PPP Loan Forgiveness Application and Updates

PPP Loan Forgiveness Application and Updates

On May 15, 2020, the SBA released the PPP Loan Forgiveness Application. This brings more clarification to some unanswered questions.

The application and instructions include the following:

  • Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles
  • Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after receiving their PPP loan
  • Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness
  • Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30 or making a good-faith, written offer to rehire workers that was declined
  • View the PPP Loan Forgiveness Application and Instructions


Recordkeeping Requirements

Recordkeeping and exact adherence to the 8-week, or 56 days, is important. The 8-week period starts the day the funds are deposited into your bank account.  You need to use at least 75% of your loan amount on Payroll Costs during the 8-week period, and we suggest going a little higher. Matching employer taxes, such as Social Security and Medicare do not count as Gross Payroll.  State and Local Taxes, which for most of our clients is only State Unemployment Costs can be added to Gross Payroll.  Also included in Payroll Costs are Health Insurance Payments and Retirement Contributions.  The other 25% can be rent, mortgage loan interest (includes interest on real property and personal property, so equipment loans and vehicle loans can be used), and utilities.  All these other payments need to be on plans or leases that were set up before February 15, 2020.

It is up to the bank where you obtained your loan to make the final decision on these items. We recommend you clarify items with your banker.

Accounting for the 8-Week Period

 How do you need to account for the funds?  If you are using QuickBooks it is very easy to pull reports for the 8-week period since QuickBooks is date sensitive and we can run a Profit & Loss for the exact dates that correspond to your 8-week loan period. Check out Haynie & Company’s Loan Forgiveness Calculator. It allows you to weekly summarize your qualified expenditures so that you can see if you are on target to use your PPP Loan Funds in the correct categories throughout the 8-week period.

Compensation to Owners

On the Loan Forgiveness Application, the owner’s payroll is reported separately from non-owner employees. One clarification is that owner’s payroll that is eligible for loan forgiveness is limited to the lesser of 8 weeks of 2019 payroll or 8 weeks of 2020 payroll. This prevents owners from increasing their salary during the PPP 8 -week period.

For example: If an owner made $60,000 in 2019, the maximum eligible for PPP loan forgiveness is 8/52*$60,000=$9,230. If the owner received $15,385 during the 2020 8-week PPP period, the amount eligible for loan forgiveness is $9,230.

Since self-employed individuals are not included on payroll, the amount eligible for forgiveness for a self-employed individual is 8/52 of their 2019 Schedule C net profits (subject to the same $100,000 limit).

Decrease in Employees and/or Employee Wages Reduce Loan Forgiveness

These loans may be fully forgiven if they are used for the intended purpose of keeping your employees employed during the 8 weeks following the funding of the loan. It is important to be aware of how forgiveness is determined so you can maximize loan forgiveness for your particular circumstances. You must consider all the minutiae built into the loan forgiveness computation that will reduce the forgiveness.

  • Reduction of Pay – You must determine any reduction in pay that is more than 25% on an employee-by-employee basis. These reductions more than the 25% will reduce the forgiveness amount dollar for dollar. There is no reduction in pay for an employee whose reduction is restored by June 30, 2020. Reductions of less than 25% are not used in this calculation.
  • Decrease in Employees – Where the average number of employees has been reduced during the 8-week period as compared to a prior testing period, the forgiveness is proportionally reduced. For example, if there were an average of 10 employees during the testing period and an average of 9 during the 8-week period, then the forgiveness will be reduced by 10%. You will be able to choose either January 15 to June 30, 2019 or January 1 to February 29, 2020 as your testing period. This is computed using FTE’s (Full-Time Equivalents) based on a 40-hour week, so part-time employees are converted to FTE’s.
  • Limitation of Expenses Other than Payroll – Although the loan proceeds are primarily intended for maintaining payroll, other qualified uses include rent, lease, business interest and utility payments in force before February 15, 2020. However, these expenses are limited to 25% of the forgiven debt.


Contact Us

At Haynie & Company we can help you maximize your loan forgiveness based upon these new government guidelines.

View the PPP Loan Forgiveness Application and Instructions