PPP loan forgiveness FAQ
The COVID-19 pandemic significantly altered consumer behavior and sparked sharp cost-cutting measures, including employee furloughs, layoffs and terminations. To survive, many business owners turned to the Paycheck Protection Program (PPP) for much-needed capital, favorable terms and the opportunity for loan forgiveness.
The Small Business Administration (SBA) will begin accepting forgiveness applications from lenders on August 10, so many borrowers are focused on securing the maximum forgiveness amount possible. In preparation, the SBA released an updated version of the PPP Loan Forgiveness FAQ document. The update addresses FTE reductions, employee pay reductions, group healthcare costs and more.
Here’s a summary of the update:
PPP loan forgiveness FAQ
Application form: Which loan forgiveness application should you complete if you’re a sole proprietor, independent contractor or self-employed individual with no employees?
Sole proprietors, independent contractors and self-employed individuals who had no employees at the time of the PPP loan application and did not include any employee salaries in the average monthly payroll computation in the borrower application form should use loan forgiveness application Form 3508EZ or their lender’s equivalent.
Eligibility: Are payroll costs that were incurred during the covered period eligible for loan forgiveness? What about payroll costs that were incurred during the alternative payroll covered period, but paid after the covered period or after the alternative payroll covered period?
Yes, payroll costs are eligible if they were paid on or before the next regular payroll date after the covered period or the alternative payroll covered period.
Eligibility: Are payroll costs that were incurred before the covered period but paid during the covered period eligible for loan forgiveness?
Yes.
Calculating compensation: For purposes of calculating cash compensation, should borrowers use the gross amount before taxes, employee benefits payments and similar deductions? Or should borrowers use the net amount paid to employees?
Use the gross amount when calculating cash compensation.
Eligible benefit expenses: What expenses for group health care benefits will be considered payroll costs eligible for loan forgiveness?
Employer expenses for employee group health care benefits that are paid or incurred by the borrower during the covered period or the alternative payroll covered period are eligible for forgiveness. however, payroll costs do not include expenses for group healthcare benefits paid by employees (or beneficiaries of the plan) either pretax or after tax, such as an employee’s share of their healthcare premium.
Forgiveness is not provided for expenses for group health benefits accelerated from periods outside the covered period or alternative payroll covered period. if a borrower has an insured group health plan, insurance premiums paid or incurred during the covered period or alternative payroll covered period qualify as “payroll costs,” as long as the premiums are paid during the applicable period or by the next premium due date after the end of the applicable period.
Nonpayroll costs, timing: Are nonpayroll costs incurred prior to the covered period, but paid during the covered period, eligible for loan forgiveness?
yes, eligible business mortgage interest costs, eligible business rent or lease costs, and eligible business utility costs that were incurred prior to the covered period and paid during the covered period are eligible for forgiveness.
likewise, nonpayroll costs are eligible for loan forgiveness if they were incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period.
Changes in FTE: Will a borrower’s forgiveness amount be reduced if there was a reduction in FTE employees during the covered period if the borrower offered to rehire one or more laid-off employees but the employees declined?
In calculating its loan forgiveness amount, a borrower may exclude any reduction in FTE employees if the borrower is able to document: (1) an inability to rehire individuals who were employees of the borrower on February 15, 2020, and (2) an inability to hire similarly qualified individuals for unfilled positions on or before December 31, 2020.
Borrowers are required to inform the applicable state unemployment insurance office of any employee’s rejected rehire offer within 30 days. Borrowers should keep a written offer to rehire an individual and a written record of the offer’s rejection.
Other forms of compensation: To calculate the loan forgiveness reduction required for salary/hourly wage reductions, are all forms of compensation included or only salaries and wages?
For purposes of calculating reductions in the loan forgiveness amount, the borrower should only consider decreases in salaries or wages.
How Wipfli can help
Like many aspects of the PPP, the loan forgiveness process is still being shaped and clarified. Carefully review updates to determine how you may be impacted. Our qualified tax advisors can also guide you through the process. If you have questions or need help with loan forgiveness, contact us today.
Related reading:
