Paycheck Protection Program (PPP) Loan Forgiveness (Latest Updates July 2021)

This post is now closed. Please refer to forum post How to Apply for PPP Loan Forgiveness.

Updated 7/15/2021:

Candace J. Dixon

LATEST UPDATES:

7/2/2021

The Small Business Administration announced the closing of the Restaurant Revitalization Fund (RRF) program on July 2, 2021. The program made restaurants and bars eligible for economic aid equal to their pandemic-related revenue loss, with a cap of $10 million per business and $5 million per location. Eligible uses for the funds included payroll and rent, as outlined by Congress.

Underserved populations received about $18 billion in grant awards, with a $268,000 average grant award given to applicants. The SBA's COVID-19 relief options page has information on the remaining Economic Relief programs including the Economic Injury Disaster Loans (EIDL) and Targeted EIDL Advance.

Targeted EIDL Advances

The Economic Aid Act approved an additional $20 billion for emergency EIDL advances (e., grants) of up to $10,000 through December 31, 2021. You may be eligible to receive funds up to $10,000 if you are located in a low-income community, previously received an EIDL Advance for less than $10,000, or previously applied but received no funds due to lack of available program funding. To be eligible you must have suffered greater than a 30% economic loss in 2020 as compared to 2019, and have no more than 300 employees. You can apply on the SBA Targeted EIDL Advance portal on the SBA website.

The Paycheck Protection Program (PPP) ended on May 31, 2021.

On June 1 , U.S. Small Business Administrator Isabella Casillas Guzman issued the following statement on the closure of the Paycheck Protection Program (PPP), which has provided over $798 billon in economic relief to small businesses and nonprofits across the nation, keeping employees employed and helping businesses come back stronger than ever.

The most updated PPP Forgiveness FAQs can be found here: Paycheck Protection Program (PPP) Loans Frequently Asked Questions: (as of June 8, 2021)

Employee Retention Credit Update The 2021 Appropriations Act permits an employer that received a PPP loan to be eligible to claim an ERC, effective retroactive to the original effective date of the CARES Act. Prior to that act, PPP recipients were not eligible for the ERC.

On March 1, 2021, the IRS issued guidance addressing the ERC as it applies to qualified wages paid after March 12, 2020, and before January 1, 2021, and the interaction with PPP loans. This guidance is only for 2020. An employer is permitted to elect not to take certain qualified wages into account for purposes of the ERC, but, the borrower is considered to have made an election for those qualified wages that are included in the amount reported as payroll costs on the loan forgiveness application.

Rule by the Small Business Administration and the Treasury Department on 02/05/2021 - Business Loan Program Temporary Changes; Paycheck Protection Program-Loan Forgiveness Requirements and Loan Review Procedures as Amended by Economic Aid Act

There is guidance in this interim final rule on requirements of the forgiveness of PPP loans, as well as information for borrowers and lenders about the SBA's process for reviewing loan applications and loan forgiveness applications. It implements changes related to the forgiveness and review of loans made under the Paycheck Protection Program (PPP), consolidates prior rules related, and incorporates changes made by the Economic Aid Act, including those regarding forgiveness of second draw PPP loans.

Deductibility of Certain Expenses The 2021 Appropriations Act ‎reversed the IRS by stating that ordinary and necessary business expenditures that provide for the forgiveness of a PPP ‎loan are deductible, clarifying that “no deduction shall be denied, no tax attribute shall be reduced, and no ‎basis increase shall be denied, by reason of the exclusion from gross income provided” by Section 1106 of the ‎CARES Act. The IRS had previously taken a position ‎that otherwise deductible business expenditures providing for the forgiveness PPPs ‎loan were not be deductible, but on January 6, 2021 the IRS declared Notice 2020-32 eliminating possible double tax benefits and Rev. Rul. 2020-27 addressing expense deductibility obsolete.

Paycheck Protection Program (PPP) Loan Forgiveness

Congress created the Paycheck Protection Program (PPP) in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was signed into law in March of 2020, implemented by the Small Business Administration (SBA) with support from the Department of the Treasury. It is a small business loan meant to give an incentive for small businesses to keep their workers on the payroll. It provided small businesses with the necessary resources to maintain payroll, hire back employees who were laid off, and cover applicable overhead. PPP loans have an interest rate of 1 percent.

The program provided small businesses with funds to pay up to 8 weeks of payroll costs including benefits. Funds could also be used to pay interest on mortgages, rent, and utilities.

The PPP program authorized the Small Business Administration to guarantee new loans to eligible businesses affected by COVID-19. The loans have the potential to qualify for tax-free loan forgiveness.

The deadline for applying for a PPP loan under the first program was August 8, 2020. On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act) became law and extended PPP loans through March 31, 2021, revising some of the requirements.

PPP loan recipients can apply for forgiveness and have all or part of the loan forgiven if they meet certain requirements. These requirements have changed since the program began, so you should always refer to the Paycheck Protection Program page on the U.S. Department of the Treasury website; the instructions that come with the forgiveness application forms and instructions; and the Paycheck Protection Program page on the Small Business Association website.

Which application should you use?

There are three different application forms released by the SBA, all of which have been simplified:

• Form 3508EZ You can use this if your total PPP loan amount was greater than $150,000 and your business can make required certifications about reductions in employee compensation and other requirements. Borrowers can use Form 3508EZ to calculate the forgiveness amount by adding all eligible payroll and nonpayroll costs to calculate the potential forgiveness amount, and then adjusting that amount by the payroll cost 60% requirement to arrive at the forgiveness amount.

• Form 3508 This is the standard PPP Loan Forgiveness Calculation Form that can be used by everyone. (May 24, 2021) Borrowers can use Form 3508 to calculate the amount of forgiveness by adding all eligible payroll and nonpayroll costs to calculate the potential forgiveness amount, then adjusting that amount for full-time equivalency (FTE) and salary/hourly wage reductions, and then adjusting that amount by the payroll cost 60% requirement to arrive at the forgiveness amount.

• Form 3508S This is the simplest form; you can use this if your total PPP loan amount was $150,000 or less. (May 24, 2021) Form 3508S requires fewer calculations and less documentation. Borrowers list the PPP loan amount, the amount of loan spent on payroll costs, and the requested loan forgiveness amount. The borrower is not required to show the calculations used to determine their loan forgiveness amount.

However:

• The SBA may request information and documents to review those calculations as part of its loan review or audit process. If the application is being submitted for a First Draw PPP Loan approved on or before August 8, 2020 and the borrower is required to submit a Form 3508D disclosure of a controlling interest, that disclosure must be submitted to the lender not later than 30 days after submission of the loan forgiveness application.

• If the loan forgiveness application is being submitted for a Second Draw PPP Loan, the borrower must simultaneously submit to their lender documentation supporting the gross receipts reduction certification on the borrower’s loan application if they did not previously submit the documentation to the lender.

• Borrowers that use Form 3508S are not exempt from reductions for forgiveness amounts based on reductions in FTE employees or in salaries or wages.

What are the requirements for loan forgiveness?

Use PPP loan funds within the Loan Forgiveness Covered Period (LFCP) Your LFCP generally begins the date you receive loan proceeds from your lender and ends on any date you choose that is between 8 and 24 weeks after the LFCP start date. The covered periods for a First Draw PPP Loan and a Second Draw PPP Loan cannot overlap; the borrower must use all proceeds of the First Draw PPP Loan for eligible expenses before disbursement of the Second Draw PPP Loan.

Use 60% or more of your PPP funds on eligible payroll costs If you use less than 60% of your PPP funds on eligible payroll costs, you will only be eligible for partial loan forgiveness.

Eligible Payroll Costs:

• Salary, wages, commissions, and similar compensation, along with cash or equivalent tips

• Employee benefits including paid vacation; parental, family, medical, and sick leave

• Allowance for employee separation or dismissal

• Payments required for group healthcare benefits or for group life, disability, vision or dental insurance, including insurance premiums

• Payment of retirement benefits

• Payment of certain state and local taxes assessed on employee compensation

Ineligible Payroll Costs:

• Premiums for COBRA continuation coverage used in determining the credit under section 6432 of the Internal Revenue Code

• Amounts paid to an independent contractor or sole proprietor (an independent contractor or sole proprietor will itself be eligible for a loan under the PPP)

• Compensation for employees that live outside the United States

• Compensation for an individual employee for more than $100,000 in annual salary

• The employer’s share of payroll tax

• Income taxes

• Railroad retirement taxes

• Qualified sick or family leave wages for which there is a credit under the Families First Coronavirus Response Act

• Payroll costs paid to retain employees under the Employee Retention Credit provided for in the Coronavirus Aid, Relief, and Economic Security (CARES) Act

• The Employee Retention Credit under section 2301 of the CARES Act, as amended by section 206 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act) (CARES Act Employee Retention Credit)

• The Employee Retention Credit under section 3134 of the Internal Revenue Code (ARP Employee Retention Credit)

• The disaster credit under section 303 of the Relief Act (Disaster Credit)

The new law, retroactive to March 27, 2020, allows employers that received Paycheck Protection Program (PPP) loans to claim the ERC for qualified wages not treated as payroll costs in obtaining forgiveness of the PPP loan.

Payroll costs are calculated on a gross basis, without subtracting federal taxes that are imposed on the employee or withheld from employees’ wages, such as the employee’s and employer’s share of (FICA) and income taxes required to be withheld from employees. 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 each individual (non-owner) employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000. Forgivable loan amounts paid to owner-employees with less than a 5% ownership stake in a C- or S-Corporation; self-employed individuals; and general partners are capped differently.

Use up to 40% of funds on other eligible non-payroll business costs No more than 40% of the forgiveness amount may be attributable to non-payroll costs.

1/8/2021 Update:

First Draw PPP Loans can be used to help fund payroll costs, including benefits. Funds can also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.

The Paycheck Protection Program (PPP) now allows certain eligible borrowers that previously received a PPP loan to apply for a Second Draw PPP Loan with the same general loan terms as their First Draw PPP Loan. Second Draw PPP Loans can be used to help fund payroll costs, including benefits. Funds can also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.

(almost everything that was prohibited before is now allowed)

Ineligible non-payroll business costs include:

• Amounts attributable to the business operation of a tenant or sub-tenant of the PPP borrower or, in a home-based business, household expenses

• Mortgage interest payments to a related party

• Advance payments of interest on a covered mortgage obligation (prepayments)

• Principal on mortgage obligations

What factors reduce the forgivable amount?

If you have employees, your loan forgiveness amount may be reduced as a result of reductions to employee headcount or wages. These reductions apply to borrowers that received a PPP loan of more than $50,000, or that together with their affiliates received total first draw loans or total second draw loans of $2 million or more. You should review SBA and Treasury guidance and specific instructions for the forgiveness application form you are using to understand when these reductions apply.

Reducing the number of employees Your loan forgiveness amount may be reduced if the average weekly number of full-time equivalent employees you employ during your LFCP is less than the average weekly number of full-time equivalent employees between one of the following reference periods selected by the applicant:

• February 15, 2019 and June 30, 2019, or

• January 1, 2020 and February 29, 2020

Seasonal applicants may choose either of the above reference periods or any consecutive 12-week period between February 15, 2019 and February 15, 2020.

Your loan forgiveness amount will not be reduced based on headcount reductions if either:

• Reductions made between February 15, 2020 and April 26, 2020 are reversed by December 31, 2020 (or by the last day of the LFCP for loans made on or after December 27, 2020); or

• Your business was unable to operate at the same level as before February 15, 2020, due to compliance with federal requirements or guidance issued between March 1, 2020 and December 31, 2020 (or not later than the last day of the LFCP for loans made on or after December 27, 2020) related to maintaining standards of sanitation, social distancing, or other work or customer safety requirements related to COVID-19.

You can exclude a reduction in headcount if you made a good faith, written offer to the employee to restore hours for the same salary or wages and same number of hours as the employee earned during the last pay period prior to reduction, and the employee rejected the offer, and you maintained records documenting the offer and rejection.

You can exclude a loan forgiveness reduction arising from a proportional reduction in FTE employees if you can document in good faith that you were unable to rehire individuals who were your employees on February 15, 2020, and have been unable to hire similarly qualified individuals for unfilled positions. You can also exclude a reduction where an employee is fired for cause, voluntarily resigns, or voluntarily requests a schedule reduction.

Reducing employee salary or wages Your loan forgiveness amount may be reduced if the average annual salary or average hourly wages for any employee during the LFCP are more than 25% lower compared to the most recent full quarter during which the employee was employed before the LFCP.

This forgiveness reduction does not apply to reductions associated with employees who received compensation at an annualized rate of more than $100,000 for any pay period in 2019. If reductions made between February 15, 2020 and April 26, 2020 are reversed by December 31, 2020 (or by the last day of the LFCP for a PPP loan made on or after December 27, 2020), your loan forgiveness amount will not be reduced due to salary or wage reductions.

What are the steps in applying for PPP Loan Forgiveness?

If you're a PPP loan recipient, you will submit a PPP Loan Forgiveness Application to your lender or the lender servicing your PPP loan. Once you submit your application, the lender will determine your loan forgiveness eligibility.

Borrowers of loans less than $150,000 submit PPP Loan Forgiveness Form 3508S, which is a streamlined one page forgiveness application that only requires you to state the number of employees you were able to keep on payroll as a result of the loan, your estimated total payroll costs, the total amount of your PPP loan, and your requested forgiveness amount. You may submit a loan forgiveness application any time on or before the maturity date of the loan. A borrower applying for forgiveness of a second PPP loan that is more than $150,000 must submit the loan forgiveness application for its first PPP loan before or at the same time as the loan forgiveness application for its second PPP loan.

Any 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.

You don't need to make any payments on your PPP loan until you file for forgiveness, and the SBA pays your forgiveness amount to your lender or notifies your lender that you are not eligible for forgiveness. The lender has 60 days from receipt of a complete application to issue a decision to SBA. If you do not apply for forgiveness within 10 months from the end of the maximum 24-week LFCP, your Deferment Period will end at this time. Interest on your PPP loan will accrue during the Deferment Period.

If your loan isn't fully forgiven, you will have to pay back any remaining balance on your loan based on the terms of the loan agreement with your lender. The PPP requires that loans made on or after June 5, 2020 have to be repaid within five years from the disbursement date, and that loans made before June 5, 2020 have to be repaid within two years from the disbursement date unless you and your lender agree to extend the payback period to five years.

What documents do you have to include with the PPP Loan Forgiveness Application or keep in your files?

You should review the instructions for each SBA application form, as documentation requirements differ. Also, you must keep but don't have to submit certain documentation. An eligible borrower that received a loan of $150,000 or less should use the SBA Form 3508S and is not, at the time of its application for loan forgiveness, required to submit any application or documentation in addition to the certification and information required by the Small Business Act.

For Second Draw PPP Loans, borrowers must certify on their loan forgiveness application that they used all First Draw PPP Loan amounts on eligible expenses prior to disbursement of the Second Draw Loan.

For Second Draw PPP Loans in excess of $150,000, the borrower must submit its loan forgiveness application for the First Draw PPP Loan before or at the same time as the loan forgiveness application for the Second Draw PPP Loan, even if the calculated forgiveness amount for the First Draw PPP Loan is zero.

An eligible borrower that received a Second Draw loan of $150,000 or less and is using the Form 3508S must, before or at the time they apply for loan forgiveness, submit documentation sufficient to establish that they experienced a reduction in revenue as provided in the interim final rule on Second Draw PPP Loans, unless they already provided the documentation when they applied for the Second Draw PPP Loan. Documentation includes relevant tax forms, including annual tax forms, or, if relevant tax forms are not available, a copy of the applicant's quarterly income statements or bank statements.

Below are lists of documents required to be submitted with Form 3508.

Payroll expenses for the Loan Forgiveness Covered Period

• Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.

• Payroll tax forms (or equivalent third-party payroll service provider reports) to demonstrate payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941).

• Tax forms (or equivalent third-party payroll service provider reports) to demonstrate 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, canceled checks, or account statements documenting the amount of any company contributions to employee group health, life, disability, vision or dental insurance and retirement plans that the borrower included in the forgiveness amount.

• The 2019 Form 1040 Schedule C/F or K-1 if applicable.

Full-time employees during the reference period selected by the borrower

• Documentation verifying the average number of FTEs on payroll per week employed by the borrower during the reference period selected by the borrower for purposes of assessing whether a reduction of the forgiveness amount due to an FTE reduction was required.

• Documents may include 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. (Documents submitted may cover periods longer than the specific time period.)

Non-payroll expenses

• Business mortgage interest payments Copy of lender amortization schedule and receipts or canceled checks verifying eligible payments from the LFCP; or lender account statements from February 2020 and the months of the LFCP through one month after the end of that period verifying interest amounts and eligible payments.

• Business rent or lease payments Copy of current lease agreement and receipts or canceled checks verifying eligible payments from the LFCP; or lessor account statements from February 2020 and from the LFCP through one month after the end of that period verifying eligible payments.

• Business utility payments Copy of invoices from February 2020 and those paid during the LFCP and receipts, canceled checks, or account statements verifying those eligible payments.

• Covered operations expenses Copy of invoices, orders, or purchase orders paid during the Covered Period and receipts, canceled checks, or account statements verifying those eligible payments.

• Covered property damage costs Copy of invoices, orders, or purchase orders paid during the Covered Period and receipts, canceled checks, or account statements verifying those eligible payments, and documentation that the costs were related to property damage and vandalism or looting due to public disturbances that occurred during 2020 and such costs were not covered by insurance or other compensation.

• Covered vendor costs Copy of contracts, orders, or purchase orders in effect at any time before the Covered Period (except for perishable goods), copy of invoices, orders, or purchase orders paid during the Covered Period and receipts, canceled checks, or account statements verifying those eligible payments.

• Covered worker protection expenses Copy of invoices, orders, or purchase orders paid during the Covered Period and receipts, canceled checks, or account statements verifying those eligible payments, and documentation that the expenditures were used by the Borrower to comply with applicable COVID-19 guidance during the Covered Period.

Additional documentation you need to maintain Review the instructions to the applicable PPP loan forgiveness application (3508, 3508EZ, or 3508S) for a list of documents that borrowers must retain, and the amount of time that such documents must be retained. There are separate documentation requirements specific to each application.

How and when do you pay any portion of your loan that you need to pay back?

When you submit your complete application, your lender will review it within 60 days before submitting their forgiveness decision to the SBA. The SBA has 90 days after the lender submits your application to issue a final determination. When the lender hears back from the SBA, they'll contact you and include all the details on how to make payments.

Economic Injury Disaster Loans

In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories became eligible to apply for Economic Injury Disaster Loan advances of up to $10,000. This advance provided relief to businesses experiencing a temporary loss of revenue and does not have to be repaid.

Resources:

Interim Final Rule on Loan Amount Calculation and Eligibility (originally posted 3/3/2021)

Interim Final Rule on Paycheck Protection Program as Amended by American Rescue Plan Act (originally posted 3/18/21)

Frequently Asked Questions (as of June 8, 2021)

Regulations and guidance from the SBA and the U.S. Department of the Treasury on the PPP are evolving all the time, and this information may be outdated. You should also refer to the latest guidance from the Small Business Association (SBA) and Treasury for the most current program rules and how they apply to your unique situation. Loan and forgiveness calculations and eligibility vary.