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Paycheck Protection Program (PPP) Forgiveness Information

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The Paycheck Protection Program (PPP) was created to help keep small businesses afloat and their employees paid while they weather the Covid-19 pandemic. The U.S. government has provided two rounds of PPP loans, one in March 2020 under the CARES Act (PPP1) and one in December 2020 under the ECRA (PPP2), with similar forgiveness terms. The rules around PPP loan forgiveness for PPP1 and PPP2 are outlined below as they are updated by Congress, the U.S. Department of Treasury and the Small Business Administration. 
Importantly, qualified portions of PPP1 and PPP2 loans may be forgiven if borrowers use the loans for the following purposes over the 8 or 24 week period (at borrower's option) after the loan is made, or the "alternative covered period" for payroll expenses beginning with the next payroll period as described below, and employee and compensation levels are maintained as they were prior to the coronavirus:
● Payroll costs for those whose primary residence is the United States● Most mortgage interest and rent● Utility costs● Certain operating, supplier, repair and employee protection costs
For loans less that $150,000, with the passage of the ECRA in December 2020, the government has provided an expedited, one page loan forgiveness application. 
The ECRA also eliminated the reduction of PPP loan forgiveness for any EIDL grants or loans.
Further details of PPP forgiveness are as follows:

PPP Forgiveness Information

What is FORGIVABLE?

Borrowers are eligible to have all of their loans forgiven if they qualify.

How much is qualified?A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 8 or 24-week period (at borrower's election) beginning on the date of the origination of the loan (or during the "Alternative Covered Period" described below):
• Payroll costs (generally using the same definition of payroll costs used to determine loan eligibility)• Interest on the mortgage obligation incurred in the ordinary course of business for property not owned by the business owner(s)• Rent on a leasing agreement signed as of February 15, 2020• Payments on utilities (electricity, gas, water, transportation, telephone, or internet)• For borrowers with tipped employees, additional wages paid to those employees• Operating costs related to cloud or self-hosted software• Supplier costs for physical supplies your business needs to keep operating• Repair costs related to any destruction that occurred during 2020 due to social disturbances• Costs to maintain the safety of employees and customers
The loan forgiveness cannot exceed the principal.

How much can I GET FORGIVEN?

To estimate forgiveness you must analyze the types of expenses you have accrued OR paid during the loan period (or during the "Alternative Covered Period"). These expenses include the broad categories of Payroll, Mortgage Interest, Rent, and Utility Costs. We will discuss each of these types of expenses below so you understand them.

How do I calculate my average monthly PAYROLL COSTS for forgiveness?

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INCLUDED Payroll Costs for Forgiveness:1. For Employers: The sum of payments of any compensation with respect to employees that is a:• salary, wage, commission, tips, or similar compensation (capped at $100,000 on an annualized basis for each employee)• payment of cash tips and equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips)• payment for vacation, parental, family, medical, or sick leave• payment required for the provisions of group health care benefits, including insurance premiums• payment of any retirement benefits, including employer SEP/SIMPLE/401k match/Profit sharing/pension contributions • payment of state or local tax assessed on the compensation of the employee
2. For Sole Proprietors, Independent Contractors, and Self-Employed Individuals: The sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in one year, as pro-rated for the covered period. The maximum allowable amount is based on eight weeks of the 2019 net income as reflected on last year's 1040 Schedule C. ● Note on Owner Time Period: There is some possibility that the amount of payroll expenses payable to owners may be increased under the Paycheck Protection Program Flexibility Act to be based on an expanded 24 weeks of compensation, but we do not have final guidance from Treasury on this point.● Note on Bonuses: Please further note that owners may not pay themselves special bonuses, but you can pay bonuses to employees and have them considered in the forgivable amount.
3. Payroll Periods that are included: The included payrolls include either those paid OR accrued during the eight or twenty four week period (as the borrower elected) from the day the loan proceeds are dispersed (called the "Covered Period"). There is also allowed an "Alternative Covered Period," that will allow businesses to apply for forgiveness for payroll costs paid OR accrued starting with the first payroll period starting after the PPP funds are dispersed.● Note on Expense Timing: Importantly, loan forgiveness for both (i) expenses paid, but not incurred, during the Covered Period and (ii) expenses incurred, but not paid, during the Covered Period. In particular, payroll costs that were incurred before the Covered Period are eligible for loan forgiveness if they are paid during the Covered Period or Alternative Covered Period, whichever is elected by the borrower. Due to the Paycheck Protection Program Flexibility Act, borrowers may now elect for the Covered Period or Alternative Covered Period to be 24 weeks instead of 8 weeks. Payroll costs that are incurred during the last pay period of the Covered Period are eligible for loan forgiveness if they are paid on or before the next regular payroll date following the end of the Covered Period.● Note on Owner Expenses: The SBA regulations prohibit forgiveness for retirement or health insurance contributions for self-employed individuals, including Schedule C filers and general partners, as such expenses are paid out of their net self-employment income.
EXCLUDED Payroll Costs not be considered for forgiveness:1. Any compensation of an employee whose principal place of residence is outside of the United States2. Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the period February 15, to June 30, 20203. FICA payroll taxes, railroad retirement taxes, and income taxes required to be withheld from employees4. Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116–5 127); or qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act. 


How Could the Forgiveness BE REDUCED? 

If your PPP loan is greater than $150,000, the amount of loan forgiveness calculated above could be reduced if: 
● there is a reduction in the number of employees, ● a reduction of greater than 25% in wages paid to retained employees, or● less than 60% of the forgivable balance was spent on payroll expenses, in which case forgiveness will be reduced proportionately.
More specifically:
Reduction based on number of Full Time Equivalent (FTEs) employees:

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1 FTE equals an employee working an average of 40 or more hours per week. You may also use a simpler FTE calculation where employees working 40 hours or more per week on average count as 1 FTE and employees working less than 40 hours per week on average count as 0.5 FTE.
FTE Safe Harbors: You will be deemed to be in a "safe harbor" in regards to FTEs if you restore your full-time employment and salary levels by September 30, 2021 for any changes made between February 15, 2020 and April 26, 2020.
FTE Reduction Exception: Businesses applying for forgiveness for PPP2 loans will also be able to exclude those employees or hours from the FTE reduction if:
● made a good faith, bona fide offer of employment to an employee and that offer of employment was declined● an employee was terminated for cause● the employee voluntarily resigned● the employee voluntarily reduced his or her hours

Reduction based on Wages and Salaries:

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You will also owe money if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019. This is three-step measurement calculated on a per-employee basis, and reduces forgiveness on a dollar by dollar basis. The same employee safe harbor for the FTE calculation will apply to the wage/salary reductions.
Salary/Hourly Wage Reduction Safe Harbors: You will be deemed to be in a "safe harbor" for PPP2 loans in regards to Salary / Hourly Wages if you restore your salary and hourly wage levels for all those who made less than $100,000 in CY 2019 by September 30th, 2021 for any changes made between February 15, 2020 and April 26, 2020.
Businesses applying for forgiveness for PPP2 loans will also be able to exclude those employees or hours from the Salary / Hourly Wage reduction if:
● made a good faith, bona fide offer of employment to an employee and that offer of employment was declined● an employee was terminated for cause● the employee voluntarily resigned● the employee voluntarily reduced his or her hours
What will make my loan NOT forgivable? You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, utilities payments, and other covered operating, supplier, repair and PPE expenses over the 8 or 24 weeks (at borrower's option) after getting the loan. 

What DOCUMENTATION do I need to get my loan forgiven?

A borrower may apply for loan forgiveness only after the eight or twenty four week (at borrower's election) covered period expires, and the borrower gathers the required loan documentation. Comprehensive documentation is required to substantiate all eligible expenses. 
For payroll expenses, the borrower must provide:
● bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees;● tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the covered period, such as payroll tax filings reported, or that will be reported, to the Internal Revenue Service; and state quarterly business and individual employee wage reporting and unemployment insurance tax filings reported or that will be reported to the State;● payment receipts, canceled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the borrower included in the forgiveness amount.
For non-payroll expenses, the borrower must provide:
● documentation verifying the existence of the obligations and/or services prior to Feb. 15, 2020, and eligible payments made or accrued during the eight weeks following loan disbursement.

How do I get my loan FORGIVEN?

The SBA forgiveness application is provided in two forms, a standard form and an expedited "EZ" form:

Standard PPP Forgiveness ApplicationStandard PPP Forgiveness Application Instructions
Expedited 3508 EZ PPP Forgiveness ApplicationExpedited 3508 EZ PPP Forgiveness Application Instructions
Expedited 3508 S PPP Forgiveness ApplicationExpedited 3508 S PPP Forgiveness Application Instructions


To apply for loan forgiveness, you must submit to your lender the application, which consists of:
● PPP Loan Forgiveness Calculation Form, either the Standard, 3508 EZ or 3508 S (if loan amount is less than $50K); ● If Standard, then a PPP Schedule A; ● If Standard, then a PPP Schedule A Worksheet; and ● Optional PPP Borrower Demographic Information Form.
You can apply under the expedited PPP forgiveness program with the form 3508 EZ if you meet the following:
First, you must meet all of these criteria:- At least 60% of the loan amount was spent on qualified payroll expenses, and all other funds were used for other covered expenses (i.e. rent, mortgage interest, utilities, and other operating, supplier, repair and PPE expenses);- Owner-employee’s (or self-employed) compensation does not exceed $15,385/owner if electing the 8 week loan forgiveness covered period, or $20,833/owner if electing the 24 week loan forgiveness covered period;- You did not reduce salaries or hourly wages by more than 25 percent for any employee making less than $100K during the Covered Period or Alternative Payroll Covered Period compared to the period between January 1, 2020 and March 31, 2020;AND second, you must meet ONE of these two criteria:1) You did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period (other than any reductions that arose from an inability to rehire individuals who were employees on February 15, 2020, if the Borrower was unable to hire similarly qualified employees for unfilled positions on or before September 30th, 2020, and reductions in an employee’s hours that a borrower offered to restore and were refused);  OR2) You were unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements established or guidance issued between March 1, 2020 and September 30th, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.
You may apply for loan forgiveness after the eight or twenty four week covered period expires and you have gathered the required loan documentation.
Following the lender’s receipt of the application, the lender has up to 60 days to issue a decision on loan forgiveness. You will want to work with your Fiducial advisor to ensure that the appropriate amount of loan forgiveness is secured and that the tax treatment and reporting on a Form 1099-C, Cancellation of Debt, attributable to the PPP loan is correct.
Finally, from a potential tax deduction standpoint, as of the date of this writing, the IRS has issued subsequent guidance taking the position that ordinary business expenses that are forgiven as part of a PPP loan are in fact not deductible even if the forgiven loan proceeds are not included in income.

What about any PPP loan balance NOT FORGIVEN?

Paycheck Protection Program Loan terms are:• 1% fixed interest rate• All payments are deferred until after the lender receives a forgiveness amount from the SBA, or, if the borrower didn’t apply for forgiveness, then 10 months from the last day of the period in which the loan funds must be spent to be forgivable• Loans are due in 5 years for new loans; outstanding loans made before June 5th to be extended to 5 years upon mutual agreement between borrower and lender• You can only take out one loan under this program• There are no prepayment penalties or fees• No collateral is required to secure a loan• There is no personal guarantee requirement***However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.***

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