June 2, 2020
PPP Loan Forgiveness FAQs
Posted by Armanino Financial Advisory Team
The Paycheck Protection Program (PPP) loan forgiveness rules can be quite a confusing maze. Here are some answers to help you navigate the process.
NEW PPP LOAN FAQS FOR 2021
For the Second Draw employee cap of 300, does this include employees from affiliates? What about from overseas affiliates?
Yes, the cap is based on 300 employees combined across all domestic and foreign affiliates.
For affiliated groups, do you have to eliminate intercompany transactions, or do you just combine revenues to determine eligibility for a Second Draw loan?
You should eliminate intercompany transactions from your revenue calculations.
Our owner controls over 50% of another U.S. company. For a Second Draw loan, do we have to combine our quarterly revenues with the affiliate’s quarterly revenues to determine if we were down 25% for the quarter?
Yes. There are four separate tests for affiliation for PPP purposes: 1) Affiliation based on ownership; 2) Affiliation arising under stock options, convertible securities, and agreements to merge; 3) Affiliation based on management; and 4) Affiliation based on identity of interest. These are explained in more detail here:https://www.sba.gov/sites/default/files/2020-04/Affiliation%20rules%20overview%20%28for%20public%29%20v2.pdf
For a First Draw loan, is the employee limit on a per entity basis or consolidated group with affiliates?
The 500-employee limit for First Draw loans is based on the consolidated count of employees from all affiliated companies, event those with employees outside the U.S. The only exception to this is for entities with an NAICS code starting with 72.
No. You still are required to include the employee count and consolidated revenues of all affiliated companies, domestic and foreign, to determine whether you meet the eligibility guidelines.
Determining Eligibility – Employee Count
No. While there is a certification on the loan application that asks if you were in business as of 2/15/20 and paid either employees or independent contractors, you are clearly precluded from including independent contractors in either your employee count or your average monthly payroll cost calculations.
What happened if you laid off staff since the 2020 PPP and now meet the 500-employee requirement? Does this mean we can apply for the 2021 PPP?”
You will have to calculate your average employee count for all 12 months of 2020 to determine if you fall under the 500-employee limit. If you do meet this test, you can apply for a First Draw loan since you did not apply for one in 2020.
Will we be held to our employee count on the PPP1 application (we were a little over 300 in 2019), or can we use our 2020 employee count that was much lower to qualify for a Second Draw loan?
You are not obligated to use your 2019 employee count for Second Draw loans. You may elect to use the average employee count for all months of 2019, all months of 2020, or the most recent 12 months prior to your loan application. For Second Draw loans, the limit is 300 employees, counting both full-time and part-time equally.
For Second Draw loans, how do we calculate the number of employees? Is it as of a specific date, an average of 2020, or something else?
You may elect to use the average employee count for all months of 2019, all months of 2020, or the most recent 12 months prior to your loan application. For Second Draw loans, the limit is 300 employees, counting both full-time and part-time equally.
As a first-time applicant, I’d like to understand how to determine if we meet the 500-employee limit. Do we count at the time of application, use a 3-month average, 12-month?
You may elect to use the average employee count for all months of 2019, all months of 2020, or the most recent 12 months prior to your loan application. For most First Draw loans, the limit is 500 employees, counting both full-time and part-time equally. The exceptions to this are for NAICS 72 companies, where the limit is 500 employees per location, and newly eligible 501(c)(6) entities, nonprofit housing cooperatives and Destination Marketing Organizations, each of which are limited to 300 employees.
To count employees, do we count full-timers the same as part-timers or do we use full-time equivalents?
To determine the number of employees for a PPP loan application, use actual headcount (full-time employees and part-time employees both count as 1), not full-time equivalents. When it comes to forgiveness time, however, you will use full-time equivalents instead.
Determining Eligibility – Calculating Gross Receipts
You may exclude unrealized investment gains from your Gross Receipts calculation. Any gains taken into income, however, must be included.
When applying for a 2nd Draw PPP, is a borrower able to exclude First Draw PPP Loan proceeds from the Gross Receipts if the loan wasn’t forgiven in calendar year 2020?
Yes, First Draw loan amounts are to be excluded from the Gross Receipts calculation, regardless if the loan has been forgiven or not.
We sold property in 2019 and so had earnings from that sale. Does that count as income when we compare 2019 income to 2020 income?
For-Profit businesses should exclude net capital gains and losses from their Gross Receipts calculation. Not-For-Profit businesses must include the gross amount received from the sale of assets without reduction for cost or other basis and expenses of the sale.
No, you should exclude the amount of your first PPP loan from your Gross Receipts calculation.
No, you do not need to include unrealized gains or losses in your Gross Receipts calculation.
No, amounts for pass-through items collected for third parties, such as sales tax or airfare collected by travel agents, are excluded from the Gross Receipts calculation.
Determining Eligibility – Gross Receipts Reduction for Second Draw Loans
I opened my business 18 months ago, so it will be difficult for us to show a reduction compared to zero sales. We no longer have anyone on payroll, so how much can we get for a Second Draw loan? Will it be based on the amount we received the first time around?
If you started your business during the third quarter of 2019, you must first demonstrate that gross receipts in any quarter of 2020 were at least 25% lower than during either the third or fourth quarters of 2019. Once you pass that test, you will determine the amount of a Second Draw loan based on the average monthly payroll costs for 2020. It does not matter if you have no employees currently to get a loan, only that you meet the reduction requirement and you had payroll costs in 2020. However, the purpose of the program is to keep people employed, so if you have no employees now you will be limited only to the amount you can pay yourself as owner, which could make it difficult to get full forgiveness.
What, if any wiggle room is there in the 25% rule if we had 23% or 24% reduction in Gross Receipts?
None. The requirement is “at least” a 25% reduction in Gross Receipts, not “almost”.
Is it possible to use 4th quarter 2019 and compare to March through May of 2020 (the worst 3 months)?
No, you are only allowed to use calendar quarters (January-March, April-June, etc.) for this comparison.
My company opened doors in mid-3rd quarter 2019. What quarters do we use to compare revenue reduction?
For entities not in business during the first and second quarters of 2019 but in operation during the third and fourth quarters of 2019, you must demonstrate that gross receipts in any quarter of 2020 were at least 25% lower than during either the third or fourth quarters of 2019.
For entities not in business during the first, second, and third quarters of 2019 but in operation during the fourth quarter of 2019, you must demonstrate that gross receipts in any quarter of 2020 were at least 25% lower than the fourth quarter of 2019.
Are you ineligible for a Second Draw loan if you made more money in all four quarters of 2020 then 2019? Is there a way around that requirement?
The test for eligibility is a reduction in Gross Receipts, not Net Income, of at least 25% in any 2020 quarter as compared to 2019. There is no way around this requirement, sorry.
You should use the same accounting basis as you use to file your taxes.
To determine if we qualify for a Second Draw loan, do we calculate the revenue comparisons by quarter based on Gross Receipts or GAAP revenue rules?
You must use the Gross Receipts calculation to determine your eligibility.
Yes, any calendar quarter may be selected.
Calculating Loan Amount for Second Draw Loans
If your company is entitled to a $200,000 loan, can you elect to reduce your request to $150,000 to reduce the paperwork?
Yes, you are not obligated to take the maximum amount available to you based on the loan amount calculations. Simply discuss your desire with your lender.
No. Only W-2 employees are to be included in your average monthly payroll costs calculation.
You may only include in your average monthly payroll costs calculation up to $100,000 annualized for any employee. On a monthly basis, this works out to $8,333, so any employee paid more than $100,000 in your baseline period must be reduced to $8,333 in your calculation.
How do I know if my NAICS code qualifies for the 3.5 months payroll allowed for loan amount for those in food service?
If the NAICS code listed on your tax return begins with 72, you may calculate your loan amount using a 3.5 multiplier of your average monthly payroll costs. If it does not begin with 72, you are limited to 2.5 times.
When calculating 2.5x average monthly payroll for Second Draw loans, is it based on 2019 numbers as it was for the first loan?
You may use the same 2019 basis for Second Draw loans as you used for your First Draw loan last year, or you can use the average monthly payroll costs from 2020 or the 12 months prior to the date of your loan application, at your election.
Can 1099 Independent Contractors that work for us be included in the calculations for average monthly payroll for 2019? We got a PPP loan last April and included Independent Contractors then, but we’re not sure if that is still the case for the Second Draw PPP loans.
No, independent contractors are to be excluded from the calculation for loan amount and for forgiveness purposes. You were not supposed to include them last April either, but that rule was a little fuzzy during the first week of the program until subsequently clarified by the SBA. Even though you had them in your loan amount basis, you cannot include them in your forgiveness application for that loan.
Is the PPP second draw loan amount only based on 2.5 months of payroll or can we add rent, utilities and interest to the loan request amount?
The loan amount is based only on payroll costs. The other expenses you mention are authorized uses of the funds and are forgivable, but they are not used to determine loan amount.
You may include only the average monthly payroll costs from your selected reference period (2019, 2020 or most recent 12 months before applying for the loan). Include in this calculation the gross wages paid to your employees up to $100,000, plus all costs paid by the employer for medical, vision, dental, disability and group life insurance, employer contributions to employee retirement plans and any state or local taxes paid by the employer based on employee compensation.
It is a loan and should be reported on your balance sheet as such. The loan is subject to future forgiveness, effectively rendering it a grant if fully forgiven, but if not fully forgiven there will be repayment obligations for the unforgiven portion.
If our organization had a loan in the first round and immediately returned the money, would our application in this round be for a First Draw or Second Draw loan?
You would apply for a First Draw loan, which carries a $10 million maximum and requires 500 or fewer employees for eligibility.
Can you explain the Seasonality rules? I heard that you can use a higher payroll number than the annual monthly average.
In the December 2020 Economic Aid Act, “seasonal employers” were finally defined after months of guessing by borrowers and professionals. A seasonal employer is one that operates for 7 or fewer months per year or one who receives at least 75% of their gross receipts in any six calendar months of the year (this could be first half, second half, second and third quarters for summer seasonality, first and fourth quarters for winter seasonality, May through October, etc.).
For purposes of calculating average monthly payroll for a seasonal employer, you may now choose any consecutive 12-week period between 2/15/19 and 2/15/20 as your baseline period (previously, this was limited to 5/1/19-9/15/19).
We don’t know if we can perform to meet client expectations because we can no longer get raw materials off the shelf and must wait for shipments instead. Does this count as “economic uncertainty”?
If there is a disruption to your supply chain that raises doubt about your ability to perform and increases the risk of cancelled contracts or orders, that should meet the test of economic uncertainty. However, the SBA has never defined a bright line test for economic uncertainty other than to state that any borrower taking a loan of less than $2 million will be deemed to have needed the loan without challenge from the SBA.
Can you just choose any consecutive three months to define a “quarter” for determining revenue reduction, or does it have to be a calendar quarter?
It must be a calendar quarter.
No. “Covered operations costs” include payments for:
- Software or cloud computing services
- Delivery of your products or services
- Processing, payment or tracking fees for payroll, human resources, sales and billing functions (for example, processing fees paid to a merchant credit card provider or payroll provider)
- Accounting fees paid to a third-party provider
“Covered supplier costs” include costs are those that are (A) are essential to the operations of the entity at the time at which the expenditure is made; and (B) are made pursuant to a contract, order, or purchase order in effect at any time before the covered period (unless it’s perishable goods, in which case the order can be in effect before or at any time during the covered period). Note that the SBA did not define “essential” because that would be different for every business.
Any PPP loan issued after June 5, 2020 carry a five-year payback term from the date of disbursement. Loans issued between April 3, 2020 and June 5, 2020 carried a two-year payback term, but the Flexibility Act allows lenders and borrowers to negotiate this term to five years by mutual agreement. Repayments are deferred until ten months following the end of the Covered Period of the loan.
Payroll Costs includes the full 2019 or 2020 amounts of the following, divided by 12:
- Gross wages and tips paid to your employees whose principal place of residence is in the United States, up to $100,000 per employee, which can be computed using:
- IRS Form 941 Taxable Medicare wages & tips (line 5c, column 1) from each quarter
- Plus any pre-tax employee contributions for health insurance or other fringe benefits excluded from Taxable Medicare wages & tips
- Minus (i) any amounts paid to any individual employee above $100,000, and (ii) any amounts paid to any employee whose principal place of residence is outside the United States
- Employer-paid group health, life, disability, vision, and dental insurance contributions
- Employer-paid retirement plan contributions
- Employer-paid state and local taxes assessed on employee compensation, primarily state unemployment insurance tax (from state quarterly wage reporting forms).
For Partnerships, you may also include the 92.35% of the net self-employment earnings of individual U.S.-based general partners that are subject to self-employment tax, up to $100,000 per partner. However, you may not include any contributions by the partnership for insurance or retirement for partners.
For self-employed individuals, with or without employees, you may also include your net profit amount included on line 31 of your IRS Form 1040 Schedule C for the selected year, up to $100,000 (but not less than zero).
No. You are required to use a consistent accounting method with your normal day to day operations.
No, do not count a First Draw loan from 2020 or any EIDL advance in your calculation of gross receipts.
As a nonprofit independent school, do we need to count fundraising and donations in “Gross Receipts?”
Yes, without deducting the costs associated with raising the funds.
For a nonprofit 501(c)(3) organization, a 501(c)(19) veterans organization, an eligible nonprofit news organization, an eligible 501(c)(6) organization, or an eligible destination marketing organization, “Gross Receipts” means the gross amount received by the organization during its annual accounting period from all sources. These include:
- Gross sales or receipts from business activities
- Contributions, gifts, grants, and similar amounts
- Dues or assessments from members or affiliated organizations
- Investment income such as interest, dividends, rent, and royalties
- Gross amount received from the sale of assets without reduction for costs or other basis and expenses for sale
Do not reduce gross receipts for any costs or expenses, including, for example, cost of goods or assets sold, cost of operations, or expenses of earning, raising, or collecting such amounts.
For a for-profit business, Gross Receipts generally are all revenue from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Exclude net capital gains and losses. You may use either the cash or accrual method of calculating gross receipts but need to be consistent with your normal accounting method. For purposes of determining eligibility for a PPP loan, you also must include the gross receipts of any affiliated entities in your calculation.
Gross receipts do not include:
- Taxes collected for and remitted to a taxing authority if included in gross or total income, such as sales or other taxes collected from customers (this does not include taxes levied on the concern or its employees)
- Proceeds from intercompany transactions between a concern and its domestic or foreign affiliates
- Amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker
All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer’s request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts.
The lender will need to see the documentation of your average monthly payroll for whichever basis period you choose.
For a Second Draw loan, can we use the same 2019 payroll documentation we used for the First Draw loan?
Yes, you can if you so choose. It is suggested that you re-send the same documentation with your Second Draw application rather than to make your lender find the appropriate documentation from your First Draw loan to speed the approval process.
The same documentation showing at least a 25% reduction in gross receipts is required for any Second Draw loan regardless of size. However, for loan applications under $150,000, you are not required to submit the documentation with your loan request. You will be required to provide your lender proof of your eligibility prior to or at the time that you file your forgiveness application.
What specifically will be needed to document that we are a seasonal business? How do we include affiliated businesses that are not seasonal?
You will need to demonstrate either that you were operating in seven or fewer months in either 2019 or 2020 (this does not mean non-seasonal businesses that started in 2019 or 2020) or that at least 75% of your gross receipts occur in a six-month period. If you have affiliates, they are not required to be seasonal unless the entire consolidated group is applying for one PPP loan.
There are three primary sets of acceptable documentation:
- Quarterly financial statements. You must personally attest to their accuracy by signing and dating the first page and initialing all other pages if they are not audited financial statements. You also must annotate which line item(s) constitute gross receipts to allow the lender to verify calculations.
- Quarterly or monthly bank statements showing deposits from the relevant quarters. If necessary, you must annotate which deposits are included or excluded from the gross receipts calculation.
- Annual IRS income tax filings if you are not providing quarterly financial or bank statements. If you have not yet prepared or filed a 2020 tax return, you will be required to prepare signed and dated returns and attest that the gross receipts computation you made will not change when you file the returns with the IRS.
Eligibility for Second Draw Loans – Revenue Reduction
Will I still qualify if I don’t show a decrease in overall revenue but a negative net income on my P&L?
The test for Second Draw eligibility is a 25% reduction in gross receipts, not net income. You will not qualify based on your question.
If you are unable to demonstrate a 25% reduction in gross receipts, you will not be eligible for a Second Draw loan.
If we can demonstrate a 24.75% reduction in revenue, compared to the same period in 2019, does this qualify as 25%?
No, it does not. The requirement is to demonstrate at least a 25% reduction, not almost a 25% reduction.
If you did not receive a PPP loan in Round 1 and are experiencing revenue decline YOY from 2020 to 2021 (and Q3 and Q4 2020 vs. Q1 and Q2 2020) will you meet the eligibility requirements even if you didn’t meet the threshold of YOY decline 2019 vs. 2020?
No, you will not. The test is very clear: compare 2020 vs. 2019, not to earlier quarters in the same year.
If you have not permanently closed your business but were in operation at 2/15/20 and had gross receipts in 2020 that were at least 25% lower than in 2019, then you can qualify for a PPP loan. However, you must certify that you have not permanently closed your business under penalty of law.
Only now in Q1 2021 will my business drop down at least 25% compared to 2020 or 2019. Will that qualify me for a Second Draw loan?
No, it will not. The requirement is a demonstrated drop of at least 25% during any quarter in 2020, not 2021. Given that the deadline for applying for a Second Draw loan is 3/31/21, it would be impossible to document a 25% decline for the entire first quarter of 2021.
Does a 25% reduction in gross receipts have to be related to Covid-19 or can it be for any other reason?
There is no requirement that the reduction must have been caused by the pandemic.
To qualify for a second PPP loan, is it a 25% reduction in the whole year or in any quarter 2020 vs 2019?
Second Draw loans require a 25% reduction in any quarter of 2020 as compared to the same quarter in 2019. If you don’t have quarterly financial statements, you can alternatively use the entire 2020 results so long as you can show at least a 25% year-over-year drop.
Eligibility for Second Draw Loans – Related to First Draw Loans
The original PPP allowed some companies with more than 500 employees to apply, depending on your NAICS. Is that still the case?
Yes, it is, but understand that the limit for Second Draw loans is now 300 employees (new First Draw loans remain at a 500-employee limit). Businesses whose NAICS code begins with 72 (Accommodations and Hospitality concerns) may apply for loans using the applicable limit per location rather than across the entire entity.
We had over 500 employees in 2019 and 2020 so couldn’t take a PPP loan last year, but are under that limit now. Are we qualified to apply for a First Draw loan?
You may be able to apply for a First Draw loan. It will depend on your average employee count for 2020. If the average across all 12 months is under 500, then you will qualify for a First Draw loan, but otherwise you will be ineligible even though you are under that threshold now.
No. You are only required to have used all proceeds from your First Draw loan for authorized uses, not to have filed for forgiveness or paid off any part of the loan.
Yes. Holding an EIDL loan does not disqualify you from applying for a Second Draw PPP loan.
Can we apply for a Second Draw loan before we complete or even file the forgiveness application for our 1st round loan?
You can apply for a Second Draw loan without having filed for forgiveness on your First Draw loan. However, you will need to certify that you have used all proceeds from your First Draw loan for authorized uses, even though you have not yet filed for forgiveness.
Yes, you will apply for a First Draw loan.
Eligibility for Second Draw Loans – New Business
For entities not in business during the first, second, and third quarters of 2019 but in operation during the fourth quarter of 2019, you must demonstrate that gross receipts in any quarter of 2020 were at least 25% lower than the fourth quarter of 2019.
I am unable to show a 25% decrease in Q3 & Q4 2020 because my business just opened in June 2019. So, while my business has been hit hard, does this mean I am not eligible for this next round of PPP?
You may be eligible for a Second Draw loan. For entities not in business during the first and second quarters of 2019 but in operation during the third and fourth quarters of 2019, you must demonstrate that gross receipts in any quarter of 2020 were at least 25% lower than during either the third or fourth quarters of 2019.
Yes, sole proprietors can apply for Second Draw loans if they meet the eligibility tests. Your maximum loan amount is 20.833% of your net profit on line 31 of Schedule C of your tax return, up to $20,833.
I need financial help to launch my start-up. Can I get a PPP loan if I haven’t quite started the business yet?
No, for two reasons. First, this is a “paycheck protection” program meant to protect employee jobs, not help startups. Second, PPP loans are not available to entities that didn’t exist before 2/15/20. There are many ways for businesses to get launch capital, but this is specifically not one of them.
We are a startup company that will finally see our first revenue sometime in the next two months. Can we qualify for a second-draw loan?
No, you do not qualify for a Second Draw PPP loan if you cannot demonstrate a 25% decline in gross receipts in 2020 vs. 2019. Since you had no receipts in either year, there is no decline. You also need to be able to demonstrate that you were in operation prior to 2/15/20.
My startup company is growing but still losing money. Can we qualify with the QoQ sales growth limitation?
No, you cannot qualify for a PPP loan. You must be able to show a reduction in gross receipts, not net income. Since you say your business is growing, it appears to not have a reduction.
We started a new entity with a new EIN on 8/1/20. This new entity is doing the same business as the original entity but with different partners. Since we were not in business with our new entity as of 2/15/20, we can’t show revenue reduction from prior periods in 2019. Is there a way to get a Second Draw loan?
No, you will not be eligible for a PPP loan. With the ownership change, a new EIN is required and you will not be able to demonstrate a reduction vs. 2019 for that EIN.
I took over my current business at the end of 2019. Can I show the previous owner’s sales and my over 25% decline?
In most but not all ownership changes, a new EIN is required. Unless the EIN stayed the same through your ownership change, you will not be able to demonstrate a reduction vs. 2019 for your current EIN, meaning you will not be eligible for a Second Draw PPP loan. However, if you did not take a First Draw PPP loan in 2020, that avenue is available to you presuming you can certify to the economic uncertainty test and are under 500 employees.
No, you do not. You must certify on the loan application that you were in operation on 2/15/20.
Can you apply for a PPP loan if your business started during 2020? I know the first deadline was February 15, 2020, but I wondered if the cutoff date changed for this second round.
If your business started after 2/15/20, you are not eligible for either a First Draw or Second Draw PPP loan.
Eligibility for Second Draw Loans – General Questions
I understand an employer cannot use the same wages for PPP and ERC purposes. Can you provide an example of how this works?
You cannot use the same wages for PPP forgiveness (your covered period wages) as you use to get the Employee Retention Credit. For example, if your PPP loan covered period was 4/15/20-9/29/20, you would use wages paid during that period for PPP forgiveness, and could use wages from 3/13/20-4/14/20 and from 9/30/20-12/31/20 to consider for ERC purposes.
The First Draw loans were and are limited to entities with 500 or fewer employees (except for 501(c)(6) entities, housing cooperatives and destination marketing organizations, who are limited to 300 employees). For Second Draw loans, that limit is reduced to 300 employees along with the other eligibility requirements. The only exception to this is entities whose NAICS code begins with 72 (Accommodations and Hospitality concerns), who are limited to 300 employees per location rather than for the full entity.
Yes, the process is unchanged, but be sure to use the correct application form as those have changed. The form you will need to use is published on the Treasury or SBA websites and is dated 1/8/21.
If we received an EIDL loan in the 2nd quarter 2020, should we apply for a First Draw or Second Draw PPP loan? Is it true that COVD 19 EIDL loans are not forgivable?
EIDL loans are separate from PPP loans, so if you did not take out a PPP loan in 2020 you would apply for a First Draw loan. And yes, EIDL loans are not forgivable, though any advance you may have received on an EIDL loan is not subject to repayment.
For Second Draw loans, affiliated entities may not take out loans that collectively total more than $4 million, with no single loan greater than $2 million. For First Draw loans, this limit is $20 million in the aggregate with a single loan maximum of $10 million.
We plan to use our PPP loan to grow our international business locations and hire new staff overseas. Are there any specific regulations or limitations we should know about?
Yes, there are. It probably would be helpful to understand the context that this is a program operated by the United States government intended to keep American workers employed. It would be rather unusual for the United States Senate and Congress to decide that their purpose was to prop up or grow the economy of other countries during a pandemic. So yes, you will be required to personally certify that you will use the funds for authorized purposes, and acknowledge that failure to do so – say, for hiring people in other countries – will subject you to imprisonment of up to thirty years and a fine of up to $1 million.
If an organization does not engage in lobbying activities but does policy research and analysis, would that disqualify them from PPP2?
Such entities are ineligible for Second Draw loans. Precluded entities include those that are organized for public policy research or advocacy.
No. Publicly traded companies are ineligible for PPP loans.
We have a customer in China plus some very minority (<5%) Chinese investors in our parent company. Would this disqualify us for a PPP loan?
No, this will not disqualify you based on your description. You must certify that your entity was not created in or organized under the laws of China, or is at least 20% owned by a Chinese entity, or has a Chinese resident on the board of directors.
I shut my business down in mid-2020. Do you need to still be in business now to qualify for a PPP loan?
Yes, you will be required to certify under penalty of law that your business was in operation at 2/15/20 and has not permanently closed.
We received a first draw loan but then returned it by the deadline so we could obtain the Employee Retention Credit. Should we be applying for a First Draw loan or a Second Draw loan?
Since you returned your loan and did not use the proceeds, you should apply for a First Draw loan.
If you did not receive a PPP loan in 2020, you will be eligible for a First Draw PPP loan if you have fewer than 500 employees and can certify that current economic uncertainty makes the loan request necessary to support the ongoing operations of the entity.
It will be difficult for you to show economic uncertainty and that you do not have access to capital if you just completed a funding round.
Is the $2 million PPP audit threshold applied to the combined value of First and Second Draw loans?
As of January 2021, the SBA has not indicated that they will require a Form 3509 Economic Necessity Questionnaire for borrowers who take two PPP loans that are each below $2 million but top this threshold when combined. As with everything in the PPP program, however, this is subject to change. One point to remember, though, is that a reduction of 25% or more in gross receipts is required to qualify for a Second Draw loan. This would seem to suggest that the business in question was significantly affected by the economic uncertainty of the pandemic, which may make it less concerning if the SBA does change its mind on this issue.
Will an Economic Necessity Form 3509 be required for borrowers who took out loans of less than $1 million?
No, the Form 3509 is only required for borrowers with PPP loans exceeding $2 million. All others are deemed by the SBA to have needed the loan.
What should a company do if they got over $2 million on their First Draw loan and had lots of profit?
Any company that received a PPP loan over $2 million will be required to submit Form 3509, the Economic Necessity Questionnaire, when the SBA instructs the lender to request the form from the borrower. Each company, regardless of how the business performed, should carefully prepare their Form 3509, along with a detailed narrative with exhibits that demonstrates the situation in the company at the time they applied for the PPP loan and which reinforces the economic uncertainty faced. It is advisable to consult with an attorney or outside accountant for assistance. The issue last spring was uncertainty about what could happen, not a retrospective look at what did happen. That said, the SBA may conclude that a company didn’t really need the $2+ million loan, in which case they could ask for the entire amount to be repaid.
How do prepaid expenses that are paid in advance of the coverage period apply to the coverage period?
The Incurred vs. Paid rules for forgiveness state that the following are eligible for inclusion in forgiveness calculations:
- Amounts incurred prior to the covered period but paid in the covered period
- Amounts incurred and paid during the covered period
- Amounts incurred during the covered period but paid in the subsequent pay cycle following the end of the covered period
There is no provision in the PPP rules or guidance for including any amounts paid prior to the covered period but incurred during the covered period, which would be the case for prepaid expenses.
Are the FTE Reduction and Salary Reduction Factor requirements the same for Second Draw loans as the First Draw loans?
Yes, they remain unchanged at present.
No, they remain the same at present, though it is possible the SBA may change the dates in the future.
The definition of Covered Period changed with passage of the Economic Aid Act in December 2020. For original PPP loans issued in 2020, the covered period was either 8 weeks or 24 weeks at the election of the borrower. This binary definition was replaced for PPP loans in 2021, either First Draw or Second Draw. Now, borrowers may elect any number of weeks between 8 and 24 weeks for their covered period. This change is retroactive to original PPP loans for any borrower who had not submitted a forgiveness application as of December 27, 2020.
Will I have to file separate Forgiveness Applications for each loan I received, or can I just combine them into one application?
You must file a forgiveness application for each loan.
If we did a merger and both companies have PPP Loans, do we keep them separate for forgiveness purposes?
Yes, apply for forgiveness for each loan separately.
Does the <$150,000 criteria for ease of forgiveness apply to each of PPP1 and PPP2 or the combined borrowing?
Each loan is considered separately for forgiveness. At this point, the SBA has given no indication that they will combine multiple loan amounts and require a different forgiveness process.
Not at the federal level. The Economic Aid Act signed into law in December 2020 clarified that any forgiven amount is not required to be taken into taxable income and the expenses used to claim forgiveness are deductible as they normally are, making forgiveness tax-free at the federal level.
As of January 2021, 27 states and the District of Columbia conform to the federal interpretation for state tax purposes. The remaining 23 states either require you to include forgiveness amounts in taxable income or preclude you from deducting the expenses used for forgiveness. There are currently 13 states requiring forgiveness to be taken as income: Arizona, Arkansas, Florida, Idaho, Maine, Michigan, Minnesota, Mississippi, New Hampshire, Oregon, Vermont, Virginia and West Virginia. There are 10 states who are excluding deductions for forgiveness expenses, including: California, Colorado, Georgia, Hawaii, Indiana, Kentucky, New Jersey, North Carolina, South Carolina and Wisconsin. Please note that these states are subject to changing their conformance at any time, so you should check with your tax advisor for the current situation at the time you file your tax returns so you are in compliance.
There is a new set of forgiveness applications (Form 3508, Form 3508EZ and Form 3508S) that was issued on 1/19/21 and is available on the Treasury and SBA websites. These new forms include the expanded categories of expenses available to be used to claim forgiveness. The Form 3508S is available to be used by any borrower whose PPP loan was $150,000 or less and is a simple certification form. The other two forms and the process for filing are unchanged except for the new expense categories.
The commonly used “deadline” is ten months after the end of the covered period of the loan. For most borrowers who took out original PPP loans in the spring of 2020, that date is generally no earlier than late July, 2021 (unless you opt for an 8-week covered period, which could accelerate the deadline to as early as April, 2021). The actual language in the legislation and SBA guidance, however, states that you can file for forgiveness at any time during the term of the loan (or in other words, up to five years from disbursement), but you will be obligated to begin repayment of the loan after a ten month deferment period beginning on the last day of your covered period. So, while you can theoretically file for forgiveness after the ten-month period, you will be making payments in the meantime and be on the hook for the entire principal and interest until forgiven.
You may contact your lender and ask. If they have not yet submitted their forgiveness decision to the SBA, they may be willing to return your application. Once an application has been sent by a lender to the SBA for the final approval of their forgiveness decision, it is too late.
Are we able to use the new acceptable loan forgiveness expenses for forgiveness of our First Draw loan?
Yes, if you had not submitted a forgiveness application for your original PPP loan as of December 27, 2020, you may use the expanded set of expense categories. The forgiveness application that includes these categories is posted on the Treasury and SBA websites and is dated 1/19/21.
The original four categories of authorized expenses available for forgiveness are payroll costs (which include gross wages plus the employer-paid amounts for health, vision and dental insurance, retirement plan contributions and state and local taxes on employee compensation), mortgage interest expense, rent/lease costs and utilities expenses. With the passage of the Economic Aid Act in December 2020, these categories have been expanded to also include:
- Covered supplier costs (defined in another FAQ)
- Covered operations costs (defined in another FAQ)
- Worker protection costs (like personal protective equipment, shields and other costs necessary to make your business compliant with COVID-19 regulations and guidelines)
- Property damage costs from 2020 civil unrest not covered by insurance
Also, the new legislation expanded the definition of Payroll Costs to add employer payments for disability and group life insurance up to $50,000 coverage.
All these expenses are available to be used for forgiveness of First Draw loans issued in 2020 that were not forgiven as of December 27, 2020 and all PPP loans issued in 2021.
Yes, both loans are forgivable.
Yes, under the same rules as First Draw loans.
No, you are not required to have filed for forgiveness on your original loan to take a Second Draw loan and taking the second loan will have no impact on forgiveness.
We received HEERF funds under the CARES Act in Q2 2020, but we distributed all of them to students. Do we have to include these funds in “Gross Receipts”?
Internal Revenue Code section 6033 includes government grants in the definition of gross receipts, except for forgiveness on original PPP loans.
Organizations that are classified 501(c)(6) are now eligible for First Draw PPP loans. Because they were ineligible prior to the Economic Aid Act, they could not have taken a First Draw loan in 2020 and so are not eligible for Second Draw loans.
Yes, these organizations remain excluded from the PPP program.
Not anymore. With passage of the Economic Aid Act, EIDL loans are no longer considered when determining either loan or forgiveness amounts.
The EIDL program is separate from the PPP program. You can apply for an EIDL loan if you wish and request an advance that is not required to be repaid.
Yes, given that Second Draw loans are limited to a maximum amount of $2 million.
No. You must file for forgiveness with the lender who originated the PPP loan unless they sold your loan to a third party. You may wish to reconsider your banking relationship, however.
Since the 2020 appropriation of PPP funds was closed, how do we increase the loan amount of our original PPP loan?
If you took out a PPP loan for an amount less than what you were qualified to borrow, you may work with your lender to increase your existing PPP loan up to your qualification limit using the new appropriation. However, if your loan was already at the maximum qualified amount, you may not increase your loan amount and will have to qualify for a Second Draw loan to get more PPP money.
March 31, 2021 for either a First or Second Draw loan.
You can apply for a loan with multiple lenders but can only accept a loan through one lender.
Would it be considered a disruption in operations if we were ordered to shut down in-person services but subsequently were able to convert to remote services?
Probably not. If the business adapted quickly, it would be difficult to argue for a disruption unless you could document time that the team, while being paid, was not able to work productively. However, If the business was specifically shut-down by a government order, and only adapted after a temporary and documented pause for a shut-down, there may be eligible wages in an interim period.
Do “government orders” only include Federal orders or can they be State-issued orders to shut down?
The orders can be from any governmental authority that can be documented to have been disruptive to the business.
The government is taking the stance that an essential business should not experience a revenue decline because there should be no slow-down in service if it’s truly essential. If there is a documented and significant quarterly revenue reduction due to COVID19 impact, this may provide rationale that the business perhaps should not have been considered essential. From that point of view, an essential business may qualify.
Can my company get the ERC tax credit (and use it like a loss carryover) if the company shows no taxable income for the year?
The ERC has nothing to do with income tax. It’s a credit against payroll tax, and if the credit exceeds your payroll tax the difference is refunded.
My medical practice is considered essential, but most patients did not want to come to the office. My revenue dropped but not beyond the ERC threshold. In addition, I paid my nurses to stay home if they had a possible exposure to coronavirus. Would I be able to take advantage of the ERC?
No. The reduction in business must be due to governmental orders that restricted an ability to provide services. Note also that sick leave is covered separately by accrued time off policies, or by government mandated paid time off, while the ERC applies to able-bodied staff who were paid but not working.
We did not take a PPP loan in 2020 but had several employees who were furloughed and for whom we continued to pay health benefits. How does the ERC apply to us? What can we claim without using the same wage base and double dipping with the PPP loan we are applying for now?
You can use the healthcare paid for furloughed employees to qualify for the ERC, but only if you do not use those costs for the PPP forgiveness calculations. Since you did not take a PPP loan in 2020, you can use any wage or benefits payments from 3/13/20-12/31/20 that meet the qualification tests for the ERC without worrying about double-dipping. During the covered period of your PPP loan in 2021, you will need to segregate the costs.
If you use a PEO, it will be your responsibility to determine your organization’s eligibility, to identify eligible wages and to prepare the work papers to document the credit amount. After the documentation is prepared, you will need to instruct the PEO to file for the credit on your behalf. They will need to make sure the credit is applied to your organization’s tax liability or refunded to you specifically.
The revenue drop must be documented each quarter for the ERC, for both 2020 and 2021. In 2020, qualifying in one quarter will also qualify you for the next quarter. Specifically, in 2020, the credit applies to the first quarter in which gross receipts drop by more than 50%, and then also to each successive quarter until the end of the quarter in which your organization receipts recover to the point at which they are at least 80% of the base 2019 quarter.
Example: In Q3 2020, if gross receipts are only 40% of Q3 2019 (i.e., down by 60%), the ERC will apply. If gross receipts get back up to 82% of Q4 2019 in Q4 2020, the ERC will apply until the end of Q4 as well.
For the ERC, if 1st Quarter 2021 gross revenue is 20% down, does that mean we qualify for both 1st and 2nd Quarter credits?
No. Q2 will also have to exhibit a drop in receipts of more than 20% versus Q2 of 2019 to qualify.
No. In 2020 the revenue reduction must be at least 50% versus the same quarter in 2019.
We are a small business who had a First Draw PPP loan under $150,000 that has been fully forgiven. Can we utilize the ERC in any fashion?
Yes, but the wages that were covered by a forgiven PPP loan must not also be used for the ERC. Don’t double dip!
Yes. The ERC applies to an entity that pays payroll, and is a credit against payroll tax, not income tax.
With the new ERC rules setting a 500-person threshold and providing a credit for up to 70% of qualified wages, are those changes retroactive to March 2020 – December 2020 or does the original 50% and 100 employee criteria still apply for before January 1, 2021?
The ERC rules in 2020 are unchanged. The ERC changes are effective as of 1/1/21.
What is the definition of “partially closed”? Is there a certain percentage threshold? Can we qualify if we had to close one or two lines of business due to government restrictions while continuing other lines of business?
The operation of a trade or business is partially suspended if a governmental authority imposes COVID-19 related restrictions on operations that limit commerce to the extent that the employer can continue some, but not all of its typical operations. This suspension would need to affect more than a nominal portion of the business or might necessitate closures during what would otherwise be normal working hours.
In lay terms, “gross receipts” means you count just about every incoming dollar.
- It includes total sales and all amounts received for services. It includes Cost of Sales but does not include returns or sales tax charged.
- This also includes investment income (interest, dividends, etc.), even when the investment is not related to the business product or service.
- Last, gross receipts are generally reduced by the taxpayer’s adjusted basis in capital assets sold.
For a truly comprehensive answer, refer to section 448(c) of the Internal Revenue Code (the “Code”).
Yes. You can use the same staff, but not the same wages for that staff for each program.
Can the same employee’s wages be used partly for PPP forgiveness and partly for the ERC? For example, if an employee earned $22,000 in a quarter, could I take 12,000 for the PPP and 10,000 for the ERC?
No, you can’t simply allocate quarterly wages. Instead, prepare workpapers by day and even hour for each worker and show the period covered by each credit separately.
The number of employees is determined based on the average monthly FTE in 2019.
No. The ERC is a credit against wages paid to employees, not to owners or relatives of owners.
I understood the ERC to be a credit of employment taxes paid. But 6.2% of $10,000 in wages is $620. So how do you get to or near the full potential benefit of $5k/employee in 2020 and $7k/employee in Q1 2021? Is there a refund of prior taxes paid?
The total credit amount is applied to the total 941 tax liability and applied against the entire quarter’s liability. If the credit exceeds taxes due and paid, the difference is refunded to the taxpayer.
My company is eligible for the ERC in 1st quarter 2021. Which pay periods do I use to calculate the tax credit if we happen to receive approval for a Second Draw PPP loan on 3/1/21?
The ERC and PPP are both calculated by the day, not by pay period. Your workpapers will need to clearly show that the ERC wages were those wages paid before the day the PPP loan funded or after the PPP loan money was 100% spent.
No. The base quarter is 2019 for purposes of determining the revenue decline, so 2021 vs. 2019.
You will compare 2021 quarterly results against the same quarter in 2019, not 2020.
For the ERC program, if an employee earned $10,000 under the program already, does that reset to $0 at the start of the next quarter for purposes of calculating the credit?
The ERC is measured separately for 2020 and 2021. The maximum for 2020 is 50% of eligible wages up to $10,000. The credit resets to zero on 1/1/21, and the maximum for the first quarter changes to 70% of $10,000 in eligible wages. The credit resets again on 4/1/21 for the second quarter.
If the credit paid back is greater than the payroll tax, will the credit be taxable? Can we deduct the payroll taxes on the tax return even though it was paid with a credit?
No. An employer’s aggregate deductions would be reduced by the amount of the credit.
PPP wages must be excluded from the ERC calculations. The same wages cannot be used for both programs.
At the time of this writing, a form 941X must be filed.
PPP LOAN FAQS FOR 2020
I heard there is a new application Form 3508S available. Do I qualify to use it, and if so, do I have to do everything over?
On October 8, the SBA released Form 3508S, an even simpler version of Form 3508EZ, which is the simpler version of Form 3508 (the standard form for forgiveness application). This new form is only to be used by borrowers whose PPP loans were equal to or less than $50,000 and had no affiliates with loans that collectively totaled $2,000,000 or more. If you do not meet this test, you must use either the 3508EZ or standard 3508 Form for your forgiveness application. In this new Form 3508S, all that is required is some basic identifying information — business name and TIN, loan numbers and amount, disbursement date, number of employees at different times and forgiveness amount, among other fields — and seven certifications to which the borrower must attest. That’s it. No calculations, no reduction factors, no reporting of payroll or other costs. Simply complete and send this form to your lender along with supporting documentation for your requested forgiveness amount. There is no need to complete the forgiveness calculation model. If you have already completed the model and submitted your forgiveness request but would have qualified to use this new form, there is no need to start over — the result will be the same.
Forgiveness Calculation Model
Do I understand correctly that we download and complete the model and then upload it to the bank’s portal? Or do we complete it inside the portal?
You understand correctly. Download the model from COVID page on the bank’s website, enter and save your data, then upload it to the portal using the link the bank will send to you via email when the portal is ready to begin accepting data. For banks that have a workflow for you to complete in the portal, you will use some of the output from the Excel model as input to the workflow.
The model was created in Excel for Office 365 version 2002 (Build 12527.20880), which was released in March 2020. Older versions of Excel will experience some limits in functionality, especially where advanced formulas are used that were introduced more recently than the older versions contained.
Can we get started on populating this template ahead of time, since the process will take a while to enter information by payroll since 2019?
You may begin entering historical data at any time, and then simply update as you get new data over time.
Yes. Please be sure to follow the naming convention for saving your file, which is described on Tab 0: Instructions & General Info.
Do we have to download the PPP Forgiveness Calculation Model if we are filing for forgiveness using the Standard Form?
Yes, it is required that you complete the full calculation model if filing using the Standard Form (which includes all the reduction factor calculations, Schedule A and Schedule A Worksheet).
We qualify to use the EZ form for our forgiveness application. Do we need to download and complete the PPP Forgiveness Calculation Model?
No. If you choose this path, please download and complete the PPP Forgiveness EZ Calculation Model, which simply requires you to itemize your expenses in the non-payroll categories.
I’m using the EZ form. What happens if I forgot to download and complete the PPP Forgiveness EZ Calculation Model?
The review process cannot be initiated without the PPP Forgiveness EZ Calculation Model. This is a simple workbook for you to itemize the various expenses you included in Mortgage, Rent, Utilities or Owner’s Compensation items of the EZ form. Your application will be on hold until you complete this itemization model.
Armanino is providing an initial review of all forgiveness applications and comparing the supporting documentation with the data entered in the calculation model. This review is intended to validate the data and calculations, and takes place prior to you officially completing the final SBA Forgiveness Application and Schedule A (meaning, all data in the application is accurate and you have made all required certifications and signed the application).
Once the review is complete you will receive an email advising you the review has been completed. Attached to this email will be a PDF document that is a replica of Schedule A in the official application. You will be given instructions to complete your final application using the Schedule A data and to certify and sign the application in the appropriate places.
Upon receipt of you final, certified and signed application, the bank will conduct a final review and notify you of its forgiveness decision and recommendation to the SBA. The bank has up to 60 days to complete this step, and the SBA has an additional 90 days to review the bank’s decision, and assuming concurrence, reimburse the bank for the final forgiveness amount to be applied against the principal of your loan.
If we believe we are nearing the PPP loan amount in qualifying payroll, can we submit a test Forgiveness Calculation Model to review our numbers? It would be good to know the key FTE numbers we need to restore to achieve Safe Harbor.
While we certainly understand the need to model various scenarios, legally and ethically neither the bank nor Armanino can conduct “test reviews” and provide advice on actions you should or should not take. You will need to evaluate your options on your own or in consultation with a retained professional advisory such as your CPA or attorney.
On the EZ form, why isn’t there an input field to put the total payroll payments for the Covered Period?
You have an old version of the EZ Form calculation model. Please visit your bank’s website and download the newer version of the EZ Form calculation model (the file name is dated 7/28/20) that includes a tab for entering your Payroll Costs.
If we submit our application before the end of our 24-week Covered Period and it yields less than 100% forgiveness, can we reapply after another couple of weeks to seek 100% forgiveness?
No. If you want an estimate of your forgiveness amount before applying with your lender, you should use an estimating model in conjunction with your retained professional advisor. There are many available on the web, including one recently released by the AICPA. While these all have limitations and are not suitable for the actual forgiveness application due to traceability issues, they will give you a good sense of where you stand and can help you decide when to file your official application with the bank.
I consistently get an error message on Tab 8 Forgiveness App Data Entry that says “We have detected an error. Please enter “0” in the accompanying field in the bank portal and continue the process of data entry.” What am I doing wrong?
You are doing nothing wrong. For some borrowers, your Forgiveness Calculation Model has a Tab 8 for entering data into the bank portal. If your model does not have this tab, it’s because your bank does not require it. If this error is displayed, it is because you are using an older version of Excel than the version used to create the model. Most older versions do not have the capability to read and execute some of the advanced commands that were necessary to prepare this complex of a model, and so the calculations would not display properly. It’s okay, the model isn’t broken and works just fine. Simply follow the instructions — enter “0” in the appropriate box in the bank portal’s workflow and continue with data entry and documentation upload. Following the initial review of your data, you will be sent a “replica Schedule A” and a copy of the unlocked and properly calculated Forgiveness Calculation Model for your records. You will use this “replica Schedule A” to go back to the bank portal and enter the correct figures where you previously entered “0”. From there, you will be able to complete your official forgiveness application.
I am using the most current version of Excel 365 and still see errors in some cells on Tab 8. Since it’s not an old version of Excel, what could be causing this?
The most likely culprit is cell A50 on Tab 1. Initial Data Input. This is where you are to put the date you are submitting your Forgiveness Application. If this cell is blank, it will throw errors downstream because the safe harbor calculations are based in part on this date. Even if you don’t know the precise date for submission, estimate it and don’t leave this cell blank.
It is also quite likely that your Excel 365 version may need to be updated. Microsoft releases new versions many times each year. The version this model was built in is version 2002 (Build 12527.20880) which was released in March 2020 as a preview for Semi-Annual Enterprise Users and officially updated and put into current production on July 14, 2020. This version contains the brand new XLOOKUP functionality, which is used heavily in this model. This function was only introduced into Excel on January 30, 2020. You can check your version of Excel by clicking on the File menu in the upper left corner, then selecting Account near the bottom of the left pane. This will open a page that includes a button called About Excel; next to that, it should list your version and license that your business is using.
I have uploaded the workbook into the portal but, because the workbook is not calculating, I cannot port over the information and the forgiveness application cannot be submitted.
Please enter “0” in the Schedule A step of the portal, as instructed by the error message you receive in the model. We will send the proper calculations back to you to enter in that step of the portal after we complete our initial review. Your application is not “final” or “submitted” until you complete this second step, then certify and sign the application, so rest assured you will have a chance to review your forgiveness outcome before finalizing the application.
How will I know if we’ll be forgiven the loan amount if I cannot see whether we’ll be forgiven on the 8th tab for the forgiveness data entry? My form is giving me zeros (I have the older Excel).
You will be sent a replica of Schedule A after the initial review is completed, but before your forgiveness application becomes “official,” which is defined as certifying and signing the completed application. This replica will contain all the correct and approved numbers for each line of Schedule A, which then feeds into the Application itself. You will also receive in the same email an unlocked copy of the Forgiveness Calculation Model for your records, which will show how each of the numbers was determined.
Do I need to choose the eight-week or 24-week forgiveness time frame? My loan was issued on April 20 and I plan on using the EZ application form.
Only you can answer this question, because it’s your choice. If you spent all your loan proceeds in eight weeks, there isn’t much point in waiting for 24 weeks to file your application, but you do have that option. Conversely, if you needed more than eight weeks to complete spending your PPP money, you probably would want to choose the 24-week Covered Period unless you want to skip getting forgiveness and would rather pay the money back to the bank.
Can I make my Covered Period something other than eight or 24 weeks? I will be done spending my money after 12 weeks.
No. The Covered Period, as defined, is either eight weeks or 24 weeks. It is not something in between, no matter when you finished spending your money. That is not the same thing as choosing to file your forgiveness application early — this you can do at any time, but it does not change the duration of your Covered Period as defined.
Our company is a corporation with 17 employees, no salary reductions and no FTE reductions. Do we use the EZ form or Standard Form?
You can use either form you wish. The instructions for choosing the EZ form are listed on the website of the U.S. Department of Treasury under a link called “Loan Forgiveness Application Form EZ Instructions”. There you will find the relevant criteria for determining eligibility to use the EZ form, one of which reads:
“The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period (as defined below) compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000); AND The Borrower 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. (Ignore 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 December 31, 2020. Also ignore reductions in an employee’s hours that the Borrower offered to restore and the employee refused.) See 85 FR 33004, 33007 (June 1, 2020) for more details.”
There are multiple steps to the review process:
- When you send us your calculation model and supporting documents, your application is not “final”, “official” or “submitted” yet. Uploading the spreadsheet and supporting documents simply moves your application to the next step in the process, even though you may have had to pass through a workflow step called “Review and Sign” (depending on your bank’s portal). You didn’t actually sign anything yet.
- Armanino will conduct an initial review of your application and supporting documentation. If any issues are identified, they will contact you via email for clarification or additional documentation needs.
- After the initial review is completed, Armanino will prepare and send you a “replica” of Schedule A of the application. This replica will contain all the correct and approved numbers for each line of Schedule A, which then feeds into the Application itself. If you had to enter “0” in the bank’s portal worksteps to move forward to submitting your documents, this will be your opportunity to see the forgiveness for which you qualify before “finalizing” your application. Note, you will also receive in the same email an unlocked copy of the Forgiveness Calculation Model for your records, which will show each of the numbers and how they were determined.
- A) Depending on your bank, you may simply be required to review the Schedule A, certify and sign, then upload the document to the bank’s portal. At this point, your application is considered “official” and there is nothing more for you to do. The bank will render its final decision and convey this to the SBA, who has up to 90 days to review and approve the decision. The bank will notify you when the SBA has completed its process.
B) If your bank uses a portal with a workflow process, you will need to go back to the portal and navigate to the Schedule A workstep to re-enter the final figures on the “replica Schedule A” you were sent. From there, you will proceed through the workflow steps (Forgiveness — Supporting Files — Review and Sign to save your updated application. Even at this point, your forgiveness application still has not yet become “official,” which is defined as certifying and signing the completed application, because you haven’t been asked to sign anything yet.
- For banks with a workflow process — Armanino will conduct a second review of your application to be sure nothing was missed in the second workflow process using “replica Schedule A”. Assuming all is correct, you will be sent an executable PDF of the Forgiveness Application with Schedule A. You will be asked to initial the appropriate certifications and sign and date the application, which will render your application “Final and Official”. At this point, there is nothing more for you to do. The bank will render its final decision and convey this to the SBA, who has up to 90 days to review and approve the decision. The bank will notify you when the SBA has completed its process.
Initial Data Input Tab
Only on the Initial Data Input tab in cell A47. The model will automatically deduct this advance from your forgiveness, per SBA instructions.
No, do not leave this field blank as safe harbors are calculated based on this date. Enter the date that you expect to file for forgiveness — it’s okay if it’s not completely precise.
For “Employees at Time of Loan Application” or “Employees at Time of Forgiveness Application,” are we supposed to include furloughed employees in this figure? What about people hired or laid off after the last day of the Covered Period?
You should not include furloughed employees in either cell. That said, the SBA is asking for this data only as an indicator of your eligibility to apply for a PPP loan originally; they did not ask either of these when you applied. The data you enter for these two items does not factor into any calculation for forgiveness, so it’s okay if it’s not 100% accurate.
On the Initial Data Input tab, the only choices for the Covered Period duration are eight or 24 weeks. In the July 1 webinar, you said it could be any period between them. How do I enter this cell if I choose 16 weeks?
There are only two Covered Period options: eight weeks or 24 weeks. There is no option to pick a Covered Period in between. However, you can file your forgiveness application “early,” meaning when you have exhausted the PPP funds, if you so choose. Understand that doing so does not change the duration of your Covered Period. So, if you decide to file at 16 weeks, you still have a 24-week Covered Period for purposes of the model and the calculation rules for the Salary Reduction Factor, so you should select 24 weeks in the model.
I put an “X” in the appropriate boxes of the EZ Qualification Section and I still received a “No” in cell C50 stating I am ineligible to use the EZ Form. Can I use the EZ Form or not?
You can use the EZ Form and the accompanying itemization spreadsheet. This is an error that occurs due to your using an older version of Excel than the version used to create the model. Your version cannot read the functions used in cell C50, so it stays defaulted to “No.” Ignore this and continue using the EZ Form if this error occurs for you.
For the PPP Loan Disbursement Date, do I enter the date we received the loan or the date we first used the loan toward payroll?
Use the date you received the loan — this marks the beginning of your Covered Period.
The fields for “Covered Period Begins” and “Covered Period Ends” are not open for us to enter our dates. How do I tell you what my Covered Period is?
Those fields are auto-populated based on the Disbursement Date of your PPP loan (which you enter in cell A41 and is the same date that your Covered Period begins) and the number of weeks you selected for your Covered Period from the drop-down box in cell C23 (which automatically calculates the date your Covered Period ends). Remember, enter all data requested in the yellow cells and the white cells will populate properly.
Pay Cycle Input Tabs
We do not have any wage reductions and are using the January 1 through February 29, 2020 reference period for FTEs. Since our payroll company provided us with a report of all employees who made over $1,923 in any weekly pay period in 2019, do we still need to enter all the detailed payroll information for 2019?
No, you do not. If you have already made the decision to use the January-February 2020 period as your FTE baseline, you do not need to enter hours data for 2019. Similarly, if you can certify that you had no wage reductions that would trigger the Salary Reduction Factor and have the documentation to support it in an SBA audit, then you could skip entering the 2019 payroll data. Keep in mind that the rules around the Salary Reduction Factor are intricate and easy to mis-apply.
If I can generate a payroll register for the full year of 2019, can I use that payroll register as one column in the “Pay Cycle 1 Input”?
No. The purpose of the 2019 pay data is to identify employees who may be subject to the Salary Reduction Factor. Summary level data such as a full year of pay will not meet this need, because the rule relates to employees who exceeded a defined amount of pay in any single pay period, not in the aggregate.
The purpose of the 2019 pay data is to identify employees who may be subject to the Salary Reduction Factor. This rule relates to employees who exceeded a defined amount of pay in any single pay period, not in the aggregate. Furthermore, there are two time periods in 2019 that are used as possible baselines for the FTE Reduction Factor, so the hours data in Tables 2 and 3 (if appropriate) is necessary to properly perform that calculation.
We have not been successful in getting the third-party payroll providers to produce a standard report that produces the input the model requires. It is possible that you may be able to develop a custom report that does so; if this is the case, you should be able to export to Excel and then copy the data into the appropriate cells in the Forgiveness Calculation Model. Otherwise, you will have to enter the data manually. Early experience suggests a benchmark of being able to enter bi-weekly pay going back to January 1, 2019 for 8-10 employees per hour.
I get a “Password needed” error when I try to open additional columns by clicking the “+” sign above the column. What am I doing wrong?
You are doing nothing wrong. You are simply using an old version of Excel that doesn’t recognize grouped and collapsed columns and so can’t open them. Please go back to the bank website and download the current version of the model that has all columns opened for you already. You can simply copy and paste any data you have already entered from the original model to the new one you just downloaded.
Can I copy and paste into the model the information from payroll reports I download to Excel, rather than typing the data in?
Yes, so long as the payroll reports you ran have the same information that the calculation model requires.
No. The SBA form has not stated that companies may select an alternative to the last four digits of the SSN. There are worksheets attached to the application and they need to stay aligned in the event of an audit.
In the “Hourly” column, what do you enter if someone transitioned from hourly to salary or salary to hourly during the defined period?
Keep it consistent throughout, so you’ll have to adjust somewhere. In this example, enter the employee data as hourly throughout since such employees have variable hours while salaried ones do not. When they converted to salaried, simply enter 40 hours for each pay period if weekly, 80 hours if you pay bi-weekly, or 86.7 hours if you pay semi-monthly.
In the “FTE Exception” column, if an employee is part time, was terminated “at will” or “laid off,” do they qualify for an FTE exception?
No, no and no. Part-time status is irrelevant, terminations must be for cause, and a layoff is exactly what the PPP program was trying to prevent, so you can’t get an exception for that either.
Our company had a payroll frequency change effective December 25, 2019, going from semi-monthly to bi-weekly. How do we proceed in the model?
The model is not designed to handle such a change. Simply load them all in as-is (i.e., semi-monthly pay in 2019 and bi-weekly pay in 2020, with “Semi-Monthly” chosen in cell B5 for Pay Cycle Frequency) and do not worry about the change in frequencies.
In our company, we have a lot of part-time employees (non-seasonal). They were laid off when COVID hit and when we got our PPP loan, we made a good-faith, written offer to rehire all of them. Many declined. For purposes of the FTE Reduction Exception, how exactly does that work? Do I add them back in as .5 headcount and then recalculate my FTE Reduction %? If I don’t use .5, then what do I use?
First, you don’t need to do any calculations of headcount — the model automatically does both the standard and simplified FTE calculations based on the hours worked data your entered in the Pay Cycle Input tab(s). For the employees you described, simply list them in Table 1 of the Pay Cycle Input tab and put a “Yes” in column E next to their name indicating they qualify as an Exception. The model will take it from there.
We use two pay cycles: hourly are paid weekly and salaried are bi-weekly. Can this all be entered on the same Pay Cycle 1 worksheet?
No. This exact scenario is why there are two tabs for two different Pay Cycles, Input 1 and Input 2, as outlined in the How-To Video, the User Guide and the webinars that have discussed this.
If the company started January 1, 2020, is there a place to indicate this so the system isn’t looking for data for 2019?
You could simply put a note to that effect in cell B11 of the Pay Cycle 1 Input tab, with no wage or hours information on the rest of line 11 to the right in the model, so the reviewer knows you didn’t skip entering necessary data. In such an instance, simply leave Tables 2 and 3 blank since those are asking for 2019 hours information that does not exist.
Enter the date that corresponds to your payroll report for ease of reference in the review process.
I want to be sure I enter the “stub pay” portion of the payroll input correctly. My Covered Period ended June 11, 2020. I paid payrolls on June 12, 2020 that covers work performed through June 6 and paid my next one on June 19 covering work done through June 13. Do I enter 80% of the payroll I paid on June 19 since my Covered Period ended during that week?
You have it correct. Despite the fact that the June 12, 2020 payroll was paid after the Covered Period, 100% of it was incurred during the period so you can claim all of it for forgiveness. Similarly, you get to claim the portion of your payroll that was incurred during the Covered Period in your last week (work performed June 7 through June 11, 2020) but not any costs incurred on June 12 or June 13 as they occurred after the end of your Covered Period.
Should we list employees covered by grant funding in the salary or hours portions in the model? How do we deal with those people in the model since they’re all part of the same payroll run, just using different sources of money?
If they were not paid using any PPP money, exclude them from the model entirely. Make a note in cell C11 of the Pay Cycle 1 Input tab that indicates which employees in the payroll report were paid using grant funds and not PPP funds, then leave all cells in line 11 to the right of cell C11 blank. To be clear, this note goes in the first line of employee data, using cell C11 under the heading “Last 4 of SSN” — do not enter this note in cell B11 where Employee Name goes; just leave cell B11 blank.
If, on the other hand, during the Covered Period part of their pay came from grant funds and part came from PPP funds, do include the employee in the model and list all pay received, regardless of source. Create a supplemental schedule that explains the issue, lists the affected employees and the amounts that were paid using non-PPP funds, note the existence of this schedule in cell C11 of the Pay Cycle 1 Input tab, then upload the supplemental schedule to the portal as a General Document.
We are a law firm using a PEO and all partners receive some amount of W-2 wages so that they can get medical benefits. The balance of the non-equity partners’ pay is distributed/paid as “Guaranteed Payments” via an ADP direct deposit. How/where do I post the non-equity partners’ guaranteed payments?
Guaranteed payments for non-equity partners should be added to the salary they were paid in the period the guaranteed payments were made, so that there is one entry for amounts paid to the employee in the pay period. Example: Salary payment (W-2) of $4,000, Guaranteed payment (K-1) of $3,000, enter $7,000 in the pay period for that non-equity partner.
We pay all our employees weekly, but occasionally we have corrections or other off-cycle payments between pay days. Should these checks be counted with the prior week, the following week or should they be entered into the model on a separate date entirely?
Such non-standard payments to employees should be added to the salary they were paid in the period when the payments should have been made if they are corrections, or in the next pay period if they are payments such as bonuses, commissions or severance. Do not enter “off-cycle” pay periods in the model — stay consistent so the proper calculations can be made.
How do we handle overtime, vacation, sick or holiday hours in the Hours tables of Pay Cycle 1 or Pay Cycle 2 worksheets?
List all paid hours in the Hours tables (Tables 2-4).
When we originally calculated our loan needs, we did not know we should have included seasonal employees and did not use those numbers to calculate our loan needs. Should we still list any seasonal staff payroll info in Table 3 for seasonal employees?
It doesn’t matter what you used as the basis for your loan when you applied. Now, it’s only about how you spent the loan, so include all employees paid during the Covered Period and the baseline periods. Also, you only need to complete Table 3 if you consider yourself a seasonal employer and wish to use that as your baseline period for purposes of calculating the FTE Reduction Factor. If you anticipate using either of the two “standard” look-back periods, use Tables 2 and 4 to enter the hours everyone worked. Just to be clear, you enter the wages of all employees, seasonal or not, in Table 1.
Since salaried employees don’t have “hours worked,” should I just skip entering hours since that doesn’t apply to the exempt staff?
No, do not skip entering this data as none of the FTE calculations will be correct. Salaried employees should have their hours entered as:
- 40 hours for each pay period if you pay your employees weekly
- 80 hours if you pay bi-weekly
- 86.7 hours if you pay semi-monthly
I’m trying to reduce the volume of required data in the model. Can we just use a simplified reporting method for employees receiving a 2019 Form W-2 with gross wages of $100k and above? Will the 2019 ACA Form 1095-C monthly checkbox data suffice for FTE calculations?
No, the model does all calculations based on detailed data. Summary data will not work in the spreadsheet. As to ACA data, the ACA defines FTEs differently than the SBA is using for the PPP program, so this is definitely not a correct approach.
Do we enter the employer payments for Medical in total or by employee, and are they net of employee contributions?
Enter them in total, net of any employee contributions, i.e., only enter the amount paid as the employer’s portion of the expense.
During our eight-week period, we had five employees who were paid via the EPSLA rules. How do I account for the gross wages for those employees in the data entry, since they were deducted from our payroll tax liability and thus should not be part of the loan forgiveness calculations?
If all of their pay during the Covered Period was from non-PPP sources, exclude them from the model entirely (including from 2019 and Q1 2020 data so you don’t accidentally trigger a reduction factor that shouldn’t exist). Make a note in cell C11 of the Pay Cycle 1 Input tab that indicates which employees in the payroll report were paid using EPSLA funds and not PPP funds, then leave all cells in line 11 to the right of cell C11 blank. To be clear, this note goes in the first line of employee data, using cell C11 under the heading “Last 4 of SSN” — do not enter this note in cell B11 where Employee Name goes; just leave cell B11 blank.
If, on the other hand, during the Covered Period part of their pay came from EPSLA funds and part came from PPP funds, do include the employee in the model and list all pay received, regardless of source. Create a supplemental schedule that explains the issue, lists the affected employees and the amounts that were paid using non-PPP funds, note the existence of this schedule in cell C11 of the Pay Cycle 1 Input tab, then upload the supplemental schedule to the portal as a General Document.
Do we include owner’s health benefits, SALT, and 401k employer contributions in the totals of the Pay Cycle 1 tab beginning in column HH?
Owner’s fringe benefits are only includable here if the owner was paid a salary as an owner-employee of a corporation. Otherwise, these costs are not forgivable.
Only include such items if the owner was paid a salary as an owner-employee of a corporation. Otherwise, owner compensation goes in Tab 7. Owner’s Comp.
Yes, in that they asked for and received a reduction of hours.
I have multiple columns that are red in the check sum even though they show $0.00. These errors are not letting me see my results on the “Forgiveness App Data Entry Tab”.
You can ignore those red cells if the check sum reads $0.00. That is a simple rounding error in the formula and not meaningful. That said, those errors have nothing to do with seeing your results on the Forgiveness App tab. You get errors there because you are using an older version of Excel that can’t recognize the advanced formulas the model uses. Just enter 0 in the portal for those boxes as instructed; after the initial Armanino review, you will be given a copy of the workbook with those cells completed along with a “replica Schedule A” to enter into the portal prior to signing and submitting your official application.
We are submitting our application early. Do we need to include predicted costs for the upcoming pay periods until the 24 weeks is up?
No. You need actual costs to complete the application, not projected ones.
We paid our May health insurance on April 13, the day before we received our PPP funds. Can we include this expense as an incurred cost? By the same logic, could we also include half of April as well even though it was paid in March?
The rule is that the cost must have been incurred or paid during the Covered Period. Your May health insurance was incurred during the period even though it was paid before the period began. Similarly, your April 14-30 health insurance was incurred inside the Covered Period though it was paid prior. So yes, you can include both.
How do I handle COVID-19 sick leave pay and associated hours that are not to be included on my PPP loan forgiveness application?
You are correct that those are not forgivable expenses because they were covered already under a different federal program. For purposes of the calculation model, simply make a note in cell C11 of the Pay Cycle 1 tab that instructs the reviewer to see a supplemental schedule that details such exceptions, then create that schedule and include it in your upload to the portal.
Our total actual payroll was $550,000, but after excluding salary portions greater than $100,000 the “eligible” payroll reduces to $525,000. Can we use the PPP funds to only pay the eligible portion while using company funds to pay the balance to ensure the maximum forgiveness amount?
Without knowing the loan amount, this is a difficult question to answer. The net result of the caps is that you are, in effect, using company funds to pay the balance for the highly compensated employees.
I was under the impression that the eight-week payroll time frame was extended to 24 weeks per the June 5, 2020 guidance, and that the eight-week “payroll period” could be any eight-week time frame within that 24-week period. Is that incorrect?
That is partially correct and partially incorrect. The Flexibility Act did indeed extend the Covered Period to 24 weeks, at the borrower’s option. However, that does not mean that the borrower can pick any eight weeks in the midst of 24 for forgiveness. You may choose either an eight-week period that begins with the date you received funds or a 24-week period in which to spend the money, but not a hybrid of your own making.
When I input the weekly amounts on tables 1 & 4, the date field became red. I am entering the date paid of the payroll. Is that correct? Table 2 was fine, the field stayed blue and I entered the same dates. And I got the same error on Checksum, even though it reads $0.00.
Ignore the red dates and checksums if they are $0.00. This is a conditional formatting issue that you do not need to worry about.
I read in the FAQ that I should enter 80 hours for my salaried employees since we pay biweekly and not leave the field blank. However, my payroll company reports only include hours worked for hourly employees, so I end up with a Checksum error because of all the extra hours for the salaried people. What should I do?
To eliminate the Checksum error, simply add the total hours of the salaried employees that were not listed on your payroll report to the sum on that report and enter that number in the Forgiveness Calculation Model. For example, if your report shows you paid hourly employees 500 hours in a given pay period, but you also had 5 salaried employees for whom you’ve entered 80 hours each, add these 400 salaried hours (5 times 80) to the 500 hourly employees’ hours and enter the result (900 hours) in the Excel model. The bank reviewer will be able to quickly see what you have done and understand the logic.
Regarding “Hours worked,” does this mean actual hours worked or Hours paid (i.e., vacation, sick leave, holiday, etc.)?
I am unable to enter any value or text in cell HE7, table 4 (Stub period), even though the other “Stub period” fields allow entry. I have Excel 2019 so the version shouldn’t be an issue. What should I do?
This cell was inadvertently locked in the version that was distributed. Just ignore the issue and leave the field blank.
In the Forgiveness Calculation Model, do I put owners in the Pay Cycle Input tab (tab 2) or the Owner’s Compensation tab (tab 7)?
Any individual who meets the “self-employed” test (“owner employees” who are sole proprietors, Single Member LLCs, General Partners, S-Corp shareholder/employees and C-Corp shareholder/employees) should be listed on Tab 7. Owner’s Comp. Do not list them in Tab 2. Pay Cycle 1 Input because the costs input in Tab 2 show up in Schedule A on other lines than line 9, where Owner’s Compensation is to be reported.
I have noticed a problem in the social security number section. As I am entering the “last four digits of the SS#,” the spreadsheet will not display a zero if it is the first number of the four. How would you like me to handle this?
In instances such as a leading zero (example, you entered 0569 but it shows as 569), that is fine. We will assume that it is missing the leading zero. Regardless, it will not create an error for you down the line as you complete the model, as this field is not used for any calculations.
We have a unique payroll where we pay our staff based upon a 37.5-hour work week and don’t track hours on our payroll register unless the employee deviates from the hours in the standard work week. Do I still need to post hours for February 15, 2019 through June 30, 2019 and for 2020?
Yes. The model will not accurately calculate FTEs without hours data. In your case, simply enter 37.5 hours for each person if you pay weekly, 75 hours if you pay bi-weekly, or 81.3 hours if you pay twice monthly. If your payroll register noted a deviation from the standard work week for an employee, incorporate that deviation into the data you enter for that pay period.
I am not clear why I have to provide every pay period for all of 2019 and 2020 through the Covered Period. I would think you only need the 2020 payroll from January 1 through the Covered Period. I am not using 2019 payroll for the forgiveness, only the 2020 year, and I will have enough payroll during the Covered Period. As well, I will have FTE met during the Covered Period equal to the January-February 2020 measurement period. Entering 24 pay periods for 2019 is a waste of time and effort. Can I provide only 2020 data?
As it relates to Table 2 in the Pay Cycle Input tabs, where you are to input Hours Worked for the February 15, 2019 to June 30, 2019 period, you can safely skip entering data here if you are choosing to use the other baseline period of January 1, 2020 to February 29, 2020 (entered in Table 4). However, you do not have this option available to you for Table 1 in the tab, where you are to enter the gross wages paid per pay period. This data is required by the SBA for determining which employees are to be placed in either Table 1 or Table 2 of the Schedule A Worksheet (which the SBA requires each borrower to maintain for six years) and therefore properly considered or excluded from the Salary Reduction Factor calculation.
On Table 2, I am confused about whether to put in all hours paid during the given time period, or only hours worked (total time — PTO).
Enter all hours for which an employee was paid, whether worked or paid for other non-work reasons.
Please help me understand the instructions for Owner’s Comp. Is it necessary to list each payroll period and amount paid for each shareholder? Is this only for the Covered Period? They are also listed in Pay Cycle 1 Table 1. Is it correct to leave them on Table 1?
If your shareholders are paid as W-2 employees of the company, then it is appropriate for their pay to be listed on Table 1 with all other employees. If they are not paid in that manner, they should not be included on Table 1 but should instead be listed on the Owner’s Comp tab, where each payroll period and amount paid during the Covered Period should be itemized for ease of documentation comparison.
For payments to Owners, if the amount paid is greater than the capped amount, do I enter the actual amount paid for each owner or the capped amount?
Enter the actual amount paid. The model will automatically apply the appropriate cap.
We chose the 24-week Covered Period ending on October 9 but used up our PPP funds on July 31. Do I report our payroll information as of July 31, or keep entering data until we submit the Forgiveness application?
The choice is yours. Depending on your situation, it may be easier to simply enter the expenses through the exhaustion of the PPP funds, especially if you have no possible reductions. However, you also have the option to continue entering your spend data until the time you file the application (assuming that happens before October 9) to give yourself a cushion against any reductions or disallowances.
For simplicity, yes, include all pay and hours worked in the spreadsheet, but also prepare a supplemental spreadsheet that documents any FFCRA pay to your employees. This will lessen the chances for error on data input, enable easier matching to payroll registers and clarify which amounts to exclude from forgiveness.
The FTE Exception enables you to lower the FTE count in your baseline or “look-back” period for purposes of the FTE Reduction Factor calculation based on circumstances beyond your control as the employer. FTE Exceptions include employees who worked for the company during the baseline period but who are not working for the business throughout the Covered Period because they a) resigned and were not replaced; b) were terminated for cause and not replaced; c) are on a leave of absence due to FMLA or other reasons; d) rejected an offer to be re-hired during the Covered Period; or e) refused to return to work. You will need to be able to document any FTE Exceptions.
Yes, the model will automatically apply the appropriate compensation caps depending on the length of the Covered Period you chose on the Initial Data Input tab.
We are filing the EZ form. On the Payroll and Owner’s Comp tab, do we input the summary of wages for each employee for the Covered Period? Also, do we input the amount of gross wages after the cap or does the spreadsheet automatically cap the gross payroll?
For the EZ Form calculation model, there is no need to enter data at the employee level. Simply enter the total from your payroll register or summary report provided by your payroll provider that matches the documentation you provide. The calculation model does not automatically apply the compensation cap per employee because it does not ask for employee-level data; therefore, you will need to appropriately calculate any caps that may apply before entering your data into the spreadsheet.
I just downloaded the latest version of the PPP loan forgiveness data entry model, and while all the columns on the Payroll Input tabs are now open, I am still not able to use the Expand/Contract buttons at the top of columns DH and HE due to the spreadsheet protection. I certainly understand the need for the protection, but it would be very nice to use the functionality to hide and open columns as needed. Please advise.
The Expand/Contract buttons above columns DH and HE will work if you are on a new version of Excel but will not work (and will trigger the password request) for users with older versions. You will just have to scroll past the empty columns.
I did not see a tab for Transportation expense broken out in the Forgiveness Calculation Model. Where should this expense be added?
Simply list any eligible Transportation expenses on the Utilities tab 6. You will note in cell A3 of this tab that allowable Utilities expenses includes Transportation.
Yes. When you initially sign into the portal, you will have an option to add “Trusted Advisors” to have access to the portal. These could be assistants, other staff, your CPA, or anyone you choose.
If a CPA is helping me with our application, are they able to see everything on the portal that I can see?
Yes, so long as you have listed them as one of your “Trusted Advisors.”
Certifications and signatures will be handled electronically via DocuSign.
Gross wages without any other deductions for benefits or for taxes that the employee pays, state tax expense paid by the employer, health insurance benefits paid by the employer, and retirement plan benefits paid by the employer.
We have reasons to not want certain wages to be considered for PPP forgiveness. For example, we may want only $6,000 of an employee’s wages considered for forgiveness, even though the employee earned $10,000 in the Covered Period. Can we do this and still use the $10,000 amount paid as the basis for the various reduction factors?
Without speculating on your reasons, the answer is no.
We got our first project in Texas and brought on two people to perform the project. They are not technically on our payroll as a W-2, but instead are paid through a 1099. This is considered payroll cost, correct?
Incorrect. Payroll costs include W-2 employees only. Contract employees paid through a 1099 are not to be included in your payroll cost calculation.
Two owner-employees in our S Corp had an increase in salary in mid-2019. Therefore, their salary is greater in 2020 than the average 2019 number that contributed to the calculation of the original PPP funds. For the forgiveness application, can we include the increased salary, or do we need to stay with 2019 salaries?
To calculate payroll costs, add up the total amount paid to your employees during the Covered Period you choose. Apply the maximum limit threshold explained elsewhere where necessary. Then add in any employer payments made for health insurance, retirement benefits or state/local taxes on compensation. Their 2019 pay level is irrelevant to how much payroll cost you can claim for your Covered Period in 2020. The 2019 pay comes into play only in determining whether they should be considered for the Salary Reduction Factor later on, so ignore it for payroll cost purposes.
No. Workers comp is not an allowable payroll cost expense regardless of how you accrue it.
We assume you meant you are using a PEO company and not a PTO company. As a co-employer, your PEO company should be able to provide you with the necessary reports and documentation. Just ask them.
Our payroll journals do not show hours for salaried exempt employees, only hours that have been used like sick, vacation, holiday, etc. Will this be an issue in terms of applying for forgiveness and providing supporting documentation?
Our loan was funded on April 15, 2020. Can we include the payroll we issued that day or does our Covered Period start the day after the loan funds, so April 16, 2020 for us?
Covered Period day one is the day the funds hit your bank account. So, in this case, you can include the payroll you issued on April 15, 2020.
Say funding is on April 23, 2020, the payroll period is April 13 to April 24 with a pay date of May 1. If I understand correctly, we can claim the whole pay period for forgiveness, not just the two days after the funding date. Is that correct? Then, at the end, my Covered Period ends June 17, in the middle of my payroll period from June 8 to June 19 that we will pay June 26. Is the entire pay period still covered as long as it is paid prior to the next cycle, or only the part that occurs during the Covered Period?
To your first question, you have it correct. The amount paid for payroll in the Covered Period (in this case, paid May 1) can be included even if the cost was incurred prior to the Covered Period, so long as it is the immediately contiguous period. As to your second question, only the part that occurs during the Covered Period may be claimed. In this case, you do not get the benefit of the entire June 26 payroll, so you will have to figure out the amount you incurred through June 17 for forgiveness purposes.
Where is it stated that compensation over $100,000 is not forgiven? I know it was used for the loan basis and to determine whether a pay reduction results in an amount being unforgiven, but that’s different than the amount we are allowed to pay employees out of PPP funds. When/how did this change come about?
This change came about when the PPP program was invented. See CARES Act language signed into law on March 27, 2020: Section 1102 of the CARES Act, which is what creates paragraph (36) and outlines the Paycheck Protection Program, defines in 1102(a)(2)(36)(A)(viii)(I)(bb) “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 prorated for the Covered Period.” The forgiveness provisions outlined in Section 1106 state in paragraph (a)(8): “the term “payroll costs” has the meaning given that term in paragraph (36) of section 7(a) of the Small Business Act (15 U.S.C. 636(a)), as added by section 1102 of this Act.” So, it’s always been there.
For a C Corp, are all employee shareholders considered owners for the payroll cost forgiveness calculation, or only those above a certain ownership percentage?
The threshold used by the SBA is a 20% ownership stake.
I have three questions. First, is the per diem payment or subsistence paid to employees for out of town work forgivable or allowable? Second, how about a monthly truck allowance for salespeople? Third, what period is to be used to compare the eight-week total wage payroll — can we still use the January-February 2020 reference period?
To your first two questions, no — those are not part of taxable wages. Your third question relates to the Salary Reduction Factor, in which you compare the Covered Period average wage to the average each employee earned in Q1 2020, not just January-February 2020.
Could we extend the eight-week coverage to nine weeks to cover the semi-monthly payroll that is due on June 15, 2020? Since we have basically maxed out the PPP funds, when shall we submit the PPP loan forgiveness application?
Question 1: No. Pick either eight weeks or 24 weeks but remember the “incurred but not paid” rule described elsewhere. You also now have the ability to file for forgiveness before your 24-week Covered Period ends if you have used up all PPP funds. Question 2: You have 10 months from the end of your Covered Period to apply for forgiveness.
How would distributions to S Corp shareholders be viewed during the eight-week or 24-week forgiveness period in terms of using liquid resources, arguably the PPP loan, to distribute out? Would that be a valid business transaction or be viewed negatively and possibly jeopardize full forgiveness?
Distributions are not forgivable uses of PPP funds.
I’d like to use the Alternative Covered Period for my payroll. Does my first week of funds spent need to match my first week of forgiveness?
The Alternative Covered Period applies only to your payroll costs and not other costs. Those other costs will be for the period beginning the date you received your PPP funds. The Alternative Covered Period begins with the first day of the first complete pay period that starts after you received the funds.
Our payments of auto allowances are paid as a non-accountable plan and therefore fully taxed to the employee. Would these monthly auto allowances be forgivable if paid during the Covered Period?
Because they are part of your employee’s taxable income, and presumably reported on your Form 941 each quarter, these can be included in your Payroll Costs for your forgiveness application. If they were not taxed as income, they could not be included.
We are a Catholic Church. Our priests are paid just like the rest of the employees. Should we include the payroll, pension and health insurance costs for the priests in our forgiveness application?
Unless the priests own the church, which would probably defeat its non-profit status, their employment costs should be included in your Payroll Costs and not Owner’s Compensation.
We understand that the salary maximum for the eight-week Covered Period is $15,385 and for the 24-week Covered Period is $20,833. What if we apply for forgiveness after week 12? How is the salary max for forgiveness determined? Basically, we want to know how much of the salaries we are paying can count toward forgiveness.
First, let’s correct your opening statement. The maximum compensation for a 24-week Covered Period is $20,833 only for owners, not for employees. Employees are capped at $46,154 for this length of time. Based on your last sentence, we infer that you are asking about employees and not owners. If you were to apply for forgiveness after week 12, there is no guidance to suggest whether the maximum compensation for any employee is the full $46,154 of the 24-week Covered Period or half that ($23,077) for just 12 weeks. A technical reading of the guidance to date only references the eight-week maximum and the 24-week maximum, with no mention of what happens in between. Clearly you will have elected a 24-week Covered Period, since the only other option is an eight-week period which you have passed. Theoretically, this opens a very large loophole wherein a business could potentially pay a $240,000/year executive at full rate and get forgiveness for it, simply by filing for forgiveness after 10 weeks instead of eight when they would have been limited to just $15,385 ($240,000 per year = $4,615.40 per week times 10 weeks = $46,154). This is obviously not the intent of the Act, so we expect future guidance to clarify and close this loophole. Regardless, taking such a stance runs a high likelihood of SBA scrutiny.
I am confused by the “incurred and/or paid” rules. The IFR of May 23, 2020 clearly states “…payroll costs incurred during the last pay period of the Covered Period are eligible if paid before the next pay date”. Shouldn’t I be able to include the entire last payroll of my Covered Period so long as I pay it on the next regular pay date?
No, you can’t take credit for the entire last payroll if your Covered Period ended in the middle of it. You may only count the portion that was incurred during the period, even though it was paid afterwards. The key words in the IFR you quote are “incurred during” the Covered Period. It says nothing about payroll costs incurred after the Covered Period, only about costs that were paid after but incurred during. The chart below illustrates what may and may not be included in costs based on the incurred/paid rules.
We pay our union employees vacation/holiday time weekly at $5 an hour, which is taxed and then deducted back out of the employee’s check. It is included in their gross taxable wage and our 941 reports. We are planning on including this $5 an hour in the payroll model rather than with our health insurance and pension payment or some other part of the application. Can you confirm this is the correct treatment?
Yes, this approach is correct.
If we choose to use the Alternative Payroll period, would the first payroll be included or excluded in the calculation? What about the last one?
The Alternative Payroll Period option was put in place to simplify the calculation of payroll costs for businesses who pay weekly or bi-weekly, so that the business could use whole payroll cycles rather than have to apportion stub cycles at the beginning and end of the Covered Period. For an eight-week Covered Period, this means either eight complete pay cycles (weekly payers) or 4 complete pay cycles (bi-weekly payers). For 24 weeks, this would be 24 or 12 complete pay cycles. There are no “paid but not incurred” or “incurred but not paid” issues under the Alternative Payroll Period option.
To properly calculate our union health and pension benefits costs, do I follow my Covered Period and take the hours worked for each union employee and multiply by the rate of those costs?
Our Covered Period began on April 16. We paid our April employer health insurance costs with a check that cleared the bank on April 23, but the check was dated on April 15 and mailed on April 16. Can we include this payment in our forgivable expenses?
You are allowed to take the portion of the insurance costs that relate to the Covered Period, meaning from April 16-30.
If you chose an Alternative Covered Period for payroll, does that Alternative Covered Period apply to the non-payroll costs?
No. The Alternative Covered Period is only available for payroll costs. All other forgivable expenses are bound to the Covered Period that begins with the date your loan was funded.
It appears from the “incurred versus paid” rules as though a recipient can claim more than eight weeks of salary since you used five pay periods in your example chart. Is this allowed?
Yes, it’s allowed, using the guidance from SBA that defines an eligible payroll cost as “considered paid on the day that paychecks are distributed, or the Borrower originates an ACH credit transaction. Payroll costs are considered incurred on the day that the employee’s pay is earned. Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date. Otherwise, payroll costs must be paid during the Covered Period (or Alternative Payroll Covered Period).” So, payroll costs that are paid during the Covered Period, but incurred prior, are deemed eligible based on this final sentence.
Our eight-week Covered Period ran from April 24 through June 19. The hours employees worked from June 14 through June 20 won’t be paid until June 26, but those wages were earned during the Covered Period. Can I claim that payroll, and if so, do I exclude hours worked on June 20 since it’s outside of our Covered Period?
First, the dates you cite for your Covered Period are incorrect. If your eight weeks began on April 24, the last date of your Covered Period is June 18, not the following day. To your specific question, yes, you can claim the portion of your final payroll that was incurred prior to the end of your Covered Period, meaning any wages earned from June 14 through the end of June 18. You cannot claim any wages earned beginning June 19.
If a stockholder of a C Corp is paid as an employee of the C Corp, can his salary be included in the calculation of PPP forgiveness?
Yes, that is included as employee pay, not owner’s compensation. In the Forgiveness Calculation Model, you would list this person and their compensation in the Pay Cycle 1 Input tab.
We are using a PEO service. How do we obtain or calculate State and Local Taxes for the Covered Period?
If the PEO made payments to a state or local authority on behalf of you as the employer, ask your PEO for appropriate evidence of the payments made. If you paid the costs directly, simply include those expenses in Table 7 of the Pay Cycle 1 Input tab in the Forgiveness Calculation Model. Please remember that State and Local Taxes for purposes of forgiveness exclude any amounts you withheld from your employees’ gross wages and remitted (or your PEO remitted) to the government. These costs are ONLY for taxes paid by the employer based on employee compensation.
The $46,154 cap is based on the 24-week payroll for each person. Does the cap of $100,000 still apply for the year?
Yes. That’s how the cap was arrived at in the first place — it’s not a randomly generated number. They are one and the same. $46,154 = ($100,000 / 52 weeks) x 24 weeks.
Have there been any stipulations or rules regarding limiting partner distributions while holding the PPP funds? I have a large professional service firm holding off on substantial but regular partnership distributions as they are concerned if they make them prior to forgiveness that it will disqualify them or hurt them in the forgiveness process some way.
You may make whatever distributions of profit are necessary and appropriate for your business without restriction. Distributions are not considered wages and do not factor into the forgiveness calculation, nor do they need to be listed anywhere on the application.
If we extend our Covered Period to December 31, our qualified payroll will be almost three times the total loan amount. Do we have to submit payroll all the way through December 31 or only as long as it takes to exceed the loan amount?
The first issue in your question is that you cannot extend your Covered Period to December 31 unless your loan funds on or after July 17, in which case your Covered Period automatically ends on December 31. You can extend to 24 weeks from the date your loan funded if it funded before June 5, at your option. Your Covered Period is automatically 24 weeks if it funded between June 5 and July 17. The second issue in your question is the notion that your payroll costs will be three times your loan amount. You cannot get forgiveness for spending your own money. The government wants to know how you spent its money, not your own. So long as you can show that you spent PPP money for payroll, you can stop when you’ve exhausted the total loan amount assuming you are completely confident that you captured all forgivable spend correctly.
I prepay Kaiser & Dental premiums which would have been paid prior to PPP Funding. Can I pro-rate monthly amounts and include the six days of premiums that we incurred after our loan was disbursed?
Yes, you can include the incurred amounts during the Covered Period because it was paid in a contiguous period.
Correct. Reimbursements for wellness, childcare, tuition, etc. are not forgivable expenses for PPP.
We have several employees who made over $100,000 in 2019. Are their wages (maxed at $46,154) during the 24 weeks excluded from my total payroll?
No, you do not exclude their pay from your Payroll Costs. You absolutely include it, but only up to the $46,154 cap.
How much pay do we include for salespeople who usually earn commission over $100,000, but who may not this year (won’t know until end of year), since they earn unevenly?
Include the amounts they are paid during the Covered Period or incur during the Covered Period but are paid in the next immediate pay cycle following the end of the Covered Period. This is subject to the compensation cap of $46,154 if selecting a 24-week period or $15,385 if opting for eight weeks.
When are payroll costs “incurred”? Is it when the company runs its payroll online with ADP, or is it when the money is taken from the company bank account by ADP, or is it the date of the paychecks?
Actually, none of the three scenarios you suggest. The Payroll Cost is incurred when the employee works the hours for which they are to be paid. In the Instructions to the Form 3508 Forgiveness Application, it reads: “Payroll costs are considered incurred on the day that the employee’s pay is earned.”
Please clarify on the grants “double-dipping”. If I have a federal grant and am unable to work on the grant due to COVID, then can I use PPP money for the salary?
Assuming there are not extensions offered for the grant, then the money from the grant is to be used to pay the salary and not PPP money.
For Nonprofits: Can you include salary paid to an employee that was a grant-funded position, but is NOT from a Federal grant?
If the salary was provided to the nonprofit in the form of a grant that was earmarked for the position (whether federally originated or otherwise), then you cannot use PPP funds to pay that salary.
Gross pay includes FUTA, FIT, FICA, SDI, Medicare. And yet, you say those amounts cannot be included for forgiveness. Are you then saying all that can be forgiven is net pay including only state taxes?
Your understanding is not correct. The employee’s portion of those costs are included in gross pay and are forgivable because the Payroll Costs calculation uses gross pay. The amounts that cannot be included for forgiveness are the portions of those taxes paid by the employer.
Do I understand correctly that Federal Withholding, Social Security and Medicare deducted from the employee’s paycheck is eligible for forgiveness?
Yes, in the sense that Payroll Costs are calculated using gross pay to employees, before any deductions such as those you note.
The AICPA website says that employee federal withholding is included in allowable payroll costs for the purposes of determining the amount to be forgiven, but the employer federal payroll taxes (i.e. FICA and Medicare taxes) imposed on the gross payroll are not eligible payroll costs for the loan forgiveness calculation. Is that right?
Yes, the AICPA got that one right. Understand that employee withholdings are deducted from gross pay. Also understand that the payroll cost calculation uses gross pay for each employee. Therefore, those withholdings are “allowable” because they are included in gross pay. However, the payroll taxes paid by the employer, separate from the amounts withheld from the employees, are ineligible because otherwise you would be using federal government money to pay federal government taxes. If they wanted to do that, they would have simply waived the requirement to pay taxes and kept it simple. On that notion, though, they do now allow any business, regardless of whether it has had PPP money forgiven, to defer (not avoid) paying the FICA portion of payroll taxes (6.2%) through the end of 2020, with half of the deferral amount due December 31, 2021 and the other half due December 31, 2022.
When an employee passed away during our eight-week period, we split up his duties to other current employees and gave out raises that pushed two employees over the $100,000 limit (annually). Do I use my last payroll (for the eight-week period) to calculate their costs?
No. To calculate payroll costs, add up the total amount paid to your employees during the Covered Period you choose. Apply the maximum limit threshold explained elsewhere where necessary. Then add in any employer payments made for health insurance, retirement benefits or state/local taxes on compensation. Do not simply take the last payroll and multiply by eight.
If an employee will earn over $100,000 this year, does this employee’s pay have a maximum for inclusion in payroll costs?
If an employee earns $110,000 per year, can I include the first $100,000 of wages in the forgiveness amount?
No, that’s not how it works. For this or any other employee, you can only include up to $15,385 if using an eight-week Covered Period, or $46,154 if you choose 24 weeks. The $100,000 maximum is an expression of annualized pay, meaning how much they would have been paid if you had persisted for a full year at the same level you paid the person during the Covered Period.
Is it okay to pay an employee $15,385 for one week and nothing for the remaining Covered Period, or do you have to pay $1,923 each week?
Aside from possible employee relations issues this may cause, this is allowable. You could pay them $15,385 every week if you want — you would just be limited in your forgiveness claim to $15,385 once, assuming you are using an eight-week Covered Period.
No. Wages are capped at $15,385 during an eight-week Covered Period, or $46,154 during a 24-week Covered Period. There is no individual weekly cap.
For purposes of totaling your payroll costs during your Covered Period, add the total of each payroll you run during the period, plus any pay that your employees may have earned before the end of your Covered Period but that you didn’t pay until the next regular payroll cycle after your Covered Period. It doesn’t matter if the amount of pay varies widely from payroll to payroll — just add it up.
Do we have to include commissions or bonuses in looking at 2019 annualized pay to determine if they should be included or excluded from the Salary Reduction Factor calculation?
Yes. If in any single pay period in 2019 an employee was paid an amount that, when multiplied by the number of pay periods the business had in 2019 (i.e., annualized), totals more than $100,000, they are to be excluded from the Salary Reduction Factor calculation. The amount the individual was paid could include salary, wages, commissions, bonuses, overtime pay, sick leave pay, tips or other sources of taxable income. For ease of understanding, the limit in any single pay period in 2019 is as follows, depending on the frequency with which you pay your employees:
- Weekly payroll (52 pay periods): $1,923
- Bi-Weekly payroll (every 2 weeks) (26 pay periods): $3,846
- Semi-Monthly payroll (twice per month) (24 pay periods): $4,167
- Monthly payroll (12 pay periods): $8,333
Yes. Gross salary or wages includes an employee’s standard paycheck, plus any bonuses, commissions, overtime pay, tips, etc. that are considered taxable income. In total, they are subject to the $100,000 annualized maximum.
If a new employee is hired during the Covered Period, will we be able to include them in payroll costs?
Yes. Every employee who works for you for even one paid hour during the Covered Period should be included in your payroll costs. It is to your benefit to include them.
Yes. Every employee who works for you for even one paid hour during the Covered Period should be included in your payroll costs. It is to your benefit to include them.
No. The only place where there is a $100,000 cap is on annualized gross salary or wages, which means a maximum of $15,385 if the borrower chooses an eight-week covered period or $46,154 for a 24-week period. The employer’s portion of pension payments and other retirement benefit payments, along with health insurance benefit payments, may also be forgiven in total regardless of the employee’s gross salary.
Allowances and reimbursements are typically like other expense reimbursements — non-taxable and not considered wages — so they are not allowable for forgiveness. However, if you leased a vehicle for an employee to use for business purposes, that lease payment could be included in your rent costs.
Has the $15,385 cap on salaries for the eight-week period been increased to $46,154 for the 24-week period?
Unlike a temporary agency, a PEO (Professional Employer Organization) contracts with your organization as a “co-employer”. The PEO will file payroll tax returns and also administer benefit plans as your “co” employer. Employees paid in a PEO relationship will be provided benefits and you’ll work with your PEO in a relationship that allows you to control the employee. You will jointly provide benefits. When the employee files for unemployment, they can name you as the employer of record. The difference is documented in the contractual differences between the PEO and Temp Agency arrangements you engage in.
We make monthly union benefit payments and understand that these payments can be included in our forgiveness calculation. We paid the March bill in April after we received our PPP funds, paid the April bill on schedule in May and paid the May bill early to get it in under the wire of our Covered Period. Can we include all three payments?
Prepayments are generally not allowed in the forgiveness program. However, in this example, because the payment would have been made in the next regular billing cycle and covered a cost that was incurred during the Covered Period, all three payments are able to be included in the forgiveness application.
When we submitted our labor, we included all employees including part-time. If the goal was to keep employees working their normal schedules, can we include our part-time employees in our total payroll expenses?
Yes. Include all employees in your payroll costs, regardless of whether they are full-time or part-time.
We have several “employees” who each own 20% of the business. Are they excluded entirely from the forgiveness calculation?
For questions on self-employed persons, an excellent reference document is the IFR released on April 14. In that document, it was clear that owners of either sole proprietorships or pass-through entities can be forgiven for paying themselves the smaller of $15,385 (assuming an eight-week period) and 8/52 of their reported 2019 self-employment income. For borrowers choosing the 24-week period, this amount adjusts to the smaller of $20,833 (which is 2.5 months of $100,000) or 20.83% of their reported 2019 self-employment income. However, they may not be forgiven for spending on health or retirement benefits that are passed-through and deducted on their personal tax returns.
I understand that FICA costs are not forgivable, but what about Federal Unemployment, Medicare or State Unemployment Insurance payments?
Employer costs for federal programs, including Social Security, Federal Income Tax, Federal Unemployment Tax Act and Medicare are expressly prohibited from being included in forgiveness by the CARES Act. Specifically, the law reads that “taxes imposed or withheld under chapters 21 (FICA and Medicare), 22 (Railroad), or 24 (FIT) of the Internal Revenue Code of 1986 during the Covered Period” are excluded. The federal government would essentially be giving you the tax money back if they allowed this. On the other hand, state taxes paid by the employer are forgivable, but not if those amounts were withheld from the gross pay of the employees.
We erroneously included the cost of 1099 contractors in our original loan amount but are now able to spend the full loan amount on true W-2 employees with the extension to 24 weeks. Will the payroll spend be forgiven or does the miscalculation of the loan amount lead to significant un-forgivability?
The payroll spend will be eligible to be forgiven if it was used for W-2 employees, regardless of the calculation that was used to secure the loan originally.
The $100,000 cap is in place throughout the PPP program, originally in calculating your loan amount. In the forgiveness phase, this cap limits the amount of forgiveness available for payroll costs. This amount is also used to determine the employees who may be subject to the Salary/Hourly Wage Reduction Factor.
If I received my funding on April 26, can I make my Alternative Covered Period start April 21, or does it have to be a date after the funding of the loan?
The Alternative Covered Period cannot pre-date the loan and would need to start after you received the funds.
The SBA has not defined seasonal employees; however, the clear implication is they are referring to summer workers. Employers using seasonal employees — from agricultural workers to lifeguards — have the option to include either of the two elective baseline periods or a consecutive 12-week period between May 1 and September 15, 2019.
Yes. PPP loans cover payroll costs, including costs for employee vacation, parental, family, medical and sick leave. However, the CARES Act excludes qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.
Yes, anything that goes toward employee welfare such as dental, vision and HSA contributions (the employer portion) can be included in health insurance benefits.
If I don’t think I can get to the 60% payroll threshold for forgiveness, can I repay some of my loan now to lower my denominator and better my chances?
No. The loan amount is determined by the loan document on record, not how much you have repaid. Furthermore, for forgiveness purposes the 60% payroll threshold is relative to what you spent during the Covered Period, not what the total loan amount was.
In the forgiveness calculation, can I include the payroll cost for people I did not include in the loan application (e.g. equity partners)?
Yes, and it would be helpful to do so because it helps you get your FTE and wages up.
Does forgiveness use the same $100,000 payroll cost per person limit as the loan application calculation?
The $100,000 per person limit remains. Do not exclude employees who make more than $100,000 annually. Instead include payroll costs for those employees up to that limit, prorated for the number of weeks in your Covered Period.
In the webinar, there was discussion around the $100,000 maximum annual compensation and when to include it in certain calculations. I’m confused as to whether the $100,000 should be subtracted altogether or just the amount over $100,000?
There are two places where the $100,000 figure comes into play: payroll costs and the Salary Reduction Factor. For purposes of calculating payroll costs, you include all employees no matter what they are paid, but for those paid more than $100,000 annually you may only count gross salary paid up to $15,385 or $46,154 depending on the number of weeks during the Covered Period. Any pay over that amount will not be forgiven. For purposes of calculating the Salary Reduction Factor, you exclude those highly paid employees from the Salary Reduction calculation altogether.
We have union payroll and union benefit costs that we incur during our Covered Period. Are both the union health and the union pension benefit qualified expenditures for payroll costs?
Yes, all contributions to health insurance and pension programs for your employees are to be included in payroll costs for the forgiveness calculation.
Can we include the entire April 30 payroll toward our forgiveness because it was paid after disbursement (April 29), even though it includes payroll records for time worked prior to disbursement?
Yes, any payroll paid during the Covered Period counts toward forgiveness.
For those whose income exceeds $100,000 annually, do I use the 8/52 formula or, since I’m a semi-monthly payer, do I divide by the 24 equal payments I make over the course of the year?
No, do not divide by the number of payments. Instead, the maximum amount allowable to be claimed for any employee is either 8/52 or 24/52 of $100,000, depending on the number of weeks in your Covered Period.
I came away from the last webinar with the understanding that only 75% of the amount that I spend on payroll could be eligible to be forgiven. Am I correct?
No, that is incorrect. The rules have changed, but let’s first correct the misperception in your question. The payroll threshold test did not say that you could only get 75% of whatever you spent on payroll forgiven — that would be to multiply payroll costs by 0.75. Rather, you would divide by 0.75, in effect “grossing up” your payroll costs. So, under the old rules, at least 75% of the total amount spent (not just the amount that you spent on payroll) needed to be spent on payroll costs in order to maximize forgiveness. Under the new rules enacted by the PPP Flexibility Act, this 75% threshold has been reduced to 60%. In either scenario, every payroll dollar funded by PPP money will count toward forgiveness except for any amounts paid in excess of $15,385 (eight-week Covered Period) or $46,154 (24-week Covered Period) to any single employee.
Our loan funded on April 20. Since my first payroll and use of the funds was on April 30 for our April 16-30 payroll, does the Covered Period start then?
As a semi-monthly payer, you do not have access to the Alternative Covered Period concept. Your Covered Period began the date you received the funds for both payroll and non-payroll costs.
For employees who were making more than the $100,000 maximum allowance for PPP, do they have to be reinstated to their full payroll amount by December 31 (even if that amount was, for instance, $250,000)?
No. Those employees are not subject to the Salary Reduction Factor because they made more than $100,000 in 2019.
You have indicated that Profit-Sharing contributions for 2019 are not forgivable, but what about for the current year? Could we allocate our Covered Period’s worth of what we contributed in 2019?
Yes, but only if you make the Profit-Sharing contribution during the Covered Period or in the next pay cycle following the Covered Period.
I had accrued bonuses from my fiscal year end of February 29. For decades, we have paid those bonuses out in early May. Since our PPP loan got funded in late April, should I back out all of those bonuses for loan forgiveness since they were actually earned in February, but will show up during my PPP payroll records?
You should include them as a normal business practice which you can demonstrate through historical records.
Do I have to spend 60% of my forgiveness expenses on payroll or 60% of my total loan expenses on payroll, or both?
According to guidance from the SBA interim final rules, the answer is both. The guideline is 60% or more of the forgiveness amount, which is the amount spent during the Covered Period, must be spent on payroll in order to maximize forgiveness. A separate interim final rule notice also specifies that 60% of the total loan proceeds are to be spent on payroll. This would apply to any loan amount that is carried over beyond the Covered Period.
If I don’t spend 60% on payroll during the Covered Period, am I eligible for any forgiveness at all?
Yes, you are. The PPP Flexibility Act reduced the amount required to be spent on payroll costs from 75% to 60%. However, subsequent guidance from the SBA and Treasury indicates that they are carrying over their prior interpretation that allows for a graduated forgiveness amount, even if a borrower fails to meet the 60% threshold. In this instance, the non-payroll costs will be reduced by an amount necessary to establish payroll at a 60% level. For example, a borrower who spends $540,000 on payroll and $460,000 on non-payroll (total: $1 million), would fail the 60% test, so they would have to lower the forgivable portion of their non-payroll costs to $360,000. This would adjust the ratio to be $540,000 on payroll (60%) and $360,000 on non-payroll (40%). The net effect of this adjustment would be to reduce their total forgiveness amount from $1 million to $900,000.
I laid people off during the Covered Period and paid them severance and their accrued PTO. Can I include that in the payroll costs for forgiveness?
Yes. Paid time off and severance payouts to employees can be included in wages up to the limit of gross compensation per person in the Covered Period. However, keep in mind that eliminating those positions will also affect your FTE count in determining forgiveness reductions.
I pay state taxes on compensation that I paid to my employees. Can I include that in the forgiveness calculation?
Yes. State taxes that are the employer’s cost can be included in the forgiveness calculations. Any state taxes that you withheld from the employee’s gross pay should be excluded because those costs are already captured in the gross wages part of the Payroll Costs calculation.
Yes. Technically you could cover a larger share of your employees’ health benefits during the Covered Period and submit it for forgiveness.
Many of my employees have earned a bonus beyond their salaries during the Covered Period. Can I pay those?
Yes. Any regular payments of wages, commissions, or bonuses can be included and may be forgiven up to the $100,000 per person annualized limit prorated for the length of your Covered Period, meaning maximum pay during the Covered Period is either $15,385 or $46,154 per person depending on the chosen time frame.
Fringe benefits are not included in the $100,000 cap. The $100,000 annual maximum (either $15,385 or $46,154 depending on the Covered Period) applies only to the gross salary or wages earned by the employee and does not include any benefits or other additional payroll costs.
Yes. The wage maximum is $100,000 annually per person. If you choose an eight-week Covered Period, this means that you can include no more than $15,385 per person on the forgiveness application. If instead you choose a 24-week Covered Period, the maximum you will be allowed to claim for any employee on your application is $46,154.
What is the process I should use to accrue wages and other payroll costs at the end of my Covered Period that will be paid in the next payroll following the Covered Period?
To properly accrue for and document earned wages at the end of your loan period that have not been paid but will be paid in the next payroll cycle, you should prepare a schedule that shows:
- For hourly workers: hours worked in that accrual period and rate of pay
- For salaried workers: their annual rate of pay divided by 260 to get their daily pay rate, then multiplied by the number of workdays between the final payroll and the end of the Covered Period
I have employees who have earned pay between the time of my last payroll and the end of my Covered Period. Can I count that cost in my payroll costs?
If I choose an alternative Covered Period for my payroll costs, how do I calculate my payroll schedule for the forgiveness application?
The alternative payroll schedule ensures you don’t have to move your pay dates to match your Covered Period and enables you to more easily calculate costs for the forgiveness application. If your payroll schedule starts four days after your loan is funded, you can start counting your covered payroll on the first day of the next pay period (example: your loan funds on May 6 and your next pay period starts on May 11, you can start your Covered Period on May 11 for Payroll Cost purposes only). You may not change your Covered Period dates for non-payroll costs.
The alternative payroll schedule is an option that people can choose. Who is an eligible employer to choose the alternative payroll schedule?
Eligible employers have either a bi-weekly payroll schedule or one that is more frequent, such as weekly. Bi-weekly means that you pay payroll every two weeks, or 26 pay periods per year. This does not apply to employers that have fewer than 26 pay periods per year, such as semi-monthly (example: paydays on the 15th and last day of the month) or monthly payers.
Can you clarify covered payroll costs? Are they based on the date that the money was disbursed from the employer’s cash account, or is it the date that the employees earned the money? Or is it the date on which the employee actually received their paycheck?
All three of those things can apply, providing you never pay an employee twice for the same hour or same period:
- Any payroll cost paid during the Covered Period may be included in the forgiveness application (example: I received my funds on April 28. I paid my payroll on April 30 covering the period of April 15 to April 30.) This is allowable under the rule that allows costs based on the date that the paychecks were distributed.
- At the end of your Covered Period, you may include payroll costs that have been paid to the payroll provider but not yet paid to your employees (example: your Covered Period ends June 14, with a payroll due on June 15, and you funded the payroll to your payroll provider on June 12. This too is allowable.
- At the end of your Covered Period, your employees have earned pay that has not yet been paid but will be in your next regular payroll run. (example: you pay your payroll semi-monthly on the 15th and 30th, and your Covered Period ends June 24. You may include in your forgiveness application the payroll costs incurred, but not yet paid, for the period from June 15 to June 24.)
What types of tax-deductible ESOP contributions may be considered retirement benefits for forgiveness?
ESOP contributions may include cash contributed to the plan, which is used to make a payment on a loan, or cash contributed to the plan for any purposes permitted under the plan document, or stock contributions to the plan.
There isn’t clear guidance on this yet. It’s unknown if the full amount of the ESOP contribution is forgivable, or if only a pro-rated amount of an annual contribution will be forgiven. It’s possible the SBA will issue further guidance on this in the coming weeks.
Can I make my profit-sharing contribution for 2019 in the Covered Period and include it in my forgiveness calculation?
No. To be forgivable, any profit-sharing contributions that you make should be related to the Covered Period. Our interpretation is that retirement plan expenses should be both paid and incurred in the period that is covered, or, incurred in the immediately preceding contiguous period and paid in the Covered Period, or, incurred in the Covered Period and paid in the immediately following contiguous period.
A defined contribution plan is just like any other retirement plan, and if you can allocate the portion that is attributable to the period now, if it’s calculable, you could do that. You could put it in your forgiveness calculation, but you would also have to fund it and pay it so that it was both earned and paid in the Covered Period.
For self-employed people generally, the answer is no. If an owner is on payroll in a corporation, receives a W-2, contributes to their own retirement and the company matches their contributions, the portion that is the employer matching expense can be included in the forgiveness calculation up to a maximum of 2.5 months’ worth of the employer’s 2019 contribution.
Yes. The employer cost that is 401(k) match expense can be included.
No. The 401(k)-match expense should be applicable to the Covered Period and not to a future period.
If you pay the profit-sharing contribution each month, then you can include whatever portions you paid during the Covered Period or incurred during the Covered Period but paid in the next pay cycle following the end of your Covered Period.
Do contributions to an employee stock ownership plan, or ESOP, qualify as retirement benefits when computing the forgivable amount of a PPP loan?
In general, yes. Contributions to an ESOP are considered tax contributions to a qualified retirement plan. Contributions should be forgivable if paid within the Covered Period.
Mortgage and Other Debt
I see my mortgage payment is an allowable use of PPP funds; however, what portion of that is actually forgivable?
You may use PPP funds to pay eligible mortgage expenses; however, only the interest portion of that will be considered a forgivable expense. All principal payments made with the PPP money will not be forgiven.
I have some non-mortgage debt. Can I use PPP funds to pay interest on payments to a former owner that I’m paying off or buying out?
Payments of other business debt that is non-mortgage related is an allowable use of PPP funds; however, none of those payments will be considered forgivable expenses.
I drew down my line of credit and am making regular interest payments against that during the Covered Period. Can I use PPP funds to make those payments and will that be a forgivable expense?
Yes and no. You may use PPP funds to pay non-mortgage related debt; however, none of those payments will be included in forgivable expenses.
I understand that we are allowed to use PPP funds for non-mortgage interest but that it is not forgivable. Can I include the interest payments that we were making on our equipment loan in my forgiveness calculation?
Yes. An equipment loan is considered a mortgage for purposes of forgiveness.
Yes. Interest on personal property loans for business assets, such as equipment loans or loans used to buy delivery trucks, may be included in expenses for forgiveness. To be clear, the principal portion of payments made for these loans must be excluded from the forgiveness calculation.
No, they don’t, because presumably the business does not own the home.
If one of the partners of the LLC owns the building and has a signed lease with the business to rent from him, can that mortgage interest still be included, or does the business have to own the building to deduct the mortgage interest?
If the PPP loan is held by the business and not the individual LLC partner, then the business would need to own the building to deduct the mortgage interest. However, the lease payment made by the business is a forgivable expense.
Yes, so long as they were in place prior to February 15, 2020 for real estate or other personal property associated with the business.
Rent and Other Lease Expenses
My landlord charges me not only for the space that I occupy, but also for my portion of the building’s property taxes, maintenance and common area charges. Can I include those in my rent cost?
No. Only rent is an allowable and forgivable expense. If the bill from the landlord clearly includes maintenance, common area maintenance charges, property taxes and insurance, those charges should be stripped out of the PPP request for forgiveness.
My business rents off-site storage to hold files and other business materials. Can I include the rent for that storage facility in my forgivable expenses?
Yes, so long as the storage unit rental was in place prior to February 15, 2020. Remember to provide your rental agreement for that storage space as documentation.
Can I prepay my fourth-quarter rent during the Covered Period and include it in my forgiveness request?
No. Rent expense needs to be paid or incurred in the Covered Period.
Yes. Leases of personal business property are included in the forgiveness calculation.
My business leases several vehicles that we use for delivery and other purposes. Can I include the cost of those leases in my rental expense?
Yes. Business vehicle leases are an acceptable use of PPP funds and are included in the PPP calculations for forgiveness.
We pay car leases and gas as monthly auto expenses for our sales team, all of which were in effect before PPP and are still active. Does this qualify for forgiveness either under leased equipment or transportation?
Yes, but in separate categories. The car leases should go in the Rent and Other Lease Expenses category while the gas expense should go under Transportation in the Utilities category.
We have leases on delivery trucks and the drivers who drive those trucks. We get charged weekly for the truck leases, mileage, diesel fuel and the hourly rate for the drivers. Can I include both the leasing costs for the truck as well as the leased employees? We pay a weekly bill to our transportation provider that includes the charges mentioned above.
Trucks and fuel are okay so long as the trucks are leased in the borrower’s name; leased employees are not. If all costs are combined into one amount without any supporting detail, you will need to provide an estimate for the amount that relates strictly to the truck lease and fuel costs.
Our rent statement shows both base rent and expense recovery. Can I only use PPP funds to pay the base rent or can I also include expense recovery?
You can only include the Base Rent in the forgiveness calculation, not the Expense Recovery portion of your monthly payment.
No, because the expense was not incurred during the Covered Period.
We pay to provide monthly parking spaces for our office employees, but they are not part of a lease agreement. Are these fees eligible for forgiveness?
No, they are not, since they are not covered by a pre-existing lease agreement. This is an operating expense.
My eight weeks end on June 19. Can I include payables that I usually pay on the 25th of each month, such as my June rent? Should I pay it before the 19th?
Yes, if an expense is accrued for up to the last day of the loan Covered Period, and then paid on the next billing cycle, the amount applicable to the Covered Period can be submitted in the forgiveness application (“incurred but not paid in the period”).
Yes. The date you received funds is day one of your Covered Period.
If there is a separate lease agreement for the parking, then you can count it. If not, then it is an operating expense and not a rent/lease cost.
We signed a lease prior to February 15, 2020 but didn’t move in until February 22. Can we get forgiveness on the lease payments?
Yes, since the agreement was in place at February 15, 2020 and your documentation can demonstrate that.
In December 2019, we signed a new lease agreement with a related party that called for higher rent payments to begin in April 2020. Is this new, higher rent payment eligible for forgiveness?
Yes, so long as you have a lease agreement in place as of February 15, 2020.
No. Only the rent portion of a triple net lease is forgivable.
If we have a triple net rent agreement with a related entity in which the common area maintenance and property taxes are not specifically broken out, how should we handle itemizing the rent portion of the monthly payment for documentation purposes?
You will need to develop an estimate of the portion that is allocated to rent as opposed to the other, non-forgivable expenses, and include that in the documentation you submit with your application.
It’s inconsistent to state that renters on FSG leases can include CAM, property tax, etc. which are intrinsic to the FSG lease, and those on NNN or modified gross leases cannot include these expenses. The intent is to keep the business operating for two months regardless of which lease type a tenant has. Please triple check this before using it as a criterion for forgiveness.
Renters on full service gross leases are not allowed to include common area maintenance or property tax expenses in their rent costs for forgiveness either, especially because those expenses are supposed to be paid by the landlord and not the tenant.
We had to downsize and move to a smaller building in May and our landlord let us out of the lease on the larger space. Is the new lease forgivable due to the downsizing?
Unfortunately, no. Lease costs are allowed only so long as the lease agreement was in place at February 15, 2020.
Our lease agreement requires us to pay for the entire year in one lump sum ($250,000 a year). So, if this is paid during the period, must this be broken down by month or can the entire payment be used in the calculation?
You cannot use the entire payment in your rent costs calculation. That is effectively a pre-payment, which are expressly not allowed. You will need to pro-rate the lump sum payment for the length of your Covered Period.
Report the entire amount. Income from sub-leases is not a reportable item.
Your question is unclear as to who has the PPP loan, you or your corporation. Assuming the latter, yes, you can include the rent payment made by the corporation to you or the legal entity that holds title to the building. However, there needs to be a written lease agreement in place prior to February 15, 2020.
It depends. If you paid the annual storage yard invoice during the Covered Period, you would be allowed to include that portion of the invoice that deals with the Covered Period weeks. On the other hand, if you paid for the yard back in January, for example, you cannot include that cost because the rule is it needs to be paid during the Covered Period or incurred during the Covered Period and paid in the next pay cycle following the end of your Covered Period.
I’m an independent contractor (realtor) who works from home. May I include my monthly brokerage office dues/rent?
If you pay rent to the brokerage office, you can include it even if you don’t use the office space very often. You can’t also claim a home office expense, however.
On my monthly rent invoice, there is a separate line for landscape maintenance. Can I include that?
No, maintenance and gardening costs are not allowed for forgiveness.
One of our expenditures was a lump sum payment to buy out of our office lease. Can we include that for forgiveness?
Probably not the entire lump sum amount, because that is in effect a pre-payment of future obligations, which are not allowed for forgiveness. However, you should be able to pro-rate the lump sum for the periods that are in your Covered Period and claim that (example: you paid $100,000 to get out of the lease, which covered the eight months from May 1-December 31. Your Covered Period ended August 31. You should be able to claim $50,000 of the $100,000 lump sum because you would have paid that rent anyway between May 1 and August 31).
My business pays rent every month to another business that I own which holds the real estate in an LLC. Can I include in my forgivable expenses my related party rent?
Yes. That is a forgivable rent expense so long as:
- There is a written agreement
- It has not changed during the course of the Covered Period
- It was in place prior to February 15, 2020
The only SBA guidance that has been issued thus far relates to self-employed individuals, and it states that gas which is used for driving a business vehicle is a forgivable use of PPP loan proceeds. There has been no further guidance to define the transportation costs, such as vehicle maintenance expense or other costs associated with owning a vehicle. Those have not been defined as being either forgivable or not forgivable yet.
My staff has been working from home where they have incurred internet access and telephone costs on behalf of my business. Can I reimburse them for that and include it in my forgiveness costs?
In terms of forgiveness, you can submit for those costs providing that was your habit before February 15, 2020 as well.
Internet costs are forgivable. Can I include as part of that my software costs, dues, licenses, subscriptions, etc.?
Are we allowed to include expenses related to disposal of all wastes/trash in our calculations for utilities?
No, these costs are not specified as a utility expense.
We received our PPP funds on April 20 and have an electric bill for generation from the period March 21 through April 20. This bill was paid with a check on May 11. Is this eligible for PPP funding based on paid date, or should we hold off for the payment that would coincide with generation from April 21 through May 20?
Because you paid the bill during the Covered Period, even though it was for a consumption period that pre-dated your Covered Period, you are allowed to include this cost.
Can we include the monthly charge for a company that is housing our servers for access through the “cloud”, which includes the lease and the storage, as well as IT services (help desk) and licenses?
No. Utilities costs guidance specifies that only internet access costs are to be included for IT.
Are utilities prorated for the month if your eight or 24-week period ends in the middle of the month?
Yes. You will need to determine the amount of the utility cost that was incurred from the beginning of the billing period to the end of the Covered Period in such situations.
This is a forgivable expense.
Will the transportation include the mileage that employees drive to work, and the company reimburses them?
No. Expense reimbursements are not allowable expenses, they are payables.
No. This is not specifically highlighted in any guidance as a forgivable expense.
Can utilities costs include server hosting service, data storage service or monthly email/website hosting fees if we were already using the service prior to COVID?
No. Those are not allowable uses of PPP funds.
Can we claim employee home office expenses, e.g., home internet, home phone and cellphones that the company has reimbursed to our employees since pre-COVID time (per our company reimbursement policy)?
If those were required expenses for your employees to perform their duties during the Covered Period, and you can demonstrate that this was in place prior to February 15, 2020, then yes, those expenses can be claimed as internet access and telephone expenses.
No. They are not listed Utilities that qualify for forgiveness according to the CARES Act.
We pay for fuel on our credit card for our leased vehicles that are in the company’s name. For forgiveness, do I use the date we got the fuel or the date we paid the credit card?
You claim the amount based on the date the expense was incurred, which is the date you got the fuel, so long as you paid for it during the Covered Period or in the next regular pay cycle following the end of your Covered Period.
Can our push to talk radios that are used exclusively for our company communications be considered as telephone expense? We pay a monthly subscription fee for them.
No, these are not specified by the SBA as part of telephone expense.
Water, gas, electric, internet access and phone access. Also, gasoline used in any vehicle that is owned or leased by the business. Reimbursements for employee cell phone expenses are forgivable as long as you can show that the business reimbursed employee cell phone bills before the pandemic as well.
Are owner distributions to S Corp owners and LLC members forgivable and included in income for owners on the loan forgiveness application?
No. Only self-employment income is to be included in the loan forgiveness.
If your spouse is truly an employee and performing duties to the organization, the answer is yes. Be prepared to show that your spouse was a part of your staff before the loan was given to you or show that your spouse is filling in for someone who has refused employment.
No, not for self-employed persons who report their income on a Schedule C because they’re sole proprietors, nor for those who report their self-employment earnings on an S Corp return, or those who are owner-members of an LLC.
What is the definition of an owner who cannot submit their benefits expense as part of their loan forgiveness?
The definition here applies specifically to LLC owners, S Corp owners and sole proprietorships, specifically pass-through entities.
No, because technically not-for-profit organizations do not have owners.
On the forgiveness application it specifically says that the owner’s compensation should not go on Table 1 or Table 2 of Schedule A and should be listed elsewhere. Doesn’t that hurt me when it comes to forgiveness calculations and possible Safe Harbor?
The amount paid to owner-employees or self-employed individuals or general partners does not go in either Table 1 or Table 2 of the PPP Schedule A worksheet; instead, that compensation is listed on line 9 of the PPP Schedule A under the heading “Compensation to Owners” and is included in total payroll costs which are summed on the next line.
The owners of the company make more than the capped amount for the Covered Period, so does this mean I should automatically not include their net healthcare costs and employer 401(k) contributions in the payroll costs for the forgiveness amount?
This depends on your form of organization, but these are two separate questions, though neither is dependent on the amount the owners are paid. Regardless of their pay, their healthcare costs are not to be included in payroll costs, with the exception of payments made for owners in a C Corp who are paid as employees. Separately, in the case of retirement contributions, payments made on behalf of owner-employees by an employer that is a corporation (such that the contributions are listed on the corporate tax return) are eligible for forgiveness. These retirement contributions for the owner-employees are limited to 2.5 months’ worth of the employer’s 2019 contributions for them. Retirement contributions for any owner in a non-corporate form of organization are not eligible for forgiveness.
Owners get paid by K-1 sometimes and not by W-2s, so can we include those payments in calculating our payroll costs for forgiveness purposes?
Yes, but be careful to document these as “guaranteed payments” and not “distributions.” It is subject to the $100,000 cap — which is either $15,385 or $20,833 depending on the length of the Covered Period — and K-1 documentation will be required.
Will the self-employed be able to file for PPP forgiveness while also receiving unemployment for sole-ownership program?
Unemployment filing is expressly for those who are unemployed and not receiving paychecks. Therefore, a person receiving payment from an employer, whether funded by PPP sources or not, must disclose that they are receiving paychecks. Payments will reduce eligibility for unemployment benefits.
For LLC owners who are paid by K-1 and not W-2, does the $100,000 maximum compensation still apply?
Are payments to equity partners, up to the $15,385 amount, includable in the forgiveness calculation?
Can you add the amount of employer retirement and health care contributions paid on behalf of the owner-employee?
This is a mixed answer. If the business is a C Corp and the owner-employee receives a W-2, then the answer is yes. If not, the answer is no as it relates to the main forgiveness application. However, for the EZ forgiveness application, there is a provision that allows for retirement contributions for owner-employees up to 2.5 months’ worth of the 2019 contribution. There is nothing in the main application instructions that indicates this same allowance is available there.
If we have minority owners with less than 5% ownership, do they get included in the owner compensation data?
No. Limit owner’s compensation to 20% or greater owners.
No. You can provide profit distributions to shareholders at any time, you just can’t claim forgiveness for them.
Why would the self-employed compensation be limited to eight weeks when we now have 24 weeks to spend on payroll?
Per the 19th Interim Final Rule issued on June 17, 2020: “The Administrator, in consultation with the Secretary, has determined that it is appropriate to limit the forgiveness of owner compensation replacement for individuals with self-employment income who file a Schedule C or F to either eight weeks’ worth (8/52) of 2019 net profit (up to $15,385) for an eight-week Covered Period or 2.5 months’ worth (2.5/12) of 2019 net profit (up to $20,833) for a 24-week Covered Period per owner in total across all businesses. This approach is consistent with the structure of the CARES Act and its overarching focus on keeping workers paid and will prevent windfalls that Congress did not intend. Specifically, Congress determined that the maximum loan amount is generally based on 2.5 months of the borrower’s average total monthly payroll costs during the one-year period preceding the loan. For example, a borrower with one other employee would receive a maximum loan amount equal to five months of payroll (2.5 months of payroll for the owner plus 2.5 months of payroll for the employee). If the owner laid off the employee and availed itself of the Safe Harbor in the Flexibility Act from reductions in loan forgiveness for a borrower that is unable to return to the same level of business activity the business was operating at before February 15, 2020, the owner could treat the entire amount of the PPP loan as payroll, with the entire loan being forgiven. This would not only result in a windfall for the owner, by providing the owner with five months of payroll instead of 2.5 months, but also defeat the purpose of the CARES Act of protecting the paycheck of the employee. For borrowers with no employees, this limitation will have no effect, because the maximum loan amount for such borrowers already includes only 2.5 months of their payroll. Finally, at least 60 percent of the amount forgiven must be attributable to payroll costs, for the reasons specified in the First PPP Interim Final Rule and SBA’s interim final rule posted on June 11, 2020.”
Owners are entitled to take the smaller of the maximum compensation allowed ($15,385 if opting for an eight-week Covered Period, or $20,833 for a 24-week time frame), or a proportionate amount of their 2019 net income (8/52 if 8 weeks, 2.5 months if 24 weeks).
Is it true that self-employed people who file Schedule C on their 1040 can’t include non-payroll costs in their forgiveness application?
Self-employed people have always been allowed to include such costs in their forgiveness application. What has changed, as of June 17, is the elimination of this language from the third Interim Final Rule (which was published April 14): “it is appropriate to limit loan forgiveness to a proportionate eight-week share of 2019 net profit, as reflected in the individual’s 2019 Form 1040 Schedule C.” They limited it thusly because “allowing such a self-employed individual to treat the full amount of a PPP loan as net income would result in a windfall.” Now, “it is appropriate to limit the forgiveness of owner compensation replacement for individuals with self-employment income who file a Schedule C or F to either eight weeks’ worth (8/52) of 2019 net profit (up to $15,385) for an eight-week Covered Period or 2.5 months’ worth (2.5/12) of 2019 net profit (up to $20,833) for a 24-week Covered Period per owner in total across all businesses.” This appears to relieve the prior limitation on overall loan forgiveness, such that non-payroll costs are additive to owner compensation up to the limit of the loan amount itself. For borrowers with no employees, this change is unlikely to have a material effect, but those with employees now have a possible avenue for additional forgiveness. Further clarification may be forthcoming in subsequent guidance.
If they are paid a salary that is reported on a W-2, then those costs should be captured on the employee pay tab (Pay Cycle 1 Input tab). If they are paid distributions or other non-guaranteed payments which they report on Schedule C of their personal income tax return, then those amounts should be captured in the Owner’s Compensation section.
If a stockholder of a C Corp is paid as an employee of the C Corp, can his salary be included in the calculation of PPP forgiveness?
Yes, that is included as employee pay, not owner’s compensation. In the Forgiveness Calculation Model, you would list this person and their compensation in the Pay Cycle 1 Input tab.
Our owners pay is included in the payroll gross pay totals we received from our payroll provider. If we are supposed to list owners’ pay in Tab 7 of the model, how does that get matched with the amounts listed in the Pay Cycle 1 Input tab? Should we include the W-2 pay to owners paid by our payroll provider in the Pay Cycle 1 Input tab or the Owners Comp tab 7?
Any salary paid to an owner by your payroll provider is presumably reported as W-2 earnings at the end of the year, and as such should be reported on the Pay Cycle 1 Input tab so the amounts entered in a payroll cycle column match the total at the top (as denoted by a $0.00 in the CheckSum cell). The amounts that should be listed in the Owners Comp tab 7 of the model are non-salary amounts that an owner receives that are reported on their Schedule C or as guaranteed payments on a K-1.
Who is considered a “self-employed” person for purposes of completing Schedule A, line 9, on the PPP Forgiveness Application?
Self-employed persons, also referred to as “owner employees” in this context, are those who are sole proprietors, Single Member LLCs, General Partners, S-Corp shareholder/employees and C-Corp shareholder/employees.
What is the maximum forgiven payroll compensation amount for a self-employed person? (Please review definition of self-employed person.)
For an eight-week loan Covered Period, a self-employed person may submit the lower of $15,385 or 8/52nd of 2019 compensation. For a 24-week period, the amount is the lesser of $20,833 or 2.5 months (2.5/12) of 2019 compensation.
2019 compensation is found on corporation owners form W2. Partners will refer to schedule K1 reported Earnings from Self Employment. Sole proprietors and Single Member LLCs will find their business Net Profit on form Schedule C or Schedule F.
C Corp shareholder/employees put their wages on Schedule A, Line 9.
Business owners and shareholder/employees put their wages, or earnings from self-employment, on Schedule A, Line 9.
Can self-employed owners of C Corporations submit retirement and health expense costs in addition to payroll compensation on their forgiveness application?
Yes. C Corporation owners can submit the employer (corporation) paid portion of their retirement and health plans.
Can self-employed owners of S Corporations submit retirement plan costs contributed to their personal retirement plan?
Yes. S Corporation owners can submit the employer (corporation) paid portion contributed to their retirement plan.
Can self-employed owners of S Corporations submit health plan premiums on their forgiveness application?
No. S Corporation owners health plan premiums cannot be submitted for forgiveness.
Can sole proprietors and Single Member LLCs (SMLLC), those who file Schedule C or F, submit retirement plan costs contributed to their own retirement plan or their health plan premiums on their forgiveness application?
No. Sole proprietors and SMLLCs are limited to a pro-rata portion of their 2019 taxable profit.
No. Owner compensation caps are applied across all combined businesses owned by each taxpayer. Each taxpayer was only eligible for one PPP loan.
Can General Partners submit retirement plan contributions or health plan premium costs on their forgiveness application?
No. Partners are limited to a pro-rata portion of their 2019 taxable profit found on their schedule K1 multiplied by .9235 to eliminate employer FICA.
We are a law firm organized as a limited liability partnership. Is there a distinction between an LLP and an LLC as it pertains to how health benefits are applied for the partners who receive all of their income through K-1 distributions?
LLP partners can get forgiveness on the capped amount of their self-employment income (Box 14 of the K-1), which likely differs from the Distributions amount, so be careful there. As it relates to health benefits, most law firm partners pay their own way on that, which is deductible on their personal tax returns but not forgivable since it wasn’t “employer-paid.” Even if there is a portion that is paid by the firm and not the individual partner, it would not be forgivable per the PPP rules.
I understand that S Corp owner health insurance premiums cannot be included as expenses. But can they be included in salary compensation, as it always is?
Those contributions are included in cash compensation already, which is why they cannot be included as forgivable expenses over and above cash compensation. The employee cash compensation of an S-corporation owner-employee is eligible for loan forgiveness up to the amount of 2.5/12 of their 2019 employee cash compensation, with cash compensation defined as it is for all other employees.
We are a C Corporation with only one employee, who is the shareholder. The corporation pays for an individual health policy for the owner/employee. Does this individual policy health insurance premium qualify for forgiveness?
Yes, the amount paid by the corporation qualifies for forgiveness.
I am a sole proprietor. I used the PPP money to pay myself, as my income has been nonexistent due to the pandemic. Does the money get forgiven in this case? If so, do checks I’ve written from my business to myself serve as the documentation I’ll need?
Yes, you are allowed to pay yourself using PPP funds and get it forgiven. The amount you can claim for forgiveness is limited, however, based on your 2019 net income. These amounts are detailed elsewhere in the FAQ Library.
Self-employed people are also subject to the $100,000 per year maximum, or $15,833 for the 8-week Covered Period forgiveness application. In the event of a 24-week Covered Period, this maximum increases to $20,833. If a self-employed person filed a Schedule C on their 2019 tax return (meaning that they’re a sole proprietor or a single member LLC), the net profit on the Schedule C for that self-employed person is also used to calculate the maximum allowable payroll cost for forgiveness. The rule allows for 8/52 of 2019 net profit for an eight-week Covered Period, or 2.5 months’ worth of 2019 net profit for a 24-week Covered Period. The 2019 Schedule C is required documentation for loan forgiveness in this instance. The self-employed person is required to use the smaller of the two maximums ($15,833 vs. 8/52 of 2019, or $20,833 vs. 2.5 months of 2019 net profit) in their forgiveness application.
Disallowed Costs or Costs That Are Not Included in Payroll Costs
No. Those are not taxable wages.
No. Wages included should be earned and/or paid in the applicable loan Covered Period. It would be inappropriate, for example, to prepay fourth-quarter wages in the loan Covered Period.
No. The employer part of Social Security tax (also known as FICA) is not to be included in the expenses for payroll when considering loan forgiveness.
Do I include in payroll costs the amount of benefits costs that I deduct from my employees’ gross pay?
Those costs are already included in their gross pay and should not be deducted from your forgiveness calculation.
Do I include in employer paid benefits costs the amount of benefits that my employee pays that I deduct from their paychecks?
No. In this category, you only include the portion of benefits that are actually paid by the employer. The employee portion paid via a payroll deduction is already included in the employee’s gross pay calculation.
No. The bill should be apportioned between the part that is employer cost, which is covered, and employee cost, which is already included in their gross pay calculated elsewhere. Counting the entire health insurance cost would result in “double-dipping” by counting the employee portion twice.
I have many temporary employees who are part of my business but paid by a staffing agency. Can I include their costs?
No. That is a vendor bill and not an employee payment. You can only include W-2 employees that are on your Form 941 payroll returns.
I am a not-for-profit that receives money in the form of a grant to pay for certain jobs that I have filled. Can I include those wages in my PPP forgiveness?
No, because those wages have been covered and earmarked and will be reported as paid for by another entity, they should not be part of your PPP forgiveness.
I am required to pay union dues each pay cycle that include health insurance and non-health benefits for my union employees. Can I deduct all the union dues?
No. Only include the portion of union dues that relate to employee benefit costs for health, retirement and leave. You cannot include other costs such as membership, apprenticeship or industry advancement costs that may also be part of the union dues you pay.
Many of my salespeople earn commissions during the Covered Period, but they won’t be paid until later. Can I include those accrued commissions as earned by the employee but not yet paid in my forgiveness calculation?
You may include those costs only if the commissions are paid during the next payroll cycle following the end of the Covered Period.
No. The intent of this program is to cover health insurance premiums related to wages paid during the Covered Period and not in other periods.
No. Any amounts that an eligible borrower has paid to an independent contractor or sole proprietor should be excluded from the eligible business’s payroll costs. Those are considered operating expenses.
It seems counterintuitive that payments to temporary agencies are not allowed since the underlying client is the one who is making the true decision and expense with regards to employment. Can you clarify the guidance on this?
Staff provided by temporary employment agencies receive a W-2 from the agency, not from the underlying client. Therefore, they are not employees of the client, do not participate in the client’s benefits programs and do not list the client as the responsible employer if they apply for unemployment benefits. Temp staff provided by an agency are no different than staff working on a client IT project that are provided by a consulting firm. The temp agency is a vendor, like many others contracted by the client. In this regard, temporary agency staff are comparable to 1099 contractors, who are very clearly prohibited from being included in payroll costs per Treasury guidance.
Our company hires temporary staff through a temp agency which we included in the computation of the loan. I was told that we can also include those in our forgiveness expenses. But we see conflicting guidance on whether we can actually include this in the computation of payroll cost for forgiveness. Can you please clarify?
Temp agency staff are not allowed. Anyone employed by a staffing agency is, by definition, not your employee. The PPP loan only covers those you employ, and who will receive a 2020 form W2 from you. If you directly employ part-time staff, include them. Those you co-employ in arrangement with a PEO can be included. Provide a copy of your co-employment agreement confirming that you are responsible for taxes, benefits and other employment matters.
Regarding eligible expenses: are interest payments on general business loans (not property-related) eligible for forgiveness?
No, you cannot include interest on unsecured loans in your forgiveness application.
No, these are standard operating costs and not included in allowable forgiveness spend.
No, liability insurance is not a forgivable expense in PPP loans.
No, the only insurance costs that can be included are health insurance costs for your employees.
Can I include the costs for workers comp insurance, long-term care insurance or disability insurance?
No. You cannot include workers comp, long-term care or voluntary paid disability insurance.
Forgiveness Reduction Factors
Salary Reduction Calculation
Which employees do I put on Table 1 and which employees do I put on Table 2 of the PPP Schedule A worksheet?
Only put on Table 1 those employees who, during every pay period in 2019, earned less than $100,000 at an annualized rate. Also list any employees hired during 2020 on Table 1 regardless of their compensation. All employees who earned more than $100,000 annualized in any pay period in 2019 go in Table 2.
For each employee, find the maximum amount that they earned in any pay period in 2019 and multiply that gross wage by the number of pay periods that you had in 2019. For example, put on Table 2 anyone who:
- Earned more than $8,333 in any pay period for a monthly payer (12 pay cycles)
- Earned more than $4,167 in any pay period for a semi-monthly payer (24 pay cycles)
- Earned more than $3,846 in any pay period for a bi-weekly payer (26 pay cycles)
- Earned more than $1,923 in any pay period for a weekly payer (52 pay cycles)
Only salary and hourly wage reductions that were greater than 25% need to be calculated for purposes of the Salary Reduction Factor.
No. You only count the portion that was greater than the 25% cut. So, in this example you would only use 5% (30% minus 25%) and not the full 30%.
Overtime pay is paid to hourly employees. For those employees, you use the employee’s standard average hourly wage (e.g., $20.00 per hour) as the basis for determining a reduction, such that any reduction that exceeds a 25% cut (e.g., standard hourly wage reduced from $20.00 per hour to $14.00 per hour) must be included. Overtime becomes relevant after this step when you multiply the value of the reduced hourly wage beyond 25% (in this example, the difference between $15.00 and $14.00, or $1.00) by the average number of weekly hours during Q1 2020 (which may have included overtime hours). For salaried people, bonus compensation is not included for purposes of the salary reduction. The calculation is looking at salary on an average basis during the Covered Period versus average salary during the baseline period and comparing the two.
Compare the average salary or hourly wage paid to each employee during the Covered Period with the average salary or wage that they earned during the first quarter of 2020 from January 1 through March 31.
If we fired an employee during the loan period, but replaced them, do we have to take a salary reduction penalty for the employees we let go, even though our employee count remained constant?
While there is no specific guidance yet issued on this point, our interpretation is no. Employees who were fired for cause are excluded from the FTE reduction calculation if the position was not backfilled — they get listed at the bottom of Table 1 on the Schedule A Worksheet. If the position was backfilled, then there is not a significant impact to the number of FTEs. It follows that this should be the case for the Salary Reduction Factor as well, in consideration of the spirit of the CARES Act. However, we expect future guidance will be issued to clarify or correct this interpretation.
When looking at Step 1 of the Instructions for the PPP Schedule A Worksheet to determine if pay was reduced more than 25%, both line A and line B say to enter the hourly wage during the Covered Period. That seems to be asking for the wage per hour versus the total of all wages. We did not change anyone’s hourly rate but did reduce weekly hours from 55 to 40 hours per week. In comparing 1Q20 versus the Covered Period, are we looking at overall wages OR the hourly rate a person was getting during that time regardless of the number of hours?
Correct, it asks for “hourly wage”, meaning the rate per hour that you pay. Because you did not lower anyone’s hourly rate during the Covered Period as compared to Q1 2020, there is no Safe Harbor necessary or available to you. Furthermore, you had no employees with their hourly wage reduced by over 25%, so you will have no reduction factor to apply. On the other hand, had you actually had some employees whose average rate per hour did decline by more than 25%, then you would need to go through the Safe Harbor calculation (to see if you have that available to you), and if not, you’d have to go through the Salary/Wage Reduction Factor calculation which is where the impact of your Q1 overtime hours would show up — In this calculation, you multiply the amount of the hourly rate that exceeds a 25% reduction by the average hours worked during Q1, not during the Covered Period.
I’m confused about the salary reduction calculation. We cut pay 40% starting May 1, but if we restore those cuts before December 31, are we okay?
The actual amount of loan forgiveness depends in part on whether the average salary or hourly wage of certain employees (those under $100,000 annualized in every 2019 pay period, or anyone hired in 2020) during the Covered Period or Alternative Payroll Covered Period was less than during the first quarter of 2020. If the average during the Covered Period was more than 25% lower for any employee, the Salary Reduction Factor applies. There is a Safe Harbor available, but it only is available if the average salary or wage was lower during the period of February 15 through April 26 than the individual employee’s pay was at February 15 AND the borrower restores the salary/hourly wage levels back to the February 15 level by the earlier of either December 31 or the date that the application is submitted to the lender. This calculation needs to be performed for each employee individually, not in the aggregate. A similar Safe Harbor provision exists for restoring FTE cuts. Again, the salary/wage reduction Safe Harbor applies only to those employees who earned an annualized rate of pay of $100,000 or less during every single pay period in 2019 or were hired in 2020.
Does the Salary Reduction Factor only include 2019 employees, or do we also have to include employees hired in 2020 in the calculation?
Include any employee hired in 2020 in Table 1 for the calculation, regardless of their compensation level.
Is the Salary Reduction Factor based on the average salary for all employees or is it calculated for each employee?
You have to calculate both the Salary Reduction Factor and the Safe Harbor for each employee, not in the aggregate across all employees.
No. An employee who was laid off and not backfilled goes into Table 1 of the Schedule A Worksheet at the bottom as an FTE Reduction Exception, which means you do not have to calculate a Salary Reduction Factor for those exceptions.
We know that employees who receive legitimate offers of employment and choose not to return do not count against the employer’s FTE count, but we also need to return payroll dollars to February 15, 2020 levels. How will that be calculated to qualify for forgiveness?
An employee who refused an offer to return to work goes into Table 1 of the Schedule A Worksheet at the bottom as an FTE Reduction Exception, which means you do not have to calculate a Salary Reduction Factor for those exceptions.
If employees are paid hourly, is the reduction based on their hourly rate? So, if they worked more hours in Q1 than in the Covered Period but had the same hourly rate, do we have to calculate a reduction percentage?
The Salary Reduction Factor is calculated using a reduction in the hourly rate for non-salaried employees. In your example, you would not be required to calculate a reduction percentage because the hourly rate did not decline by more than 25%. Any hourly rate reduction that is larger than a 25% reduction (meaning they were paid less than 75% of their baseline hourly rate) needs to be included in the Salary Reduction Factor calculation. The math requires that you take the amount of the hourly rate that is beyond the threshold (e.g., for a 30% cut from $20/hour to $14/hour, you would use $1/hour — the difference between the actual cut and the allowable 25% cut to $15/hour) and multiply this by the average number of paid hours during Q1 2020, then multiplying this product by the number of weeks in your Covered Period (either eight or 24).
You are missing the distinction between payroll costs and the Salary Reduction Factor. Both use $100,000, but for different purposes. For payroll costs calculations, you are correct that compensation is capped at $100,000 on an annualized basis (either $15,385 or $46,154 depending on the length of your Covered Period). For the Salary Reduction Factor, the $100,000 threshold applies to annualized 2019 pay in any one or more payroll periods and determines whether you need to include or exclude that employee from the calculation. It is unrelated to the payroll costs calculation.
For Salary Reduction Factor calculation purposes, you need to list every employee in Table 1 because they were hired in 2020. If any of them experienced a pay reduction of more than 25% as compared to Q1 2020, then you will need to calculate the reduction for those employees.
For Salary/Wage Safe Harbor, if my overall wage is restored by the December 31, 2020 date because we hired new employees (employees who were laid off were no longer available), can we still qualify for the Safe Harbor?
The Safe Harbor is not a function of your overall wages. It is calculated on an employee-by-employee basis.
Somewhat. The basic math is still the same, except at the very end where any employees who are subject to the factor would have their average weekly reduction multiplied by 24 weeks instead of eight weeks.
Why do we need to enter the payroll from January 1, 2019 to the Covered Period, if the baseline we chose is January 1, 2020 to February 29, 2020? What is the relevance of the extra data?
The 2019 data is necessary to determine which employees earned more than $100,000 in any single pay period, so they can be properly placed in either Table 1 or Table 2 of the Schedule A Worksheet for purposes of calculating the Salary Reduction Factor.
To confirm, if we had a $200,000 officer who took a 50% reduction in pay, his reduction will be $25,000?
No for two reasons. First, highly compensated individuals (over $100,000 annualized in any pay period in 2019) are excluded from the Salary Reduction Factor calculation; in other words, you can cut those people as much as you want with impunity as it relates to your forgiveness application. Second, your math is off even if you did need to include this person — a 50% reduction would make their pay $100,000, which is $50,000 less than the allowable reduction threshold of $150,000 (a 25% cut from their baseline pay), not $25,000. Furthermore, you are using annual amounts of pay; the Salary Reduction Factor calculation actually looks at the amount of the reduction during the Covered Period only.