PPP Loan Forgiveness–One Step Closer

The much awaited Paycheck Protection Program Loan forgiveness application revision is now available!

The current application, issued June 16, 2020, incorporates the many changes and interpretations that have been issued by the Treasury and SBA since the initial May 15 version had been released, including the significant changes to the program that were adopted with the Paycheck Protection Program Flexibility Act.

There is also an EZ version of the Loan Forgiveness Application and related instructions available for borrowers meeting one of three possible criteria that are outlined on the instructions.

These revised versions of the forgiveness application clarify how the SBA will be interpreting a few previously grey areas and how the various forgiveness calculations will work.  Major takeaways from the form and related instructions include the following:

  • Covered Period is 24 weeks. One option exists for many PPP loan borrowers – borrowers who received their PPP loan proceeds before June 5, 2020, may elect to retain the original 8 week Covered Period.  The instructions clarify that it is either 8 or 24, and do not offer any additional flexibility for choosing a Covered Period somewhere in between.
  • Payroll costs must account for at least 60% of the eligible costs incurred and reported in forgiveness calculations. This was a major change made by the Flexibility Act, reducing the payroll component from the original 75% threshold.
  • Owner employee compensation limits are $20,833 for the 24 week Covered Period, and $15,385 for the 8 week option (subject to a further look back to not exceed actual 2019 compensation levels). The $20,833 is $100,000 divided by 12 times 2.5 – in keeping with the formula and limitations that determined the maximum loan proceeds under the original PPP application.  For most owners, the limitation includes both paychecks they receive and the value of healthcare benefits provided to them by the Company; it is unclear to us if the healthcare inclusion applies to C-corporation owner compensation limits as well.  It appears from the instructions that S-corporation owner-employees’ share of retirement contributions paid during the covered period will count towards payroll costs and not be subject to the compensation limitation.  It is evident from the instructions this is not true for sole-proprietors and partners/members because the retirement contributions are already considered part of their compensation.  It is also not clear, if contributions paid during the covered period for 2019 retirement balances due will qualify.  In contrast to all these complicating factors that apply to owner-employees, for highly compensated non-owner employees, 24 weeks of payroll is limited to $46,154 ($100,000 divided by 52 times 24).
  • FTE reduction safe harbors are available to avoid forgiveness reductions that would otherwise be applicable if employee head counts are down from pre-COVID-19 levels. Two safe harbors are available if the borrower satisfies certain conditions.  You can find the specifics on page 5 of the Loan Forgiveness Application instructions that were linked above.

PPP Loan Forgiveness Dates and Periods

The PPP Loan Forgiveness Instructions also include clarification of relevant dates and periods, documentation that must be submitted with the forgiveness application, and additional documentation that must be retained by the borrower for six years following the payoff of the loan.  (For those borrowers after June 5, if the loan is not completely forgiven and the balance is repaid over the five years, that document retention period is eleven years!)

There is no urgency to complete the forgiveness application at this time.  First of all, the first borrowers to receive PPP loan funds are just now reaching the end of the original 8 week Covered Period; nearly another 4 months remain in the 24 week Covered Period.  According to the Flexibility Act, forgiveness applications are due within 10 months of the end of the Covered Period.

We do advise that borrowers become familiar with the requirements of the forgiveness application and evaluate if they will want to elect the 8 week period, or use the full 24 weeks to maximize forgiveness.  If borrowers expect any significant amount of the loan to not be forgiven, they should reach out to their lender asking that their promissory note loan payback term be amended to the now applicable five years (not the two years that was required prior to the Flexibility Act).

Here’s a Forbes article that you may find interesting and informative – The author, Tony Nitti, walks you through the forgiveness application and its supporting worksheets, offering some background (and his personal opinions) along the way.    https://www.forbes.com/sites/anthonynitti/2020/06/17/the-not-quite-definitive-guide-to-paycheck-protection-program-loan-forgiveness/


Your DHJJ CPA is ready to assist you with navigating the forgiveness calculations and documentation gathering.  We recommend that you have the completed forgiveness application and the supporting data reviewed by your CPA and attorney before submitting to your lender – to ensure that you will qualify for the maximum forgiveness and have satisfied the certifications that are part of the forgiveness application.

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