We don’t have all of the answers yet for PPP loan forgiveness, but there are a few key things that we do know at this point.  They include:

  • SBA confirms that you can apply for forgiveness any time up until the maturity date of the loan, but you will need to start paying on your loan 10 months after the period of forgiveness of your loan
  • you should apply for forgiveness within one year of the time you receive loan proceeds, and there may be no benefit to doing that sooner,
  • if the loan did not exceed $50,000, the forgiveness process has been simplified.  Specifically, the proof you need to provide about costs incurred is reduced.
  • some banks use their own forms but they are very similar to the forms identified below.  If your bank is not ready to process forgiveness, don’t feel any sense of urgency; they will be in the coming weeks.
Clipboard with Paycheck Protection Program, Loan Forgiveness Application. Calculator in the corner.

Use your browser to search for the following forms and instructions:

  • SBA form 3508S for forgiveness of loans that don’t exceed $50,000
  • SBA form 3508 for forgiveness of loans that exceed $50,000
  • SBA loan application forgiveness instructions, for instructions on completing the forms.

The new simplified rules for loans not exceeding $50,000 state that there is no reduction of loan forgiveness for reduction of the number of full-time employees or their pay.

For loans that do exceed $50,000, forgiveness will be reduced where the number of employees or their pay have been reduced. Employees working 40 hours or more are considered to be a full-time equivalent. Employees working less than that will have their hours divided by 40 to determine full-time equivalency. Alternatively, all employees with under 40 hours can be treated as one half of a full-time equivalent. Try both ways to see which is most beneficial.

Employers will compare the number of employees and their salary during the 8 week or 24 week timeframe for forgiveness with the “look back period” which is the period between February 15, 2019 through June 30, 2019 or January 1, 2020 thru February 29, 2020. Again, calculate this both ways to determine which is best.

If FTEs or pay are lower during the 8 or 24 week timeframe than during the look back period, forgiveness will be prorated.

There are exceptions to the penalty for reduction in FTEs. Borrowers who can document an inability to rehire individuals or restore hours on February 15, 2020 and an inability to hire similarly qualified employees before December 31, 2020 should not be penalized for reducing FTEs.

Borrowers who are unable to return to their prior level of activity between February 15, 2020 and the end of the covered period because of guidance issued by any government agencies will not be penalized.         

Similarly, even if FTEs were reduced in the payroll period beginning February 15, 2020 and ending April 26, 2020, but restored with equivalent pay by the earlier of December 31, 2020 or the date of their application for forgiveness, the penalty won’t apply.

At least 60% of the forgiveness eligible costs must be payroll (gross pay plus payroll taxes and benefits up to a $100,000 limit per person). The remaining 40% can be composed of mortgage interest, rent, utilities, and interest and loans that were in place before February 15, 2020.

Both payroll and non-payroll costs need to be paid during the 8 or 24 week timeframe you select, or at least incurred (earned) during that timeframe and paid shortly thereafter.

Finally, some tips to make the forgiveness process way easier!

  • If you can cover the entire amount of the forgiveness with payroll (not including payroll taxes), the application is much simpler. The extension from 8 weeks to 24 weeks makes this much more likely.
  • Does anyone receive compensation over $100,000? If so, see if you can justify the total forgiveness without including them. Your calculation will be easier.
  • Lastly, most of the third-party payroll processors can provide reports that contain the information you need to document forgiveness.

Of course, we have not answered all of your questions! Put PPP loan frequently asked forgiveness questions into your browser for a list of questions and answers from other sources.

John F Heveron, Jr. Principal, Heveron and Company CPAs

PPP Loan Forgiveness

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