What Expenses And Amounts Are Eligible For Forgiveness
In order for your loan to be forgiven, you must have maintained your FTE counts and employee compensation levels . If your loan was for less than $50,000, then you do not need to worry about FTE and compensation amounts, but you do still need to ensure the funds were utilized for qualified expenses. There is an exception for reduced employee headcount if it was based on health/safety requirements and there are also exemptions for employees who are eligible for rehire, but have refused to return to work. Finally, any employees who quit voluntarily are not counted when calculating the difference in FTE count that occurred during the covered period.
Qualified expenses are a 60/40 split, whereby at least 60% of the PPP loan funds must be spent on qualified payroll expenses and the remaining amount for other permitted business expenses also referred to as nonpayroll expenses. Here is a brief overview of what are considered to be qualified costs in each category:
Qualified Payroll Expenses
- Employer Portions of Benefit Expenses Paid Toward Health and Retirement
- State and Local Payroll Taxes
- Employee Compensation
- The maximum amount of PPP funds that can be used to compensate any individual, regular employee during a 24-week covered period is $46,153.85
- The maximum amount of PPP funds that can be used to pay any employee on payroll who is a 2% or greater owner of the company, during a 24 week covered period, is $20,833.33
Qualified Nonpayroll Expenses
Whose Eligible For Ppp Forgiveness
With the new bill comes a new rule stipulating that if you received a loan of $50,000 or less, you will be eligible for full forgiveness, even if you reduced your FTE employee count or reduced employee wages or salaries.
In other words, as long as you meet the other forgiveness criteria, you can skip the complicated calculations around FTE employees and payroll expenses and still meet the eligibility criteria for full forgiveness.
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.
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New Interim Final Rules Re: Ppp Loan Forgiveness Requirements And Review Procedures As Amended By Economic Aid Act
On January 19, 2021, the U.S. Small Business Administration covering the loan forgiveness requirements and review procedures for the Paycheck Protection Program, as reauthorized and amended by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act , and as enacted under the Coronavirus Aid, Relief, and Economic Security Act ).
In connection with the Forgiveness IFR, the SBA also released the following updated loan forgiveness applications and instructions:
The Forgiveness IFR consolidates, restates and clarifies prior SBA regulations governing loan forgiveness, while also updating those rules to incorporate changes effected by the Economic Aid Act. The SBA advises that each of the new interim final rules, including the Forgiveness IFR, are to be interpreted consistently with each other and with the Frequently Asked Questions , but any discrepancy or conflict that may exist is to be resolved in favor of the Economic Aid Act.
Highlights of what we believe to be material new guidance or clarification of existing guidance in the Forgiveness IFR are as follows:
What Documents Are Needed To Receive Ppp Forgiveness
Documentation is critical to receive PPP forgiveness, especially if your goal is to have 100% of your loan forgiven. Keep careful records from your application forward, and be sure to have digital and physical copies of the following documents:
- Employee numbers and pay
- Contributions to retirement and health benefits
- State filings of income, payroll, unemployment
- Interest, rent, and utility payments that were active in February 2020, and any expenses during the coverage period
- PPP loan application and loan information
- Economic Injury Disaster Loan documents if you applied for it
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Paycheck Protection Program Loan Forgiveness
Eligible clients can apply now for PPP loan forgivenessOur PPP loan forgiveness portal is now open and includes a simplified forgiveness application for PPP loans of $150,000 or less. We will email clients with a link to access our loan forgiveness application over the coming weeks, when the application becomes available to them.
When can I apply for PPP loan forgiveness?
The simplified SBA Form 3508S is now available, in addition to the revised SBA Form 3508EZ and SBA Form 3508 applications. Eligible clients will receive an email with a link to access our loan forgiveness application when it becomes available to them.
As a reminder, based on the latest updates from the SBA, you now have more time to gather your documents and prepare your application. The timeframe for applying for loan forgiveness in the promissory note no longer applies.
For additional assistance with PPP loan forgiveness documentation, view our documentation guide.
Is Bank of America participating in the SBA Direct Forgiveness program for applications equal to or less than $150,000?
The Small Business Administration announced on July 28, 2021 a new initiative that will allow borrowers of participating lenders with loans less than or equal to $150,000 to apply for forgiveness through the SBAs direct forgiveness online portal.
Do I need an Online Banking ID to access my PPP loan forgiveness application online?
Yes, you need a profile set up for Business Advantage 360, our small business online banking.
What Is The Benefit Of The New Form
The new form exempts borrowers from any reductions in the forgiveness amount based on the following:
- Reductions in full-time equivalent employees
- Reductions in employee salary or wages
Keep in mind that other than the FTE and wage reduction exemptions all other PPP rules and regulations still apply. Although no calculations are required to be reported on Form 3508S, borrowers will still be required to submit documentation to verify that they spent the loan proceeds on eligible costs.
If you have questions, please reach out to your KSM advisor or complete this form.
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Ppp Forgiveness Payroll Percentage
You have to use at least 60% of the funding on payroll costs in order to get the most out of PPP loan forgiveness. You can still receive some forgiveness if you dont follow this rule, but the amount will reduce in proportion to the percentage you did spend on payroll.
This new percentage is a result of the changes to PPP loan forgiveness laid out in the Paycheck Protection Program Flexibility Act. Initially, small business owners had to spend 75% of the funding on the payroll.
Note: You cant include payments to independent contractors in this percentage.
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Can I Use Ppp Fund To Pay Employees Who Are Not Currently Able To Work Due To Business Being Closed Or For Any Other Reason
Yes.
If you are not able to operate or are operating at a limited capacity when the PPP loan proceeds are received, you may choose to pay employees who are not able to work. This may help you maximize loan forgiveness, as current SBA guidance states that at least 60% of loan forgiveness must be attributable to payroll costs.
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Are Ppp Loans Eligible For Loan Forgiveness
PPP loans, in whole or in part, are eligible for loan forgiveness if funds were used for certain eligible business expenses. However, if you pay off your loan in full before you apply for forgiveness, you are no longer eligible for loan forgiveness. If part of the loan is not forgiven, you will be responsible to repay the amount not forgiven plus any accrued interest.
No Offset Of Ppp For Eidl Advancerefunds Coming
Before this new law, if you had both an Economic Injury Disaster Loan advance and a PPP loan, your forgiveness amount was reduced by the EIDL advance.
Example. You had a $100,000 PPP loan. When you qualified for 100 percent forgiveness, the lender reduced your forgiveness by your $5,000 EIDL advance and you had to pay the $5,000 to the lender.
But the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act
- eliminates the offset rule for all PPP loans, even those previously forgiven, and
- requires the Small Business Administration to set in motion rules for the lenders to return the EIDL advance money to PPP borrowers who had the money deducted from their forgiveness.
Example. Lets go back to the $5,000 EIDL advance that offset the $100,000 PPP forgiveness. Under the new law, the SBA will create rules for the lender to refund your $5,000. Thus, your total forgiveness will be $105,000 .
Further, the entire $105,000 is not taxable, and all expenses paid with the monies forgiven are deductible.
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What Happens If I Dont Qualify For Forgiveness
If you use your loan for qualified expenses, your loan will be forgiven. But what if you make a purchase that isnt a qualified expense or fail to meet other requirements? If this is the case, you will be required to repay at least a portion of your loan.
As previously mentioned, a few things can prevent you from receiving 100% forgiveness on your PPP loan. As a quick reminder, those are:
- Using your loan funds for another debt obligation that isnt your payroll, rent, utilities, mortgage interest, COVID-related safety expenses, property damage due to civil unrest, software expenses, and necessary supplier costs
- Using more than 40% of your loan for rent, utilities, mortgage interest, COVID-related safety expenses, property damage due to civil unrest, software expenses, and/or necessary supplier costs
- Reducing your employee headcount
- Reducing the wages, salaries, or commissions of employees
If you dont qualify for full loan forgiveness, you will be required to pay back loan funds plus interest. The interest rate for PPP loans is 1%, and you will have five years to repay your loan. Existing borrowers that received funds before the passage of the Paycheck Protection Flexibility Act may extend their loans to five years if the lender agrees.
New Irs Guidance On Ppp Loan Forgiveness Tax Treatment
The IRS has had a change of heart and released three revenue procedures that give taxpayers more choices as to when they can recognize the tax-exempt income resulting from their forgiven Paycheck Protection Program loans.
Revenue Procedure 2021-48 offers taxpayers three options to report amounts that are excluded from gross income in connection with the complete or partial forgiveness of PPP loans. The tax-exempt income may be reported as received or accrued:
- as eligible expenses are paid or incurred,
- when an application for PPP Loan forgiveness is filed, or
- when PPP Loan forgiveness is granted.
Many business taxpayers and their owners have already filed their 2020 income tax returns. If taxpayers choose an option under Rev Proc 2021-48 that is different than that followed in filing their 2020 returns, amended returns may be required.
Rev. Proc. 2021-49 provides guidance for partnerships and consolidated groups regarding tax-exempt income and deductions relating to PPP and certain other COVID-19 relief programs. More specifically, for partners and their partnerships there is guidance regarding:
This revenue procedure also provides guidance under section 1502 and Treasury Regulation 1.1502-32 regarding the corresponding basis adjustments for stock of subsidiary members of consolidated groups as a result of tax-exempt income arising from certain forgiven PPP Loans, grant proceeds, or subsidized payment of certain principal, interest, and fees.
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Are There New Covered Costs That Are Eligible For Loan Forgiveness
Yes. The Economic Aid Act and the new IFR expand the costs that are eligible for forgiveness. New covered costs include the following:
- Covered Operations Expenditure
- Covered Supplier Costs
- Covered Worker Protection Expenditures
For descriptions of what these new categories include, see our article FAQs on PPP First Draw Loans. All Borrowers may receive forgiveness for these expanded covered costs, including those who received their loans prior to December 27, 2020, as long as those loans have not already been forgiven.
Note that while there are new expenses eligible for loan forgiveness, Borrowers seeking forgiveness must still use 60 percent of the loan proceeds on covered payroll costs, as set forth under previous PPP rules. Additionally, Borrowers filing for an Employee Retention Credit must remember that payroll costs qualified wages used to determine the Employee Retention Credit are not eligible for forgiveness for First Draw or Second Draw Loans. In other words, a Borrower may not receive forgiveness for payroll costs for which the Borrower will also receive a tax credit.
You Must Maintain Your Payroll
Your payroll costs must remain the same as they were when you applied for funding. If you decrease salaries or wages, you may be required to pay back a portion of your loan. To be eligible for loan forgiveness, you cant reduce the salary of any full-time employee earning less than $100,000/year by more than 25%.
If you had to cut salaries or wages due to financial challenges caused by the coronavirus, you have 24 weeks to restore these salaries and wages.
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What Is The New Ppp Ez Loan Forgiveness Application
The PPP Loan Forgiveness Application Form 3508EZ is now available. This EZ form is much easier theres less documentation and fewer calculations required.
You can download from the treasury.gov website or here: PPP EZ Loan Forgiveness Application.
There is a checklist available to help you fill out your loan forgiveness application form. These instructions also provide guidance on the documents you will need to include when you submit Form 3508EZ the actual loan forgiveness application. Be prepared! You can download these instructions directly from the SBA.gov website: SBA Loan Forgiveness Instructions
Owners Of Multiple Businesses Beware
If you have ownership interests in more than one business, you need to consider that the owner-employee loan maximums apply to all your businesses.
The new interim final rule puts the $15,385 or $20,833 deemed compensation cap on the loan forgiveness for the defined owner-employee, but contains no guidance on how to allocate or otherwise deal with the caps when you have ownership interests in multiple businesses.
Example. Jim operates an S corporation and a proprietorship. He receives his PPP loan on June 17. The cap on Jims combined S corporation and proprietorship loan forgiveness attributable to Jims employment in the S corporation and his profits from the proprietorship is $20,833.
We know Jim can obtain loan forgiveness for up to $20,833, but we have no guidance on how Jim would allocate the forgiveness between the S corporation and proprietorship. Perhaps by the time Jim applies for PPP loan forgiveness, we will have some directions.
1. Partnerships
The PPP loan forgiveness begins for general partners at the amount of their 2019 net earnings from self-employment multiplied by 0.9235.
You then take the lesser of the amount determined above or $100,000, divide by 12, and multiply by 2.5 to find the loan amount. With this calculation, the maximum loan is $20,833.
The maximum forgiveness attributable due to the partners self-employment income is
2. S Corporations
3. C Corporations
4. Form 1040 Schedule C Businesses
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How Will Ppp Loan Forgiveness Affect My Taxes
With the passing of the second stimulus bill at the end of 2020, it was made clear that a PPP loan will not affect your taxes.
You do not need to include your forgiven amount as taxable income. Any expenses you covered using a PPP loan will still be tax deductible.
However, one possible exception to this is the taxability of owner compensation replacement amounts. Since OCR amounts are used essentially as personal income, instead of for the business, it may be considered taxable income. If you plan to claim some or all of your PPP loan as OCR, we recommend reaching out to your CPA or tax professional for guidance.
Tax Deductibility Of Forgiven Ppp Expenses Confirmed
Recipients of PPP loans from the CARES Act who received forgiveness are now able to deduct the forgivable costs covered by the loans on their federal tax returns. The new Act clarifies that gross income does not include any amount that would otherwise arise from the forgiveness of a PPP loan. It also clarifies that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven, and that the tax basis and other attributes of the borrowers assets will not be reduced because of the loan forgiveness. These rules are effective as of the date of enactment of the CARES Act and provide similar treatment for PPP round two loans, effective for tax years ending after the date of enactment of the provision.
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A Guide To Ppp Loan Forgiveness For The Self Employed
Congress rolled out the Paycheck Protection Program to help small businesses retain jobs and avoid closures. And it workedfor the most part. However, the program initially kinda-sorta forgot about Americas 10 million self-employed workers. Whoops.
Originally, the SBA made PPP loans only available to business owners with employees. Later, they corrected themselves and made it available to sole proprietors and self-employed workers, too, but the processes and guidelines have been poorly explained and disseminated.
If you dont know how PPP loan forgiveness works as a self-employed worker, dont beat yourself upits not your fault. The process is confusing at best and downright frustrating at worst. Fortunately, we can help you out a bit.
Weve compiled everything you need to know about loan forgiveness for the self-employed in this quick-and-easy guide. Well walk you through PPP loan basics, terms for self-employed workers, and how to apply for loan forgiveness.
