"PPPlease Forgive My Loan!"
PPP loan forgiveness—what it is PLUS an 8-step guide for how to get it. - Jacob Burger, Accelerated Growth
If you took advantage of the Paycheck Protection Program (PPP) loan program in 2020, the word “forgiveness” has likely been at the top of your mind. To understand what PPP forgiveness means and how to get it, let’s first take a look at why the Paycheck Protection Program was actually created.
Formed in March 2020 as an initiative by the federal government to provide relief and economic security (CARES Act) from the pandemic, the program is a $2 trillion fund to help businesses keep their employees on the payroll.
Apart from the loan terms being generous, the highlight of PPP loans is that they can be forgiven—if you meet specific criteria. The forgivable expenses such as payroll and rent need to be consolidated, and at least 60% of funds should have been spent on payroll.
It’s important to note that the program is under continuous evaluation—Congress has recently changed the rules, and The Treasury Department and Small Business Administration are regularly updating and processing application forms and specifications for loans forgiveness. But in general, the criteria indicate that borrowers should have used the loans to keep employees on their payrolls and maintain other specified business expenses.
To initiate the loan forgiveness, PPP borrowers must apply with the lender from whom they processed the loan. Then, follow this guide to the loan forgiveness process.
Although there is no defined deadline for borrowers submitting the forgiveness application, the borrower payments will be required 10 months after the end of the Covered Period.
As of October 12, 2020, the borrower does not need to make the payments until the forgiveness amount is remitted to the lender by the Small Business Administration (SBA). In case only a portion of the loan is forgiven or if the application is denied, the amount needs to be repaid by the borrower on or before the maturity of the loan.
The SBA is accepting applications now; however, borrowers will need to complete their applications through their lending bank, and not all banks have begun accepting PPP forgiveness applications. Borrowers should reach out to their PPP bank to confirm whether it is accepting applications and how the process works.
From a tax perspective, the IRS is currently taking the position that PPP-forgiven expenses are not deductible, so your PPP forgiveness will be treated as taxable income in 2020. It also issued rules that allow the taxpayer to claim a deduction in the 2020 tax year for otherwise deductible expenses. The revenue procedure does not prevent the IRS from examining tax returns to qualify taxpayer deductible expenses.
It is pertinent to note the following points before applying:
(1) Applications can be submitted now but do not need to be submitted until 10 months after the covered period and
(2) The IRS has said that expenses are non-deductible in 2020—and Congress is currently debating whether to they agree with that ruling.
To complete your checklist for the PPP forgiveness application, here is the order we would recommend:
i. SBA PPP Loan Number and Lender PPP Loan Number
ii. PPP Loan Amount and Disbursement Date
iii. Whether you are using the 8-week or 24-week covered period
Submit to your PPP lender for forgiveness.
With the rules changing and new provisions being added regularly, make sure to keep up to date with the PPP forgiveness guidelines. You can find the most recent updates here.