Paycheck Protection Program – Loan Forgiveness Jim English, Partner, CPA

You have received your loan proceeds under the Paycheck Protection Program (PPP)…what’s next?  The information below is based on what we know today, but we also expect further clarity and guidance in the weeks to come.  Your covered period begins on the date you receive your funds and lasts for the 8 weeks following.  At the end of that 8 week period you can apply for forgiveness of any of the loan proceeds that were used for “covered” expenses.  Covered expenses include:

  • Payroll Costs
    • Salaries, wages, commissions, etc.
    • Payments for group health care benefits, including insurance premiums
    • Payment of any retirement benefits
    • Payment of any state or local employment taxes i.e. State Unemployment
  • Interest payments on any covered mortgage obligation defined as
    • Liability of the borrower
    • Mortgage on real or personal property
    • Incurred prior to February 15, 2020
  • Payment on any rent obligation under leasing agreement in force at February 15, 2020
  • Payments on covered utilities: includes fees for which service began prior to February 15, 2020
    • Electricity
    • Gas
    • Water
    • Transportation
    • Telephone
    • Internet Access

Forgiveness Limits

  • May not exceed principal
  • Can be reduced based on reduction of employees calculated as follows
    • Average number of full time equivalent (FTE) employees per month during covered period divided by one of the following
      • average number of FTE employees per month during period from February 15, 2019 through June 30, 2019 or
      • average number of FTE employees per month during period from January 1, 2020 through February 29, 2020
    • Reduction relating to salary and wages
      • Any reduction in total salary or wages of any employee during covered period that is in excess of 25% of the total salary or wages of employee during most recent full quarter before covered period
      • Employees who received during any single pay period during 2019 wages or salary at an annualized rate in an amount more than $100,000 are excluded from above reduction calculation
    • Exemption for Rehires
      • If reduction in FTE employees is rectified by June 30, 2020, then no reduction
      • If reduction in salary or wages is rectified by June 30, 2020, then no reduction

Application for Forgiveness

  • Submitted to lender and Includes
    • Documentation verifying number of FTE employees on payroll and pay rates for periods above
    • Documentation supporting payroll costs, rent, interest and utility payments
    • Certification from borrower representative that
      • Documentation is true and correct
      • Amount for which forgiveness is requested was used to retain employees, make interest, rent or utility payments
    • Any other documentation lender determines necessary
  • Lender shall issue decision on application within 60 days after receipt of application
  • Amounts forgiven not included in federal taxable income

Not later than 30 days after enactment, the Administrator shall issue appropriate guidance and regulations.  Much like the application process, you will want to consult your lender to determine what they consider to be covered expenses and the documentation they will require to be submitted.