PPP Loan Forgiveness
- Loans can be forgiven up to the full principal amount + accrued interest if proceeds are used for a forgivable purpose and employee compensation levels are maintained during the 8-week covered period.
- The 8-week period starts as soon as loan funds are disbursed to the borrower.
- At least 75% of eligible costs sought for forgiveness must be eligible payroll expenses.
- Payroll expenses: are eligible for 100% forgiveness for the total loan amount.
- Eligible payroll expenses include: Salary/wages/tips (capped at $100,000 annually per employee), employee benefits, state and local payroll taxes, self-employed wages/commissions/income/net earnings (capped at 100,000 annually), and normal paid sick leave.
- Qualified Paid Sick Leave and Family leave for which credit is eligible under the Families First Coronavirus Response Act are not eligible payroll expenses.
- Must maintain staffing and salary/wage levels
- Other eligible expenses: mortgage interest, rent, and utilities are also forgivable up to 25% of the total loan amount.
- Mortgages and Leases must have been in effect prior to 2/15/2020
- Borrowers must apply for forgiveness through lender.
- Expenses must be documented.
- Payroll tax reports, payroll provider reports, group healthcare benefits, retirement plan benefits, canceled checks, invoices, receipts, bank statements etc.
- Many big payroll companies now have PPP reports to provide to lenders
- For more in-depth resources on calculating loan forgiveness and documentation guidance, see American Institute of CPAs SBA Paycheck Protection Program resource page at aicpa.org.
If Employee Refuses Offer to be Re-hired
- Borrower can exclude employee from the loan forgiveness calculation if the Borrower made a good-faith, written offer of rehire and documented the employee’s rejection of that offer
What Can Reduce Forgiveness Amount
- Less than 75% of the loan amount is used for eligible payroll costs
- Salary/wages reduced by more than 25% for any employee making less than 100,000 annually
- Reduced number of full-time equivalent employees (FTE)
- Staff levels should be equal to full time/full time equivalent employees used as the baseline for original loan amount calculation
- Any amounts used for non-eligible expenses
- The maximum forgiveness amount for a PPP Loan will be reduced dollar for dollar by the amount of any advance received under the Economic Injury Disaster Loan (EIDL) program.
Borrower Good Faith Certification
- Any borrower receiving a PPP loan for less than 2 million will be deemed to have made the required certification concerning necessity of the loan request in good faith.
Other PPP Issues
- Eligible costs covered by forgiven loan amounts are not tax deductible (IRS Notice 2020-32).
- Employee Retention Credit
- An Employer that receives a PPP Loan is not eligible to claim Employee Retention Credits.
- SBA will release additional guidance on forgiveness
- Sources for More Info
Business Law Section Council