten-week covered period, the cap is ten weeks’ worth (10/52) of 2019 or 2020 compensation (approximately 19.23 percent) or $19,231 per individual, whichever is less, in total across all businesses. For a covered period longer than 2.5 months, the amount of loan forgiveness requested for owneremployees and self-employed individuals’ payroll compensation is capped at 2.5 months’ worth (2.5/12) of 2019 or 2020 compensation (up to $20,833) in total across all businesses.

In particular, C-corporation owner-employees are capped by the prorated amount of their 2019 or 2020 employee cash compensation and employer retirement and health, life, disability, vision and dental insurance contributions made on their behalf. S-corporation owner-employees are capped by the prorated amount of their 2019 or
2020 employee cash compensation and employer retirement contributions made on their behalf. However, employer health, life, disability, vision and dental insurance contributions made on their behalf cannot be separately added; those payments are already included in their employee cash compensation. Schedule C or F filers are
capped by the prorated amount of their owner compensation replacement (calculated based on 2019 or 2020 net profit) or proprietor expenses (calculated based on 2019 or 2020 gross income).

General partners are capped by the prorated amount of their 2019 or 2020 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235. For self-employed individuals, including Schedule C or F filers and general partners, retirement and health, life, disability, vision or dental insurance contributions are included in their net self-employment income and therefore cannot be separately added to their payroll calculation. LLC members are subject to the rules based on their LLC’s tax filing status in the reference year used to determine their loan amount.

For borrowers that received loans of $150,000 or less that use the SBA Form 3508S, the borrower must submit the certification and information required by section 7A(l)(1)(A) of the Small Business Act and, for a Second Draw PPP Loan, revenue reduction documentation if such documentation was not provided at the time of application. All other borrowers must submit the certification required by section 7A(e)(3) of the Small Business Act, and (if the borrower has employees) IRS Form 941 and state quarterly business and individual employee wage reporting and unemployment insurance tax forms or equivalent payroll processor records that best correspond to the covered period (with evidence of any retirement and group health, life, disability, vision, and dental insurance contributions).

Whether or not the borrower has employees, the borrower must submit evidence of business rent, business mortgage interest payments on real or personal property, business utility payments, or payments for a covered operations expenditure, covered property damage cost, covered supplier cost, or covered worker protection expenditure during the covered period if the borrower used loan proceeds for those purposes. This documentation may include cancelled checks, payment receipts, transcripts of accounts, purchase orders, orders, invoices, or other documents verifying payments on nonpayroll costs.

For all loans, the 2019 or 2020 IRS Form 1040, Schedule C or F that the borrower provided at the time of the PPP loan application must be used to determine the amount of net profit or proprietor expenses allocated to the owner for the covered period.

Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care or group life, disability, vision, or dental insurance, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self employment, or similar compensation.

Yes. The Act expressly excludes the following:

• i. Any compensation of an employee whose principal place of residence is outside of the United States;
• ii. The compensation of an individual employee in excess of $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred;
• iii. Federal employment taxes imposed or withheld during the applicable period, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees;
• and iv. Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Pub. L. 116–127).

Yes, you can use payroll costs from either 2019 or 2020. The guidance describes payroll costs using calendar year 2019 as the reference period for payroll costs used to calculate loan amounts. However, borrowers are permitted to use payroll costs from either calendar year 2019 or calendar year 2020 for their First Draw PPP Loan amount calculation. Documentation, including IRS forms, must be supplied for the selected reference period.

An applicant may provide IRS Form W-2s and IRS Form W-3 or payroll processor reports, including quarterly and annual tax reports, in lieu of IRS Form 941. Additionally, very small businesses that file an annual IRS Form 944 or agricultural employers that file an annual IRS Form 943 should rely on and provide IRS Form 944 or IRS Form 943 in lieu of IRS Form 941.

An applicant may provide records from a retirement administrator to document employer retirement contributions. An applicant may also provide records from a health insurance company or third-party administrator for a self-insured plan to document employer health insurance contributions.

Short answer: Yes you can, but you will reduce the amount of your loan that may be forgiven. So you should try to spend at least 60% of your loan on payroll in order to maximize forgiveness.  

Long answer: The PPP program has dual purposes: to help protect businesses and jobs. Many of the rules are designed to balance these goals. But there are some areas of conflict or confusion in these rules related to how a business can spend their PPP money and how much of that spending can be forgiven.

Using your loan

There are only two things you can do with your PPP loan: spend it on authorized expenses or pay back the money to your lender. You can’t spend any PPP money on expense categories that aren’t specified as an authorized category.

The SBA’s rules say “At least 60 percent of the PPP loan proceeds shall be used for payroll costs.” This reflects the rule maker’s desire to see businesses deploy PPP loans to protect jobs. However, when applying for their Second Draw loans, borrowers are not required to certify they will spend 60% of their loan proceeds on payroll. The only certification about uses of funds is:

The funds will be used to retain workers and maintain payroll; or make payments for mortgage interest, rent, utilities, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures as specified under the Paycheck Protection Program Rules; I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as for charges of fraud.

Also the SBA has provided an example of what happens if you spend less than 60% of your loan on payroll: you will receive partial forgiveness and have to pay back the non-forgiven portion of your loan.

Getting forgiveness

To maximize the amount of your loan that will be forgiven, you must spend at least 60% of your loan amount on payroll. If you spend less than 60% on payroll you will have to repay a portion of your loan to the lender–clearly a sub-optimal result. This forgiveness formula is listed on the application:

I understand that loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, covered utilities, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures, and not more than 40% of the forgiven amount may be for non-payroll costs. If required, the Applicant will provide to the Lender and/or SBA documentation verifying the number of full-time equivalent employees on the Applicant’s payroll as well as the dollar amounts of eligible expenses for the covered period following this loan.

Short answer: You can receive partial forgiveness according to the forgiveness percentage formula for determining the qualifying amount of forgiveness. Any amount not forgiven will need to be repaid to your lender. You can pay this amount off early or over time (according to other rules). To maximize your forgiveness you should spend at least 60% of your loan on payroll.

Longer answer: Quoting from the SBA: “To receive full loan forgiveness, a borrower must use at least 60 percent of the PPP loan for payroll costs, and not more than 40 percent of the loan forgiveness amount may be attributable to nonpayroll costs. For example, if a borrower uses 59 percent of its PPP loan for payroll costs, it will not receive the full amount of loan forgiveness it might otherwise be eligible to receive. Instead, the borrower will receive partial loan forgiveness, based on the requirement that 60 percent of the forgiveness amount must be attributable to payroll costs. 

For example, if a borrower receives a $100,000 PPP loan, and during the covered period the borrower spends $54,000 (or 54 percent) of its loan on payroll costs, then because the borrower used less than 60 percent of its loan on payroll costs, the maximum amount of loan forgiveness the borrower may receive is $90,000 (with $54,000 in payroll costs constituting 60 percent of the forgiveness amount and $36,000 in nonpayroll costs constituting 40 percent of the forgiveness amount). Because the Economic Aid Act changed the loan forgiveness covered period from either an 8- or 24-week period to a covered period between 8 and 24 weeks at the election of the borrower, SBA is eliminating the ‘‘alternative covered period’’ as defined in the interim final rule published at 85 FR 33004, 33006 (June 1, 2020), as amended.

Additionally, an eligible borrower that received a loan of $150,000 or less shall not, at the time of its application for loan forgiveness, be required to submit any application or documentation in addition to the certification and information required by paragraph 7A(l)(1)(A) of the Small Business Act. Such borrowers must retain records relevant to the form that prove compliance with the PPP requirements—with respect to employment records, for the 4-year period following submission of the loan forgiveness application, and with respect to other records, for the 3-year period following submission of the loan forgiveness application. All other borrowers must follow the existing requirements for loan forgiveness applications and records retention. SBA may review and audit PPP loans of $150,000 or less and access any records the borrower is required to retain. All borrowers with loans of any size must provide documentation independently to a lender to satisfy relevant Federal, State, local or other statutory or regulatory requirements or in connection with an SBA loan review.”

Source

No. The exclusion of compensation in excess of $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred, applies only to cash compensation, not to non-cash benefits, including:

• employer contributions to defined-benefit or defined-contribution retirement plans;
• payment for the provision of employee benefits consisting of group health care or group life, disability, vision, or dental insurance coverage, including insurance premiums; and
• payment of state and local taxes assessed on compensation of employees.

Yes. PPP loans covers payroll costs, including costs for employee vacation, parental, family, medical, and sick leave. However, the CARES Act excludes qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127). Learn more about the Paid Sick Leave Refundable Credit here.

The CARES Act provided for an eight-week forgiveness covered period that starts on the date the lender makes a disbursement of the PPP loan to the borrower. The lender must disburse the loan no later than 10 calendar days from the date of loan approval.

The Paycheck Protection Program Flexibility Act of 2020, which became law on June 5, 2020, extended the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks after the date of loan disbursement, providing substantially greater flexibility for borrowers to qualify for loan forgiveness. The 24- week period applies to all borrowers that received forgiveness prior to December 27, 2020, but borrowers that received an SBA loan number before June 5, 2020, have the option to use an eight-week period.

The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act), enacted on December 27, 2020, changed the definition of “loan forgiveness covered period” to the period beginning on the date the lender disburses the PPP loan and ending on any date selected by the borrower that occurs during the period (i) beginning on the date that is 8 weeks after the date of disbursement and (ii) ending on the date that is 24 weeks after the date of disbursement.

SBA recognizes that eligible borrowers that use PEOs or similar payroll providers are required under some state registration laws to report wage and other data on the Employer Identification Number (EIN) of the PEO or other payroll provider. In these cases, payroll documentation provided by the payroll provider that indicates the amount of wages and payroll taxes reported to the IRS by the payroll provider for the borrower’s employees will be considered acceptable PPP loan payroll documentation. Relevant information from a Schedule R (Form 941), Allocation Schedule for Aggregate Form 941 Filers, attached to the PEO’s or other payroll provider’s Form 941, Employer’s Quarterly Federal Tax Return, should be used if it is available; otherwise, the eligible borrower should obtain a statement from the payroll provider documenting the amount of wages and payroll taxes. In addition, employees of the eligible borrower will not be considered employees of the eligible borrower’s payroll provider or PEO.

No. Any amounts that an eligible borrower has paid to an independent contractor or sole proprietor should be excluded from the eligible business’s payroll costs, except for fishing boat owners as permitted by PPP interim final rules. However, an independent contractor or sole proprietor will itself be eligible for a loan under the PPP, if it satisfies the applicable requirements.

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.

Yes. Student workers generally count as employees, unless (a) the applicant is an institution of higher education, as defined in the Department of Education’s Federal Work-Study regulations, 34 CFR 675.2, and (b) the student worker’s services are performed as part of a Federal Work-Study Program (as defined in those regulations) or a substantially similar program of a State or political subdivision thereof. Institutions of higher education must exclude work study students when determining the number of employees for PPP loan eligibility, and must also exclude payroll costs for work study students from the calculation of payroll costs used to determine their PPP loan amount. 

No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act (codified as section 7A(d)(6) of the Small Business Act) to prescribe regulations granting de minimis exemptions from the CARES Act’s limits on loan forgiveness, SBA and Treasury issued an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule specifies that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.

Employee contributions and deductions from pay for flexible spending arrangements (FSA) or other nontaxable benefits under a section 125 cafeteria plan, qualified transit or parking benefits (up to $270 a month), and group life insurance (for up to $50,000 of coverage) may have been excluded from IRS Form 941 Taxable Medicare wages & tips. However, pre-tax employee contributions to retirement plans are included in Taxable Medicare wages & tips and should not be added to that figure to arrive at gross pay.

Payroll costs are calculated on a gross basis without regard to (i.e., not including subtractions or additions based on) federal taxes imposed or withheld, such as the employee’s and employer’s share of Federal Insurance Contributions Act (FICA) and income taxes required to be withheld from employees. As a result, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do not include the employer’s share of payroll tax. For example, an employee who earned $4,000 per month in gross wages, from which $500 in federal taxes was withheld, would count as $4,000 in payroll costs. The employee would receive $3,500, and $500 would be paid to the federal government. However, the employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from payroll costs under the statute.

Yes. Section 308 of the Economic Aid Act specifies that payroll costs include employer contributions for group life, disability, vision, and dental insurance benefits.

Yes. Payroll costs includes all cash compensation paid to employees, subject to the $100,000 annual compensation per employee limitation.

PPP applicants and lenders may consider IRS regulations (26 CFR § 1.121-1(b)(2)) when determining whether an individual employee’s principal place of residence is in the United States.

Yes. A fishing boat owner may include compensation reported on Box 5 of IRS Form 1099–MISC and paid to a crewmember described in section 3121(b)(20) of the Code, up to $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred, as a payroll cost in its PPP loan application.