PPP Forgiveness: How Can You Get Your PPP Loan Forgiven?

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.

When can I apply for PPP forgiveness?

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.

How do I account for PPP forgiveness in my taxes? 

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.
2. The IRS has said that expenses are non-deductible in 2020—and Congress is currently debating whether to agree with that ruling.

Your 8-step guide to PPP forgiveness

To complete your checklist for the PPP forgiveness application, here is the order we would recommend:

1. Talk to your tax accountant

   1. The PPP has changed significantly from its inception through the CARES Act today. New rules were introduced under the PPP Flexibility Act, and the mechanics for achieving forgiveness have changed based on guidance released by the IRS and SBA.
   2. We strongly recommend talking to a professional before you begin!
       

2. Gather loan information

   1. Basic info for the form:

 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
 

3. Confirm requirements are met

   1. Staffing requirements (maintain a number of people on payroll compared to lookback period)—see “Staffing Requirements” sidebar for a calculation tool.
   2. Pay requirements (maintain at least 75 percent of total salaries). This requirement is to be individually assessed for employees that did not receive more than $100,000 in annualized pay in 2019. If the employee’s pay over the 24 weeks is less than 75 percent of the pay they received during the most recent quarter in which they were employed, the eligible amount for forgiveness will be reduced by the difference.
       

4. Determine which forgiveness application you will need to complete

   1. If the loan amount is less than $50K, use SBA Form 3508S.
   2. If the loan amount is more than $50K and you meet the staffing and pay requirements, use SBA Form 3508EZ.
   3. If the loan amount is more than $50K and you do not meet either the staffing or pay requirement, use Form SBA 3508.
   4. See this article from the JOA for more detail.
       

5. Perform the calculation

   1. General callouts:
      1. Owner-employee payroll costs must be limited to $20,833 (i.e., 2.5 months of compensation capped at $100K per year, or $100,000 x 2.5 / 12).
      2. 60% of loan proceeds must be used for payroll.
   2. Read more about calculations and pieces.
   
   
    

6. Gather documentation

   1. The US Chamber of Commerce has a comprehensive list! This is needed for submitting your application to your lender. Get the full list here.
   
   
    

7. Fill out the forgiveness form based on your calculation.

8. Submit to your PPP lender for forgiveness.