Payroll Protection Program Loan Forgiveness Update

By Michael Mazza, CPA, MST, Shareholder

As we move through the last quarter of 2020, we wanted to remind everyone of some key items related to the Payroll Protection Program (“PPP”) loans as you start to think about applying for potential forgiveness of the loans.

  • Covered Period – The covered period is the period beginning with the Loan Disbursement Date.  If a loan was received prior to June 5, 2020 the borrower can elect to use an 8-week coverage period starting with the Loan Disbursement Date or a 24-week coverage period.  If a borrower received a loan after June 5, 2020 the coverage period will be 24 weeks from the date of receiving the funds.
  • At least 60% of the loan must be used for payroll costs during the selected coverage period.  If payroll costs are less than 60% of the total loan funds received, loan forgiveness can be limited.
  • During the covered period you must maintain the number of employees on your payroll. If you did not, the loan forgiveness could be partially reduced.  The average number of full-time equivalent employees during the covered period are compared to levels prior to March 2020.  There are also ways to avoid a reduction based on employee count by rehiring employees.
  • You must maintain at least 75% of the total salary.  This limitation only applies for employees that did not receive more than $100,000 in annualized pay in 2019.  If salaries are below 75%, the loan forgiveness could be partially reduced.
  • After your covered period ends you have 10 months to apply for forgiveness with the lender who issued the PPP loan.  The lender then has 60 days to review your application.  The lender may request additional information, if needed.  The lender will then send the application to the Small Business Administration (“SBA”).  The SBA has up to 90 days to evaluate the application.
  • There are three different applications to use for forgiveness, links are attached for all three forms and instructions below:
    • Form 3508S – This form is to be used only by recipients of loans of $50,000 or less
    • Form 3508 EZ – This form can be used by borrowers if they meet one of the three items listed on the application. 
    • Form 3508 – This form is used by all borrowers who cannot use either Form 3508S or Form 3508 EZ
  • Loan Forgiveness Documentation – Depending on which application you file for forgiveness you may need more or less back-up documentation.  Below are some of the items to gather to be prepared to file for forgiveness:
    • Payroll reports showing compensation to employees during the covered period.
    • Payroll Tax Filings for the covered period including Form 941, state quarterly business and individual employee wage reporting and unemployment tax filings.
    • Back up documents showing health insurance payments made during the covered period, if included in the forgiveness calculation
    • Average number of Full Time Equivalent employees during the covered period and the applicable comparison period.  This may not be needed depending on the forgiveness application you are filing.
    • Documentation of non-payroll costs allowed to be included in the forgiveness application.  These costs include business mortgage interest payments, business rent or leas payments or business utility payments.  These items are only needed if the applicant is applying these non-payroll costs to the forgiveness calculation.

We would recommend that you contact the lending institution that issued your PPP loan to find out when they will be accepting loan forgiveness applications.

If you have any questions or inquiries on filing for forgiveness please contact Detweiler, Hershey & Associates, P.C.

Form 3508 S

Form 3508 S Instructions

Form 3508 EZ

Form 3508 EZ Instructions

Form 3508

Form 3508 Instructions

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