Tips To Get Full Forgiveness
Maximize your chances of qualifying for full forgiveness with these pointers:
- Document your expenses.;Be extra careful to keep detailed, organized records. If an expense isnt documented, it doesnt qualify for forgiveness.
- Rehire staff.;You wont be able to qualify for 100% forgiveness unless you rehire staff you laid off after February 15, 2020.
- Dont cut jobs or salaries.;Youll have to pay back a larger portion of the loan if you cut employees or their wages.
- Give tipped workers extra pay.;The SBA counts this toward your payroll expenses, which means it can help you qualify for a higher forgiveness amount.
- Ask about your lenders own guidelines.;Ultimately, its up to your lender to decide how much forgiveness your business can qualify for. Ask if they have any additional guidelines that you need to follow ideally before you take out the loan.
Should I apply ASAP or hold off on my forgiveness application?
Currently theres no deadline to apply for forgiveness, so when you apply for forgiveness is up to you. Some small business owners are waiting to see see what a new stimulus package might bring some proposals would make it easier to qualify for more forgiveness or simplify the application.
But you might not want to wait too long. Your loan repayments kick in 10 months after your PPP loan covered period ends. Make sure you get your forgiveness application in before then.
Documentation Wanted To Show Payroll A Part Of Ppp Forgiveness Software
Listed below are examples of the paperwork its possible youll want:
- Financial institution statements, or statements from third-party payroll service suppliers
- Tax types which present tax filings which have, or shall be, filed. Mostly that is IRS kind 941.
- State quarterly enterprise and unbiased worker wage reporting, and unemployment insurance coverage tax filings, which have been or shall be reported.
- Cost receipts resembling cancelled checks or account statements that present employer contributions to medical health insurance and retirement plans.
How Can I Use My Ppp Funds
Self-Employed Individuals are eligible to use up to $20,833 in Owner Compensation Replacement across all their businesses in total. Forgiveness is based on the length of the covered period:
- Borrowers that elect to use an eight-week covered period, the amount of loan forgiveness requested for owner-employees and self-employed individuals payroll compensation is capped at eight weeks worth of 2019 or 2020 compensation or $15,385 per individual, whichever is less, in total across all businesses.
- Borrowers that elect to use a ten-week covered period, the cap is ten weeks worth of 2019 or 2020 compensation or $19,231 per individual, whichever is less, in total across all businesses.
- For a covered period longer than 2.5 months, the amount of loan forgiveness requested for owner-employees and self-employed individuals payroll compensation is capped at 2.5 months worth of 2019 or 2020 compensation in total across all businesses.
Borrowers with W2 employees must use a minimum of 60% of their PPP funds for payroll expenses including:
- Gross Wages, salary, tips, time off, sick leave, bonuses, etc up to the equivalent of $100,000 per employee
- Company paid-for health and retirement benefits
- State unemployment taxes only
While W2 Employers are eligible to use 100% of the funds for eligible payroll expenses, they are able to use up to 40% for other eligible expenses including:
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Get The Right Ppp Mortgage Forgiveness Type
You get the shape out of your lender. Most small companies will use SBA kind 3508.
There are shortened model of that kind, resembling 3508EZ and 3508S. These are PPP mortgage forgiveness functions for particular varieties of companies, resembling sole proprietors, unbiased contractors and different self-employed enterprise homeowners.
Small companies also can examine to see in the event that theyre eligible to make use of the SBAs new PPP Loan Forgiveness Portal to assist apply for full forgiveness on this mortgage.
Filling Out The Ppp Forgiveness Application
Filling out your PPP forgiveness application will be very different depending on whether you have employees or not.;
NOTE: If you are self employed and do not have W-2 employees read our article: Self Employed: How to Fill Out the PPP Loan Forgiveness Application Form
The most complicated part of filling out the forgiveness application is filling out the payroll sections. Well provide general information here but you may have questions; unique to your situation. You may find answers in the SBA guidance, so be sure to review it. Also keep in mind this information does not replace professional accounting or legal advice. In fact, we strongly encourage you to; work with your accountant before you submit your application for forgiveness.
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How To Make Sure Your Ppp Loan Is Forgiven
Congratulations to those who have received the Paycheck Protection Program loan. These last few weeks have been stressful for all. Now that you have these funds available to retain your employees and continue to operate your business, it is important to have clear accountability for the funds so the PPP Loan is forgiven and not turn into just another loan.
We advise all clients to deposit PPP funds into a designated bank account and pay all allowable expenses from that account for an easy audit trail.
Rehire And Avoid Layoffs
The original intent of the PPP was to keep businesses open and save American jobs. For this reason the initial rules required all borrowers to maintain your employees on staff and keep compensation levels within a certain limit to qualify for loan forgiveness. So businesses had to be sure to rehire any laid off employees .;
Fore 2021, and for smaller loans, there are definitely exceptions to this rule though. And the SBA recognizes that there are legitimate reasons for employee dismissal outside of budget cuts.;
The current exceptions to the maintain employee headcount and compensation rule include:
- If you received a PPP loan of $50,000 or less, you are exempt from having to maintain employee and compensation levels for loan forgiveness
- PPP Loans received after December 27th, 2020 are not required to rehire any employees in order to receive forgiveness. You will, however, need to maintain current payroll levels during the forgiveness period. .
- If you dont meet the exceptions above, and any employee quit, retired, or was fired , or refused your offer to be rehired, then you can still qualify for full loan forgiveness. Youll just need to provide written proof or documentation that supports these situations
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A Guide To Applying For Ppp Loan Forgiveness
WASHINGTON, DC — Flanked by Vice President Kamala Harris and SBA Administrator Isabella … Casillas Guzman , President Joe Biden signs the Paycheck Protection Program extension in the Oval Office of the White House on March 30, 2021. The extension will push the deadline for Paycheck Protection Program loans from March 31 to May 31.
As the second round of the Paycheck Protection Program winds down on May 31, small business borrowers who have already secured their funding and spent their loan proceeds on covered expenses will soon be applying for loan forgiveness.
After all, the beauty of the PPP is that it was designed to keep Americans working by having their companies continue to pay their salaries. The program reimburses struggling small businessesultimately enabling them to surviveby allowing them to apply for forgiveness of the PPP loans they used to keep employees on payroll and certain other expenses.
Before applying, it is important to know the terms of forgiveness for both PPP Draw 1 and PPP Draw 2 loans.
First Draw PPP Loan forgiveness terms
First Draw PPP loans are made to eligible borrowers who qualify for full loan forgiveness if they have done the following during the 8- to 24-week period following their PPP loan disbursement:
·;;;;;;;;Maintained employee staffing and compensation levels
·;;;;;;;;Spent the loan proceeds on payroll costs and other eligible expenses; and
·;;;;;;;;Used at least 60% of the loan for covering payroll costs
How Much Of My Loan Will Be Forgiven
You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utility payments over the 8 weeks after getting the loan. Due to the likely high subscriptions, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. You will also owe money if you do not maintain your staff and payroll.
- Number of staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
- Level of payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
- Re-hiring: You have until June 30, 2020, to restore your full-time employment and salary levels for any changes made between February 15, 2020, and April 26, 2020.
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What States Are Taxing Forgiven Ppp Loans
Usually a forgiven loan is taxed as income, but PPP loans were designed to be exempt from income taxation at the federal level. Some states, however, are treating the forgiven loans as taxable income or deny the related deductions. Check your state here to see if youll be taxed for your forgiven PPP loan.
Deadline For Ppp Loan Forgiveness
Expenditures and applications for PPP loan forgiveness need to be completed within 10 months of the end of your loan window. If you received your loan before the PPP Flexibility Act in early June you can still use the 8 week window originally designated. We recommend waiting to apply for loan forgiveness until youve been able to restore headcount and pay to acceptable levels for loan forgiveness. After applying for loan forgiveness, you will receive a decision from your SBA-approved lender within 60 days.;
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If Youve Had To Layoff Employees Make Sure To Rehire By December 31
Many companies have been forced to lay off workers prior to receiving a loan. If thats the case for your business, you have until December 31 to rehire laid-off or furloughed employees and get your employee headcount to pre-pandemic levels without suffering a penalty or having your forgiveness amount impacted.
Pay Reduction Beyond The 75% Threshold
Letâs say you have three employees that each made $3,000 per month before COVID-19. Your PPP loan amount was $22,500 . You had to lay them off in February 2020 due to COVID-19. You hired back all three of your employees, but at a reduced salary of $2,000 a month.
Over the 24 weeks of the PPP coverage period, you spend $36,000 on your employees . You claim the full $22,500 of your PPP loan for forgiveness.
When it comes to calculating your forgivable amount, your lender looks at each employeeâs individual compensation. The 75% minimum salary is $2,250 . Youâre paying each person $250 less each month. The $250 difference is scaled up to the 24-week period totalling $1,500. After multiplying this by three employees, $4,500 would be deducted from the forgivable amount. This results in a total of $18,000 forgiven .
A conversation with a bookkeeper can help make sense of your specific situation. This is where Bench comes in. Learn more about who we are and how we can help beyond monthly bookkeeping.
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What Expenses Dont Qualify For Forgiveness
There are a few situations when otherwise eligible costs might not qualify:
- Annual salaries over $100,000. The PPP caps forgiveness on salaries, commissions, wages and tips at $100,000 per year per employee.
- Tax credits. If you plan to use the paid sick leave refundable credit on your 2020 taxes, you cant count paid sick leave or family leave toward PPP forgiveness.
- COBRA insurance payments. Health insurance payments aren’t eligible for forgiveness because they’re tax-deductible.
- Independent contractor pay. Companies that rely on work from contractors cant count their compensation toward PPP forgiveness, since theyre eligible to apply for the PPP themselves.
- Employees abroad. Salaries and other compensation for employees who primarily live outside of the US do not count toward forgiveness.
- New operating costs. Leases, mortgages and utility contracts made after February 15, 2020 are ineligible for PPP forgiveness.
Previously, EIDL grants were deducted from the amount of forgiveness your business could qualify for. But with the passing of the second stimulus bill, businesses are no longer required to deduct any past or current EIDL grants from their PPP loan forgiveness application.
Sole proprietor and independent contractor requirements
To qualify for forgiveness as an independent contractor or sole proprietor, you must spend your full loan on compensation, such as wages, income, commissions or net earnings. This is capped at $100,000 per employee.
If I Receive A Second Draw Ppp Loan What Do I Need To Know About Forgiveness
You must submit separate forgiveness applications for each loan. If your second draw loan is more;than;$150,000, you must submit a loan forgiveness application for your first PPP loan before, or simultaneously with, the loan forgiveness application for the second draw loan. You cant apply for forgiveness of your second draw loan before you apply for forgiveness of your first draw loan.;;
When you apply for forgiveness for your second draw loan, you must certify that you used the first PPP loan on eligible expenses before the disbursement of your second draw loan.;;
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What Are The Basics Of The Paycheck Protection Program
First things firstbefore we jump into how to get a PPP loan forgiven, lets first cover the basics of the Paycheck Protection Program.
The Paycheck Protection Program oversees federally insured loans for small businesses with 500 or fewer employees, including eligible non-profits, tribal businesses, Veterans organizations, sole proprietors, independent contractors, and self-employed individuals. . In order to qualify for a Paycheck Protection Program loan, the business must have been operational on February 15, 2020.
Eligible small businesses can borrow up to 2.5 times their average monthly payroll costs to help cover short-term payroll costs and approved operating expenses. PPP loans max out at $10 million dollars.
How Loan Forgiveness Is Calculated
To calculate how much of your loan can be forgiven, your lender will use the responses from your application to:
Determine the maximum amount of possible loan forgiveness.
This is based on how much you spent on payroll and other eligible expenses like rent and utilities during the 24-week period.
Calculate the amount by which the maximum loan forgiveness will be reduced.
If you reduced your number of employees or their wages during the 24-week period, your loan forgiveness amount will be reduced.2
Understand how much of your loan was used on eligible expenses.
Only 40% of your PPP loan can be used for expenses other than payroll for certain business structures. If you used more than 40% on non-payroll expenses, your forgiveness amount will be reduced by the percentage of the loan you used on ineligible expenses.
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How Should I Record If The Ppp Loan Was Fully Forgiven
Thanks for posting again in this thread, jchang926,
Yes, that’s right. Forgiveness of PPP loan proceeds should be recorded as “Other Income” in QBO. Create a new income account to track the funds, here’s how:
Use this account when you record the forgiven loan in QuickBooks.
If you have any other questions, please tag me here. I’ll be more than happy to share some more information to help you. Have a nice day!
If You Received A Ppp Loan Of $50000 Or Less Youre Exempt
If you received a PPP loan that was $50,000 or less, you are exempt from having to maintain your employee and compensation levels in order to receive loan forgiveness. However, your loan must still be spent on approved costs and you will still need to document that you spent at least 60% of your funds on payroll expenses to qualify for full loan forgiveness.
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What Can Be Forgiven
To get your loan forgiven, you need to use 100% of the loan on eligible costs within eight weeks of receiving the loan.
In order to get your loan forgiven, 75% of the loan must go to payroll costs. Payroll costs include:
-Salaries and wages
-Medical, parental, or vacation leave
-Health insurance premiums
-State, federal or local taxes on employee compensation
-Dismissal allowance .
Your Ppp Loan Was Forgiven Awesomenow What
WASHINGTON, DC – DECEMBER 01: Sen. Angus King sets up a sign alongside a bipartisan group of … Democrat and Republican members of Congress as they announce a proposal for a Covid-19 relief bill on Capitol Hill on December 01, 2020 in Washington, DC. The roughly $908 billion proposal includes $288 billion in small business aid such as Paycheck Protection Program loans, $160 billion in state and local government relief and $180 billion to fund a $300 per week supplemental unemployment benefit through March, according to a draft framework.
Katie was a teacher for 10 years, specializing in working with non-verbal children with autism and other neuro-diversities. In July 2019, she realized that she wanted to work with these same children in a more targeted way in order to make a bigger difference for them and their families, and she started a therapy and educational consulting business.
Her business was taking off and she was making big plans! And then in March 2020 COVID-19 shut everything down where she lived.
Even as a solo-preneur with a relatively new business at the time, she was one of the nearly 12,000,000 business owners able to apply for and receive a Paycheck Protection Program loan from the Small Business Administration in 2020. She was also able to pivot to online services and lesson plans that kept her cash flow going through the worst of the lockdown.
Why is this important to talk about right now?
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