Under the Paycheck Protection Program (PPP) created by the CARES Act, loans may be forgiven if borrowers use the proceeds to maintain their payrolls and pay other specified expenses. Congress recently changed the rules regarding loan forgiveness. The Treasury Department and Small Business Administration are responsible for updating the application form and instructions for loan forgiveness. You can find the most up-to-date information at: https://www.uschamber.com/sites/default/files/uscc_ppp_forgiveness-guide.pdf
PPP borrowers must apply for loan forgiveness with the lender that processed the loan. This guide is designed to help borrowers understand the process by which their loan forgiveness amount will be calculated and the overall approach of the loan forgiveness process.
The process to calculate the amount of loan forgiveness requires three steps: 1. Determine the maximum amount of possible loan forgiveness based on the borrower’s expenditures during the 24 weeks after the loan is made; 2. Determine the amount, if any, by which the maximum loan forgiveness will be reduced because of reduced employment or reduced salaries and wages; and3. Apply the 60% rule that requires that at least 60% of eligible loan forgiveness expenses go towards payroll costs.
Expenses Qualifying for Loan Forgiveness:The following expenses incurred or paid by the borrower during the 24 weeks following loan origination (see below for determining the 24-week period) are eligible for forgiveness:••Payroll Expenses, defined as:•• Compensation (not exceeding $46,154 per employee) in the form of: gross salary, gross wages, gross commissions, and gross tips, vacation, parental, family, medical, or sick leave (other than leave for which the employer was reimbursed under the Families First Coronavirus Response Act), and allowance for separation or dismissal;•• Employer contribution for employee group health care coverage;•• Employer contribution for employee retirement plans; and•• Payment of state and local taxes assessed on compensation of employees. Note: For an independent contractor or sole proprietor, payroll costs only include wages, commissions, income, or net earnings from self-employment, or similar compensation.••Non-Payroll Expenses, defined as:•• Mortgage interest payments for the business on real or personal property (debt incurred before February 15, 2020);•• Rent or lease payments for the business on real or personal property (lease in force before February 15, 2020); and•• Utility payments for the business for electricity, gas, water, transportation, telephone, or internet access (service began before February 15, 2020).Note: For an independent contractor or sole proprietor, you must have claimed or be entitled to claim a deduction for these expenses on your 2019 Form 1040 Schedule C in order to claim them as expenses eligible for PPP loan forgiveness in 2020.
1B.Identifying Your 24-Week Period:The 24-week period during which expenses must be incurred or paid:••The 24 weeks (168 days) beginning on the day the PPP loan was disbursed or••For borrowers with a biweekly (or more frequent) payroll schedule, the 24 weeks (168 days) beginning on the first day of the first pay period following the PPP loan disbursement.Tip: If you are using an online date calculator, remember to count the date of the disbursement of the loan as part of the 168 days. For example, if the loan was disbursed on April 20, the last day of the 168 days would be October 4).