PPP loan forgiveness will be based on your ability to meet the eligibility requirements for loan forgiveness, which include, but are not limited to:
- Using the funds for allowable expenses (e.g. payroll, mortgage interest, rent and lease payments, utilities) during the 8-week or 24-week covered period.
- Submitting a completed PPP loan forgiveness application, including all the recommended supporting documents before your maturity date.
- The lender/SBA review. The lender has 60 days from receiving a completed PPP loan forgiveness application to issue a decision to the SBA. The lender must notify the borrower in writing if the lender has issued a decision denying the loan forgiveness application. Within 30 days of that notice, the borrower may request an SBA review of the lender decision.
The amount of loan forgiveness may be up to 100% of the principal amount of your PPP loan plus accrued interest, if the funds were used for eligible expenses. PPP loan forgiveness is not automatic, and you must apply through the lender that issued your PPP loan. The information contained below is a summary based on laws, rules, regulations, and related guidance with respect to the Paycheck Protection Program, including guidance issued by the U.S. Small Business Administration (SBA). To read the most recent release of the SBA’s full guidance, click here.
What business expenses qualify for forgiveness? – at least 60% of your total forgivable amount must be used for eligible payroll costs; a maximum of 40% can be used for nonpayroll costs.
- Eligible payroll costs, including compensation to owners and employee benefits; for each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed a pro-rated annual salary of $100,000.
- Non-payroll costs including:
- Interest payments on business mortgage obligations on real or personal property, where the mortgage originated before February 15, 2020, (but not any payment of principal or prepayment of interest)
- Business rent or lease payments for real or personal property, where the rent or lease agreement was in force before February 15, 2020
- Business utility payments (electricity, gas, water, transportation, telephone, or internet access) for which service began before February 15, 2020
When is the covered period for payroll costs to be paid and/or incurred? Payroll costs for the covered period must be paid or incurred during a 24-week (168 day) covered period (ending December 31, 2020, at the latest); if you received your loan before June 5, 2020, then you can choose an 8-week (56 day) or 24-week (168 day) covered period. The covered period begins on the date you received the PPP loan proceeds or if you have a biweekly or more frequent payroll schedule, the period that begins on the first day of the first pay period after you received the PPP loan proceeds.
Which payroll costs are eligible for loan forgiveness?
- Gross salary, gross wages, gross tips, gross commissions, paid leave (vacation, family, medical or sick leave, not including leave covered by the Families First Coronavirus Response Act), and allowances for dismissal or separation
- Payments for employer contributions for employee health insurance, including employer contributions to a self-insured, employer-sponsored group health plan, but excluding any pre-tax or after-tax contributions by employees
- Payments for employer contributions to employee retirement plans, excluding any pre-tax or after-tax contributions by employees
- Payments for employer state and local taxes assessed on employee compensation (such as state unemployment insurance tax), excluding any taxes withheld from employee earnings
- Payroll costs may include bonus and hazard pay, and may include salaries paid to furloughed employees.
Are there caps or exclusions of any payroll costs? Yes, you must exclude any compensation to an employee whose principal place of residence is outside of the United States, compensation to an independent contractor (1099), and qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (FFCRA).
How is compensation for self-employed counted? Are there caps? If you are a self-employed individuals filing 1040 Schedule C, you are capped based on 2019 net profit. For general partners, you are capped by the amount of your 2019 net earnings from self-employment (reduced by certain adjustments) multiplied by 0.9235. For borrowers with a 24-week covered period, the maximum amount of loan forgiveness you can claim as compensation per individual owner or partner is the lower of 2.5 months of compensation earned in 2019 or $20,833, which is the 2.5-month equivalent of $100,000 per year. If you elect an 8-week covered period, the maximum is set at $15,385, which is the 8-week equivalent of $100,000.
Safe Harbor Provisions & Reductions in Loan Forgiveness
Are there possible reductions to my loan forgiveness amount? If you had a reduction in full-time equivalency (FTE) or wage level, your forgiveness amount may be reduced. You may be exempt from these reductions if you restored FTE and wage levels no later than December 31, 2020. You may also be exempt from these reductions if you can document that you are not able to rehire employees or hire replacement employees for unfilled positions or cannot return to normal business activities because of COVID related safety requirements.
What is a full-time equivalency (FTE) employee? Full-time equivalency (FTE) employee generally means an employee who works an average of 40 hours or more each week. For part-time employees who work less than 40 hours, calculate their FTE as a proportion of 40 hours. For example, if an employee worked 32 hours per week on average, the employee should be counted as 0.8 FTE. SBA also offers a simplified method that assigns all part-time employee as 0.5, if that is preferable.
How does an FTE reduction affect my forgiveness? In general, your loan forgiveness will be reduced by the same percentage as the percentage reduction in FTE employees. This is calculated by comparing the average weekly FTE employees during the covered period (or the alternative payroll covered period) with the FTE reduction reference period selected. For example, if you had 10.0 FTE employees during the FTE reduction reference period and this declined to 8.0 FTE employees during the covered period, only 80% of otherwise eligible expenses will be forgiven.
How does the FTE Reduction Safe Harbor Work? The Safe Harbor exempts or protects you from the reduction in loan forgiveness due to a decrease in FTE employee levels. You are exempt from the reduction in loan forgiveness if you reduced FTE employee levels between February 15, 2020, and ending April 26, 2020, AND you then restored the FTE employee levels by no later than December 31, 2020. You may also be exempt from these reductions if you can document that you are not able to rehire employees or hire replacement employees for unfilled positions or cannot return to normal business activities because of COVID related safety requirements.
What if I had to terminate an employee during the covered period? If an employee was fired for cause, voluntarily resigned, or voluntarily requested a reduction of hours, you may count that employee at the same FTE level as before.
What if I laid-off or reduced the hours for an employee, but then offered to rehire him/her for the same salary and number of hours? No. If you made a good-faith written offer to rehire or offered to restore the employee’s hours at the same salary or wages, you will not have an FTE reduction for that employee. You must document the offer rejection and inform your state unemployment insurance office of the rejection within 30 days.
What happens if I had a reduction in employees’ salary or wages? If the average annual salary or hourly wage for each employee working during the covered period selected was at least 75% of their average annual salary or hourly wage in the salary reduction reference period, there is no salary/hourly wage reduction.
What am I required to certify as part of my forgiveness application? On the PPP forgiveness application, an authorized representative of the borrower must certify to all of the following. Note that failure to provide additional documentation requested by the SBA may result in a denial of forgiveness or a determination of loan inelitibility.
- The dollar amount for which forgiveness is requested was used for eligible expenses
- Understanding the consequences of knowingly using funds for unauthorized purposes
- Payments for eligible costs for which forgiveness is being requested have been verified
- The recommended supporting documents have been submitted
- The information provided in the application and supporting documentation is true and correct in all material respects
- Tax documents submitted are consistent with those that have been or will be submitted to the IRS
The PPP Loan Forgiveness Application Process
What dates should I be aware of related to loan forgiveness? To be eligible for forgiveness, you need to use the loan proceeds on eligible costs within the 8-week or 24-week covered period (ending December 31, 2020, at the latest).
Which application should I choose? There are two different application forms: the simplified 3508EZ or the standard form 3508.
Form 3508EZ is available for :
- Sole proprietors, independent contractors or self-employed individuals with no employees. This form assumes that no employees , other than the owner, were used to calculate the amount of the loan on the front-end application.
- Businesses who did not reduce salary or wages for any employee by more than 25%, and did not reduce the number or hours of employees (excepting laid-off employees who refused an offer to return)
- Businesses who did not reduce salary or wages for any employee by more than 25% during the covered period and experienced reductions in business activity as a result of health directives related to COVID-19
Standard Form 3508 – All other businesses that do not meet the criteria above must complete the standard form 3508.
What information and documentation will I need to submit for my application? You will need to complete the application inside the secure Landmark online forgiveness platform. We will not accept applications downloaded from other sources. You’ll also be required to submit the application and Schedule A, as well as documentation, including:
Payroll documentation verifying eligible payments, consisting of the following:
- Bank account statements or third-party payroll service provider reports
- Tax forms including IRS Payroll tax filings (typically Form 941) and state quarterly business and individual wage reporting and unemployment insurance tax filings
- Payment receipts, cancelled checks, or account statements documenting employer benefits contributions
FTE documentation showing the number of FTE employees for the FTE reduction reference period selected.
Nonpayroll documentation verifying the existence of obligations/services prior to February 15, 2020, and eligible payments, consisting of the following:
- Business mortgage interest payments: account statements or amortization schedules and receipts or cancelled checks
- Business rent or lease payments: account statements or current lease and receipts or cancelled checks
- Business utility payments: account statements or invoices and receipts or cancelled checks
While the bank may have some of these documents on file, the SBA requires you, as the borrower, to supply the documents to validate your expenses. Please note, the documents required for form 3508EZ are the same as listed above, except Form 3508EZ does not have a Schedule A and the FTE report is not required.