Paycheck Protection Program (PPP) Loan Forgiveness Estimator
If you received a Paycheck Protection Program loan, you must apply for loan forgiveness with the same lender that issued the loan, and you do not have to wait until the loan's maturity date to submit an application. Check with your lender to see if they have begun accepting applications as the submission process varies by lender. Use our PPP Loan Forgiveness Estimator to determine how much of your loan might be forgiven, and check out the FAQs below for additional information.
Paycheck Protection Program and PPP Flexibility Act FAQs
Below are answers to some frequently asked questions about the Paycheck Protection Program (PPP) and the PPP Flexibility Act. The SBA published additional FAQs on Aug. 4, 2020, addressing some common Loan Forgiveness questions. Our FAQs below have been updated as needed.
Check out the SBA site for PPP loan forgiveness FAQs
Loan Forgiveness Process
Loan Forgiveness Process
How is Paychex helping clients apply for loan forgiveness?
Clients will receive a PPP Loan Forgiveness Report and be able to use the Loan Forgiveness Estimator in Paychex Flex®. The Report uses payroll information contained in Paychex Flex to assist you when you seek loan forgiveness. The Estimator uses information from Paychex Flex with information you enter to provide you both current and projected loan forgiveness. Clients will be able to adjust both the Estimator and the Report to account for information not contained in Paychex Flex.
How do I apply for loan forgiveness?
To apply for forgiveness of your PPP loan, you need to complete the PPP Loan Forgiveness Application (LFA) or the PPP Loan Forgiveness Application Form 380 EZ (PPP EZ Form) and submit it to your lender that issued or is servicing your loan to obtain forgiveness. Some lenders may allow you to prepare and submit the application electronically so be sure to check with your lender.
Update: On July 23, 2020, the SBA issued a procedural notice indicating they will begin accepting PPP loan forgiveness applications from lenders on Aug. 10. This date is subject to extension if any new legislative amendments to the forgiveness process necessitate changes to the SBA’s system. Borrowers may submit their PPP loan forgiveness applications to lenders before the end of their eight- or 24- week covered period, provided the borrower has used the loan proceeds for which the borrower is requesting forgiveness and the borrower’s loan forgiveness application accounts for any salary reductions in excess of 25 percent for their full covered period.
When can I use the PPP EZ Form?
The PPP EZ Form can only be used on any size loan that fits in one of three categories:
- self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form automatically qualify to use the Loan Forgiveness Application Form 3508EZ or lender equivalent and should complete that application.
- borrowers who did not reduce salaries or wages of employees by more than 25% and did not reduce the number or average paid hours of employees (with some exceptions)
- borrowers who did not reduce salaries or wages of employees by more than 25% and experienced reductions in business activity as a result of COVID-19 related health directives.
If you do not fall within one of these three categories, you must use the full PPP Loan Forgiveness Application. Read this article for more details on the EZ Form,
When must I use the PPP Loan Forgiveness Application?
Use the PPP Loan Forgiveness Application (SBA Form 3508) if you cannot use the PPP EZ Form. The PPP Loan Forgiveness Application has the following components: (1) the PPP Loan Forgiveness Calculation Form; (2) PPP Schedule A; (3) the PPP Schedule A Worksheet; and (4) the (optional) PPP Borrower Demographic Information Form. All Borrowers must submit (1) and (2) to their lender.
You will also need to provide support for your payroll and non-payroll costs, full time equivalent (FTE) employee counts. See Loan Forgiveness Application instructions for complete details on how to complete the Loan Forgiveness Application along with what you will need to submit.
What is the alternative PPP Loan Forgiveness Application, SBA Form 3508S?
Any qualified borrower of a PPP loan of $50,000 or less may use SBA Form 3508S to apply for loan forgiveness and be exempted from any reductions in their loan forgiveness amount based on reductions in full-time equivalent (FTE) employees or reductions in employee salary or wages. Note that a borrower that together with its affiliates received loans totaling $2 million or greater cannot use form 3508S.
The Forgiveness Applications (3508, 3508EZ, and 3508S) display an expiration date of 10/31/2020 in the upper-right corner. Is that the deadline to apply for forgiveness?
No. The expiration date in the upper-right corner of the posted PPP loan forgiveness application forms is displayed for purposes of SBA’s compliance with the Paperwork Reduction Act, and reflects the temporary expiration date for approved use of the forms. This date will be extended, and when approved, the same forms with the new expiration date will be posted. Borrowers may submit a loan forgiveness application any time before the maturity date of the loan, which is either two or five years from loan origination. However, if a borrower does not apply for loan forgiveness within 10 months after the last day of the borrower’s loan forgiveness covered period, loan payments are no longer deferred and the borrower must begin making payments on the loan.
Who do I submit my loan forgiveness documentation to?
A request can be made to the lender servicing the loan.
What is the PPP Loan Necessity Questionnaire?
The PPP Loan Necessity Questionnaire is intended to gather additional information that the SBA will use to evaluate the good-faith certification borrowers made on their loan applications that economic uncertainty made the loan necessary for their business.
Who will be impacted by the questionnaire?
Borrowers who, individually or together with their affiliates, received PPP loans with a principal amount of $2 million or more are required to complete the questionnaire. There are two versions — SBA Form 3509 will be distributed by lenders to For-Profit borrowers and SBA Form 3510 will go to Non-Profit borrowers.
What do borrowers do with the completed questionnaire?
After completing the questionnaire, borrowers must submit the form along with any required supporting documents to the lender servicing their PPP loan. Note: Borrowers have 10 business days from receipt of the form from the lender to submit it. The SBA may request additional information, if necessary. Paychex clients who have borrowed $2 million or more in PPP loans should work with their lender during this process.
Is there a penalty for not completing and submitting the form?
Failure to complete the form and submit it along with supporting documents could result in the SBA determining the following:
- The borrower was ineligible for the PPP loan
- The borrower was ineligible for the PPP loan amount
- The borrower was ineligible for any forgiveness amount claimed
If such determination is made, the SBA may seek repayment of the loan or pursue other available remedies.
May a borrower appeal SBA’s determination that the borrower is ineligible for a PPP loan or ineligible for the loan amount or the loan forgiveness amount claimed by the borrower?
Yes, borrowers can appeal the SBA’s determination with the SBA’s Office of Hearings and Appeals (OHA). Appeals can be made to the OHA after SBA completes a review of a PPP loan and makes an official written decision that the borrower:
- was ineligible for a PPP loan
- was ineligible for the PPP loan amount received or used the PPP loan proceeds for unauthorized uses
- is ineligible for PPP loan forgiveness in the amount determined by the lender in its full or partial approval decision issued to SBA (except for the deduction of any Economic Injury Disaster Loan advance), and/or
- is ineligible for PPP loan forgiveness in any amount when the lender has issued a full denial decision to SBA.
Review the Interim Final Rule on Appeals of SBA Loan Review Decisions Under the PPP for specific details regarding the appeals process, and consult with your financial or legal advisor.
May a borrower appeal a lender’s decision that they are not entitled to forgiveness in any amount?
Yes, borrowers must request the SBA to review the lenders decision within 30 days of receiving the notice from the lender. Consult with your financial or legal advisor.
How long will it take to know if the loan is forgiven?
The lender must decide on forgiveness within 60 days. Payments of loan principal, interest and fees may be deferred until the date on which the forgiveness amount is remitted to your lender. Interest will accrue during this time.
More details are available in the SBA FAQs.
What if expenses turn out to be lower than the amount of the loan?
Any amount of the loan that is not forgiven must be repaid at 1% interest rate over five years (for loans that were made after June 5, 2020) or two years (for loans made before June 4, 2020). Borrowers who received their loan prior to June 5, 2020, may contact their lender to discuss extending maturity date to five years. There are no prepayment penalties.
What other factors affect my PPP loan forgiveness amount?
Your loan forgiveness amount may also be further reduced if you (1) fail to maintain the same number of full-time equivalent (FTE) employees during the covered period compared to a defined look-back period (the FTE Reduction adjustment); and/or (2) decrease wages in your covered period for employees earning $100,000 or less (annualized) by more than 25% when compared to the employee’s average weekly wages during the 1st Quarter 2020 (the Salary/Hourly Wage Reduction Adjustment). If you restore FTEs or wages by Dec. 31, 2020 you may be eligible for the FTE and/or Salary/Hourly Wage Reduction Safe Harbors.
Your loan forgiveness amount may be further reduced if you do not use 60% of your loan amount on payroll costs. If a borrower uses less than 60% of the loan amount for payroll costs during the& forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been& used for payroll costs. No more than 40% of the loan forgiveness amount can be attributable to non-payroll costs.
Can I change my check dates to maximize forgiveness?
We would not recommend changing your normal payroll schedule. You are still required to follow wage and hour laws in your state. Without final guidance, this may not result in the desired outcome.
Can I pay people additional advances or bonuses to maximize my forgiveness?
Bonuses and hazard pay are included in cash compensation. There is no guidance available on whether paying advances will be allowed for forgiveness. Normal payroll procedures should be followed as loan forgiveness may be subject to an audit.
Is there a deadline that I must have all my employees back to work and a certain number of days or weeks from this time that that they must be employed for the loan amount to be forgiven?
Forgiveness is based on the employer maintaining or re-hiring employees and maintaining wages paid. The sooner you return your employees to work and restore wages during your covered period the less your loan may be reduced based on FTE or wage reduction. Employees must be returned to work and wages restored not later Dec. 31, 2020 to qualify for either the FTE or salary/hourly wage reduction safe harbors.
Does it matter when I pay my employees or when their wages are earned? How will forgiveness be impacted if I get my loan in the middle of a pay period?
Yes. Based on current guidance, only eligible payroll costs earned during your covered period are eligible for forgiveness. If a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs.
How soon do I have to apply for forgiveness after my covered period is over?
The PPP does not require you to seek forgiveness by a certain date. However, you will be required to begin payments on your loan and interest if you do not apply for loan forgiveness within 10 months of the end of your covered period.
Payments of loan principal, interest, and fees may be deferred until the date on which the forgiveness amount is remitted to your lender. Interest (1%) begins immediately. You can prepay your loan amount without penalty.
Should I apply for loan forgiveness at the expiration of my chosen covered period?
You can but you may want to wait because even if your covered period has ended you may still qualify for either the FTE or Salary/Hourly Wage Reduction safe harbor if you fully restore FTE and/or wage levels by Dec. 31, 2020.
Full-time employees (FTE) Reduction Adjustment
Full-time employees (FTE) Reduction Adjustment
How do I determine whether I will have an FTE Reduction adjustment?
First, determine your Average FTEs during your chosen covered period and the defined look-back period (referred to in the Loan Forgiveness Application as the Chosen Reference Period). Your look-back period, is, at your election, either (i) Feb. 15, 2019 to June 30, 2019; (ii) Jan. 1, 2020 to Feb. 29, 2020; or (iii) in the case of seasonal employers, either of the preceding periods or a consecutive twelve-week period between May 1, 2019 and Sept. 15, 2019. A seasonal employer that elects to use a 12-week period between May 1, 2019 and Sept. 15, 2019 to calculate its maximum PPP loan amount must use the same 12-week period as the reference period for calculation of any reduction in the amount of loan forgiveness.
Next, sum the aggregate total of FTE employees for both the Chosen Reference Period and your chosen covered period, by adding all employee-level FTE employee calculations. You then divide the average FTE employees during your look-back period by the average FTE employees during your Chosen Reference Period, the result is the FTE Reduction Quotient. You may be exempt from this reduction if you qualify for one of two FTE Safe Harbors.
How do I calculate average FTEs?
Borrowers must divide the average number of hours paid for each employee per week by 40, capping this quotient at 1.0. For employees who were paid for less than 40 hours per week, borrowers may choose to calculate the full-time equivalency in one of two ways.
- First, the borrower may calculate the average number of hours a part-time employee was paid per week during the covered period. For example, if an employee was paid for 30 hours per week on average during the covered period, the employee is an FTE employee of 0.75. Similarly, if an employee was paid for ten hours per week on average during the covered period, the employee is an FTE employee of 0.25.
- Second, for administrative convenience, borrowers may elect to use a full-time equivalency of 0.5 for each part-time employee who worked less than 40 hours per week..
Borrowers may select only one of these two methods and must apply that method consistently to all their part-time employees for the covered period or the alternative payroll covered period and the selected reference period.
What is the full-time equivalency (FTE) calculation used to determine reduction of loan forgiveness eligibility?
If an employer reduces the number of FTEs during the covered period, then the amount of loan forgiveness eligibility will be reduced proportionately. The following formulas will be used based on reductions in the number of FTEs:
- Average number of FTEs per month* employed by the borrower during the covered period divided by either the:
- Average number of FTEs per month employed by the borrower from Feb. 15, 2019 to June 30, 2019, or
- Average number of FTEs per month employed by the borrower from Jan. 1, 2020 to February 29, 2020.
*The average number of FTEs is determined by calculating the average number of FTEs for each pay period falling within a month.
How do I qualify for the FTE Reduction Safe Harbor?
Two separate safe harbors may exempt borrowers from any loan forgiveness reduction based on a reduction in FTE employee levels:
FTE Reduction Safe Harbor 1. The borrower is exempt from the reduction in loan forgiveness based on a reduction in FTE employees described above if the borrower, in good faith, is able to document that it was unable to operate between Feb. 15, 2020, and the end of the Covered Period at the same level of business activity as before Feb. 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and Dec. 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.
FTE Reduction Safe Harbor 2. The borrower is exempt from the reduction in loan forgiveness based on FTE employees described above if both of the following conditions are met: (1) the borrower reduced its FTE employee levels in the period beginning Feb. 15, 2020, and ending April 26, 2020; and (2) the Borrower then restored its FTE employee levels by not later than Dec. 31, 2020 to its FTE employee levels in the Borrower’s pay period that included Feb. 15, 2020.
Are there any exceptions from the FTE Reduction adjustment?
Yes. A borrower is eligible for an FTE Reduction Exceptions for:
(1) any positions for which the borrower made a good-faith, written offer to rehire an individual who was an employee on February 15, 2020 and the borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020;
(2) any positions for which the borrower made a good-faith, written offer to restore any reduction in hours, at the same salary or wages, during the borrower’s covered period and the employee rejected the offer, and
(3) any employees who during the borrower’s covered period who were
- were fired for cause,
- voluntarily resigned, or
- voluntarily requested and received a reduction of their hours.
In each of these cases the borrower will list the FTE on the FTE Reduction Exception line on Tables 1 or 2 in the Loan Forgiveness Application, Schedule A Worksheet only if the position was not filled by a new employee. Any FTE reductions in these cases do not reduce the Borrower's loan forgiveness. It is important that borrowers maintain documentation supporting the exceptions.
Borrowers are required to inform the applicable state unemployment insurance office of any employee’s rejected rehire offer within 30 days of the employee’s rejection of the offer. The documents that borrowers should maintain to show compliance with this exemption include the written offer to rehire an individual, a written record of the offer’s rejection, and a written record of efforts to hire a similarly qualified individual.
When calculating the FTE Reduction Exceptions in Table 1 of the PPP Schedule A Worksheet on the Loan Forgiveness Application, do borrowers include employees who made more than $100,000 in 2019 (those listed in Table 2 of the PPP Schedule A Worksheet)?
Yes. The FTE Reduction Exceptions apply to all employees, not just those who would be listed in Table 1 of the Loan Forgiveness Application (SBA Form 3508 or lender equivalent). Borrowers should therefore include employees who made more than $100,000 in the FTE Reduction Exception line in Table 1 of the PPP Schedule A Worksheet.
What if I only bring back part of my work force?
Your forgiveness may be reduced proportionately to your Full-time Equivalent (FTE) reduction, unless you are eligible for an FTE Reduction Exception or FTE Reduction Exemption.
Salary/Hourly Wage Reduction Adjustment
Salary/Hourly Wage Reduction Adjustment
What is the Salary/Hourly Wage Reduction Adjustment?
Your loan forgiveness amount may be less, depending on whether the salary or hourly wages of certain employees during your covered period as compared to the period from Jan. 1, 2020 to March 31, 2020. For employees whose wages or pay decreases by more than 25%, if the change is solely due to a decrease in the employee’s FTE status, an employer may not have to take the wage reduction on this employee. For example: An hourly wage employee had been working 40 hours per week during the borrower selected reference period (FTE employee of 1.0) and the borrower reduced the employee’s hours to 20 hours per week during the covered period (FTE employee of 0.5). There was no change to the employee’s hourly wage during the covered period. Because the hourly wage did not change, the reduction in the employee’s total wages is entirely attributable to the FTE employee reduction and the borrower is not required to conduct a salary/wage reduction calculation for that employee.
You also may be exempt from this reduction if you fully restore salary and the hourly wage rate by Dec. 31, 2020.
How do I determine whether I will have a salary or hourly wage reduction adjustment?
To calculate whether a salary/hourly wage reduction is required you will calculate the average salary or hourly wage rate reduction for each FTE employed during the covered period who either was hired in 2020 OR received $100,000 or less on an annualized basis during any pay period in 2019 as compared to a defined look-back period (first quarter 2020).
For more details on calculating the salary/hourly wage reduction, read our PPP Flexibility Act article.
How do I determine if I qualify for the salary or hourly wage reduction safe harbor?
If a borrower restores reductions made to employee salaries and wages or FTE employees by not later than Dec. 31, 2020 the borrower can avoid a reduction in its loan forgiveness amount. If certain employee salaries and wages were reduced between Feb. 15, 2020 and April 26, 2020 (the safe harbor period) but the borrower eliminates those reductions by Dec. 31, 2020 or earlier, the borrower may be exempt from any reduction in loan forgiveness amount that would otherwise be required due to reductions in salaries and wages under section 1106(d)(3) of the CARES Act.
PPP Loan Repayment
PPP Loan Repayment
What if I can only use a portion of my loan amount? Can I pay back my loan without penalty or interest?
There is no penalty for early repayment. Interest will begin when you receive your loan amount however you can defer payments of your loan principal, interest and fees until the date on which the forgiveness amount is remitted to your lender. Any amount not forgiven must be paid back at 1% interest over a five year-term (for loans made on or after the effective date of the PPP Flexibility Act) or two years if made before, and not renegotiated with your lender.
What happens if my loan isn’t forgiven?
Any amounts not forgiven must be paid back over a five-year term (for loans made on or after the effective date of the PPP Flexibility Act) or two years if made before, and not renegotiated with your lender. The interest on your loan is capped at 1% and payments of loan principal, interest and fees may be deferred until the date on which the forgiveness amount is remitted too your lender. Interest will begin to accrue when you receive your loan.
Estimating PPP Loan Forgiveness
Estimating PPP Loan Forgiveness
How much of a PPP loan can be forgiven?
The full principal amount and any accrued interest can be forgiven for funds used to pay for covered costs during the covered period.
Will my entire PPP loan principal be forgiven immediately?
The amount of your loan can only be forgiven up to the sum of the eligible covered expenses (listed above) during your covered period. Loans will not automatically be forgiven. There is a loan forgiveness application process you must complete before your loan can be forgiven in whole or in part.
What can impact my forgiveness?
Generally, there are three areas that may lead to a reduction in your forgiveness amount. First, your loan forgiveness amount will be adjusted if you reduced FTEs or wages during your covered period and you did not restore those FTEs or wages by Dec. 31, 2020.
Secondly, your loan forgiveness amount may be further reduced if you do not use 60% of your loan amount on payroll costs. If a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs. No more than 40% of the loan forgiveness amount can be attributable to non-payroll costs.
Finally, if you received an EIDL Advance, the SBA will reduce your loan forgiveness by the amount of the advance.
What are eligible covered expenses when estimating how much of my PPP loan will be forgiven?
- Payroll costs (including employer paid employee benefits and employer paid state and local taxes)
- Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
- Non-Payroll Costs
- Interest payments on any covered mortgage obligation incurred before Feb. 15, 2020
- Payment of rent under a lease in force prior to Feb. 15, 2020
- Utility payments for which service began before Feb. 15, 2020
- Interest payments on any other debt obligations that were incurred before Feb. 15, 2020
- Refinancing an SBA EIDL loan between Jan. 31, 2020 and April 3, 2020. If you received an SBA EIDL loan from Jan. 31, 2020 through April 3, 2020, you can apply for a PPP loan. If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan
How do you calculate payroll costs for Paycheck Protection Program loans?
Your payroll costs are the sum of the compensation, employer paid benefits, and employer assessed state and local taxes paid or incurred during your covered period. To calculate your payroll costs for PPP loan forgiveness during your covered period you must follow the steps below:
- Calculate the eligible compensation (capped at $100,000 per year annualized; for 24 weeks, a maximum of $46,154 per individual, or for eight weeks, a maximum of $15,385 per individual) paid or incurred for your employees during the covered period. Compensation includes salary, vacation, leave (sick, parental, family, and medical), severance pay, wages, commissions or similar compensation, and cash tips.
- Apply the $100,000 salary cap for highly compensated employees and sole proprietors
- Add Employer paid benefit costs. Include payment for: Group health care benefits, including insurance premiums, and retirement during the covered period.
- Add Employer paid state and local taxes on the eligible compensation.
- Add the total amount paid to owner-employees/self-employed individuals/general partners. The SBA has determined that for individuals with self-employment income who file a Schedule C, PPP self-employment loan forgiveness is limited to a proportionate eight-week share (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, as reflected in the individual's 2019 Form 1040 Schedule C.
Are payroll costs that were incurred during the Covered Period1 or the Alternative Payroll Covered Period2 but paid after the Covered Period or the Alternative Payroll Covered Period eligible for loan forgiveness?
Yes, if the payroll costs are paid on or before the next regular payroll date after the Covered Period or Alternative Payroll Covered Period.
For an example that illustrates this, check out these FAQs.
Are payroll costs that were incurred before the Covered Period but paid during the Covered Period eligible for loan forgiveness?
Yes. Payroll costs not incurred during the Covered Period but paid during the Covered Period are eligible for loan forgiveness.
How is the amount of owner compensation that is eligible for loan forgiveness determined?
The amount of compensation of owners who work at their business that is eligible for forgiveness depends on the business type and whether the borrower is using an eight-week or 24-week Covered Period. In addition to the specific caps described below, the amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation is capped at $20,833 per individual in total across all businesses in which he or she has an ownership stake. For borrowers that received a PPP loan before June 5, 2020 and elect to use an eight-week Covered Period, this cap is $15,385. If their total compensation across businesses that receive a PPP loan exceeds the cap, owners can choose how to allocate the capped amount across different businesses. The examples below are for a borrower using a 24-week Covered Period.
The SBA FAQs provides an example of how this might apply to your business.
Is FUTA included in my PPP loan forgiveness estimations?
The Federal Unemployment Tax (FUTA) is not included in the PPP loan calculation.
How do you calculate non-payroll costs for PPP loans?
Your non-payroll costs are the sum of the
- Interest payments on any covered mortgage obligation in force before Feb. 15, 2020
- Payment of rent under a lease in force prior to Feb. 15, 2020
- Utility payments for which service began before Feb. 15, 2020
Non-Payroll Costs are costs paid or incurred during the Covered Period (the 24-week or eight-week period, if applicable) beginning on the date you received your loan, even if you elected the Alternative Covered Period.
Are nonpayroll costs incurred prior to the Covered Period, but paid during the Covered Period, eligible for loan forgiveness?
Yes, eligible business mortgage interest costs, eligible business rent or lease costs, and eligible business utility costs incurred prior to the Covered Period and paid during the Covered Period are eligible for loan forgiveness.
Are nonpayroll costs incurred during the Covered Period, but paid after the Covered Period, eligible for loan forgiveness?
Nonpayroll costs are eligible for loan forgiveness if they were incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.
If a borrower elects to use the Alternative Payroll Covered Period for payroll costs, does the Alternative Payroll Covered Period apply to nonpayroll costs?
No. The Alternative Payroll Covered Period applies only to payroll costs, not to nonpayroll costs. The Covered Period always starts on the date the lender makes a disbursement of the PPP loan. Nonpayroll costs must be paid or incurred during the Covered Period to be eligible for loan forgiveness. For payroll costs only, the borrower may elect to use the Alternative Payroll Covered Period to align with its biweekly or more frequent payroll schedule.
If I have an employee who makes over $100,000 annually, how does that impact my loan forgiveness?
Employees who made more than $100,000 (annualized) for any pay period in 2019 are removed from the loan forgiveness salary/hourly wage reduction calculation. Further, for each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the covered period.
How will I figure out who would have been over the $100,000 threshold last year if I didn’t process with Paychex all year? And if wages were loaded in lump sum?
Paychex will use information from payrolls we processed as well as the historical data provided at onboarding. However, we still need the client to verify the information.
Does hazard pay get included in the 60%?
Hazard pay is included in the 60% payroll costs calculation and is subject to all the same wage rules.
Does bonus pay get included in the 60%?
Bonus pay is included in the 60% payroll costs calculation and is subject to all the same wage rules.
Can I pay my employee’s retroactively to make up the 60%?
There is no guidance available on if paying retroactive wages will be allowed for forgiveness. Normal payroll procedures should be followed; all loan forgiveness could be subject to an audit.
Can I pay my employee’s in advance to make up the 60%?
No. Payroll costs must be paid or incurred during your covered period. If incurred during the last period of your covered period, the payroll costs must be paid on or before the next regularly scheduled payroll date.
What wages are counted in the covered period weeks? Wages earned or paid?
Based on guidance the wages that can be included in payroll cost must be paid or earned during your covered period.
Can anything reduce the loan forgiveness amount?
Yes. Your loan forgiveness amount will also be further reduced if you (1) fail to maintain the same number of full-time equivalent (FTE) employees during the covered period compared to a defined look-back period (the FTE Reduction Adjustment); and/or (2) decrease wages in your covered period for employees earning $100,000 or less (annualized per pay period in 2019) by more than 25% when compared to the employee’s average weekly wages during the 1st Quarter 2020 (the salary/hourly wage reduction adjustment.
If you were unable to operate between Feb. 15, 2020, and the end of the Covered Period at the same level of business activity as before Feb. 15, 2020, due to compliance with COVID-19 related guidance or requirements (FTE Safe Harbor 1) or you restore FTEs by Dec. 31, 2020 (FTE Safe Harbor 2) you may be eligible for the FTE Reduction safe harbors. If you restore salary/hourly wages by Dec. 31, 2020 you may be eligible for the Salary/Hourly Wage Reduction safe harbors. Further guidance from the SBA is expected as to whether you can use a date other than Dec. 31, 2020 to determine if FTE and/or salary/hourly wages were restored.
Additionally, your loan forgiveness may be reduced further if you do not use 60% of your loan amount on payroll costs.
How can I maximize the amount of the PPP loan forgiveness I receive?
To maximize forgiveness, you must use at least 60% of the loan amount for payroll costs and fully restore FTE and salary/hourly wages by Dec.31, 2020 to the FTEs and salary/hourly wage rates in place on Feb. 15, 2020.
Will the number of FTEs retained/rehired impact loan forgiveness?
Yes. Your loan forgiveness amount may be impacted based on a comparison of the average number of FTEs during the covered period with one of two comparison periods. If you reduced FTEs your loan forgiveness amount may be reduced. If you restore FTEs not later than Dec. 31, 2020 you may qualify for the FTE Reduction Safe Harbor.
Will a reduction in salary or hourly wage rates impact loan forgiveness?
Yes. Your loan forgiveness amount may be impacted based on a comparison of the salary/hourly wage rates during your covered period with the salary/hourly wages paid between Jan. 1, 2020 and March 31, 2020. If you reduced salary and/or wages on eligible employees by more than 25%, your loan forgiveness amount may be reduced. If you restore salary and hourly wage rates not later than Dec. 31, 2020 you may qualify for the Salary/Hourly Wage Reduction safe harbor. For purposes of calculating reductions in the loan forgiveness amount, the borrower should only take into account decreases in salaries or wages.
Paycheck Protection Program loan
Paycheck Protection Program loan
What is the purpose of a PPP loan?
A PPP loan is intended to help business owners keep their employees on the payroll, return those who might have been furloughed, and keep their business open by offering loans that are forgivable for funds used on eligible covered costs.
Note:The PPP loan application process closed Aug. 8, 2020. However, you can still learn about other available funding options.
What changes did the PPP Flexibility Act make?
The Act amended several provisions of the Paycheck Protection Program, including:
- Extending the covered period to up to 24 weeks
- Extending the time a borrower can qualify for the FTE and Salary/Hourly Wage reduction safe harbors
- Modified the 75/25 rule by increasing the amount of non-payroll costs that can be forgiven to 40% (from 25%). If a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs.
The Act also implemented an FTE reduction exemption, established a minimum loan maturity period of five years (rules apply), extended deferment payments of loan principal, interest, and fees, as well as allows continued deferral of Social Security taxes after loan forgiveness has been approved.
Read this article for more details on the PPP Flexibility Act
What is the covered period? Is there more than one covered period I can elect?
The covered period is the period you can use your loan. It also is the period used to calculate any salary/hourly wage reductions to your loan forgiveness. Your covered period will be 24 weeks (168 days) if you are eligible but you can elect the original eight-week (56 days) period. Only borrowers who received their PPP loan before June 5, 2020 may elect the eight-week period*. In no event will a covered period extend beyond Dec. 31, 2020.
Covered Period. The Covered Period for either the 24-week period or, if elected, the eight-week period begins on the date you receive your loan.
Alternative Covered Period. For administrative convenience, borrowers with a bi-weekly (or more frequent) payroll schedule may elect to use an Alternative Covered Period for either the 24- or, if elected, the eight-week period that begins on the first day of their first pay period following the receipt of their loan. However, borrowers who elect the Alternative Covered Period must apply the Covered Period wherever there is a reference to Covered Period in their loan forgiveness application.
Borrowers who elect to use the Alternative Covered Period must use the Covered Period for non-payroll costs. Nonpayroll costs must be paid or incurred during the Covered Period to be eligible for loan forgiveness.
In an Interim Final Rule released June 10, 2020, the SBA determined that the date a loan is made is the date the SBA assigns a loan number to a PPP loan. We await further guidance to clarify whether to use the “received date of the loan amount” or the “loan made date” to determine eligibility to elect the eight-week period.
*The loan forgiveness application released on June 17, 2020 states that a borrower may elect to use the eight-week Covered or Alternative Covered period if they received their loan prior to June 5, 2020. However, the PPP Flexibility Act of 2020 states that the borrower may elect the eight-week period only if their loan was made on or before June 5, 2020.
What are covered costs under PPP?
Eligible payroll and non-payroll costs (business payments for mortgage interest, rent and utilities) paid or incurred during your covered period.
What are payroll costs?
Borrowers are generally eligible for forgiveness for the payroll costs (also referred to in the Loan Forgiveness Application as eligible payroll costs) paid or incurred during their covered period. Payroll costs include:
- Cash compensation (gross salary, wages, tips, commissions, and paid leave, bonuses, hazard pay, etc. paid or incurred during your chosen covered period (total not to exceed $100,000, annualized for your covered period for each employee. For 24 weeks, the maximum is $46,154 per individual, or for eight weeks, a maximum of $15,385 per individual)
- Employer paid benefits (group health care coverage such as insurance premiums and retirement contributions)
- Employer assessed state and local taxes
There is an Interim Final Rule providing guidance for independent contractors or sole proprietors. Read more in this article about the PPP.
What are non-payroll costs?
Non-payroll costs eligible for forgiveness consist of:
- Business mortgage interest payments. Payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before Feb. 15, 2020
- Business rent or lease payments. Business rent or lease payments pursuant to lease agreements for real or personal property in force before Feb. 15, 2020
- Business utility payments. Business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before Feb. 15, 2020.
An eligible nonpayroll cost must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period. Borrowers must use the covered period that begins on the date they received their loan, even if they elected the Alternative Covered Period. Eligible nonpayroll costs cannot exceed 40% of the loan forgiveness amount. Count nonpayroll costs that were both paid and incurred only once.
Is there a deadline to have my loan approved?
The application process for a PPP loan, having been extended until August, closed Aug. 8, 2020. Check out other funding options.
What if an employee is furloughed or not actually performing work?
Payroll costs paid or incurred for employees on your payroll and not performing work (sometimes referred to as furloughed employees) may be included. However, payroll costs should exclude FFCRA paid leave wages.
Does the EIDL loan/grant work in conjunction with the PPP loan?
Any advance received for the EIDL program under the CARES Act reduces your loan forgiveness by the amount of the advance.
Will there be interest on my PPP loan?
Interest on your PPP Loan is 1% and begins to accrue when you receive your loan. Payments of loan principal, interest, and fees are deferred until the date on which the forgiveness amount is remitted to your lender.