Paycheck Protection Program loan forgiveness

Note: The Paycheck Protection Program (PPP) offers government-backed, forgivable loans to eligible businesses and organizations. Some or all of the loan may be forgiven if certain requirements are met.

If you're a recipient of a PPP loan, you may apply for forgiveness and have all or part of your loan forgiven if you meet certain requirements.

The uses of the PPP loan proceeds listed below pertain to the forgivable amount of a PPP loan, and are not the only allowable uses of a PPP loan.

Note, the SBA has released three loan forgiveness applications – a standard version available for use by all borrowers seeking forgiveness, a simplified "S" version available for use by borrowers of loans of $150,000 or less, and an EZ version available to borrowers of loans of more than $150,000 that meet certain other criteria. This article focuses on the standard PPP Loan Forgiveness Application.  Please refer to the latest guidance from SBA and Treasury and the forgiveness application and instructions applicable to you to confirm current program rules and how they apply to your particular situation.

Here are some things you should consider:

Which application should my business use?

You may seek forgiveness using one of three different application forms released by the SBA:

• Form 3508S. This is SBA’s simplest application. You may use it if your business’ total PPP loan amount was $150,000 or less.
• Form 3508EZ. You may use this application if your business’ total PPP loan amount was greater than $150,000 and you are able to make certain certifications about your business relating to reductions in employee compensation and other requirements. See the Checklist for Using SBA Form 3508EZ contained in the 3508EZ Application and Instructions for details.
• Form 3508. This is the standard application form. It can be used by all borrowers.

How should I spend my PPP loan if I want it to be forgiven in full?

Use the PPP loan funds within the Loan Forgiveness Covered Period

Each borrower has a Loan Forgiveness Covered Period ("LFCP"), which is the period of time during which you’ll need to use your loan funds if you’re hoping to maximize your forgiveness amount.  You don’t have to use all your loan proceeds during the LFCP, but only eligible costs paid during that period (and certain eligible costs incurred but not paid during that period) are eligible for forgiveness.  Costs incurred after the LFCP won’t be forgiven.

Your LFCP generally begins on the date you received your loan proceeds from your lender, and ends on any date you choose between 8 and 24 weeks after your LFCP start date.

If you use less than 60% of your PPP funds on eligible payroll costs, you will only be eligible for partial loan forgiveness.

Certain payroll costs are eligible for forgiveness if paid in the LFCP or incurred during the last pay period of the LFCP and paid by the next regular payroll date (or in the case of health insurance premiums, by the next regular premium date).

Eligible payroll costs include company-paid compensation for (non-owner) employees whose principal place of residence is in the U.S., including:

• Salary, wages, commissions, or similar compensation, as well as cash tips or equivalent
• Employee benefits, such as paid vacation, parental, family, medical, or sick leave
• Allowance for employee separation or dismissal
• Payments required for the provision of group healthcare benefits or or group life, disability, vision or dental insurance, including insurance premiums
• Payment of retirement benefits
• Payment of certain state and local taxes assessed on employee compensation
• For independent contractors or sole proprietors, wages, commissions, income, or net earnings from self-employment or similar compensation

Payroll costs that are qualified wages covered by the Families First Coronavirus Response Act, as well as the employer’s share of certain payroll taxes, and payroll costs paid to retain employees under the Employee Retention Credit provided for in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, need to be excluded.

Payroll costs are calculated on a gross basis, without subtracting federal taxes that are imposed on the employee or withheld from employees’ wages. For each individual (non-owner) employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000 (i.e. a prorated cap of $15,385 if the minimum 8-week LFCP is used, or $46,154 if the maximum 24-week LFCP is used).

Forgivable loan amounts paid to owner-employees with less than a 5% ownership stake in a C- or S-Corporation, self-employed individuals, or general partners are capped differently, in accordance with SBA rules. Please refer to SBA guidance for additional limits on owner compensation depending on your business type, as well as for additional details about what payroll costs are eligible for forgiveness.

Use up to 40% of funds on other eligible non-payroll business costs

No more than 40% of the forgiveness amount may be attributable to non-payroll costs.

Certain non-payroll business costs are eligible for forgiveness if paid during the LFCP, or incurred during the LFCP and paid on or before the next regular billing date.

Eligible non-payroll business costs include:

• Interest payments on business mortgage obligations for real or personal property incurred before February 15, 2020
• Business rent or lease payments  on lease agreements for real or personal property in force before February 15, 2020
• Business utility payments for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service agreements began before February 15, 2020
• Certain operations expenditures, such as payments for business software or cloud computing services that facilitate business operations, or certain other business-related functions
• Property damage costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that were not covered by insurance
• Vendor costs, including expenditures that a borrower made to a vendor for goods purchased pursuant to a contract, purchase order, or order for goods in effect before the borrower’s covered period that were essential to the borrower’s operations at the time the expense was incurred
• Worker protection expenditures, such as the purchase of personal protective equipment for employees and other operating or capital expenditures to facilitate the adaptation of the borrower’s business activities to comply with federal, state, or local government requirements or guidance with respect to the COVID-19 pandemic

By definition, “personal property” is property you can move, such as a car. “Real property” is property that’s land or attached to land and can’t physically move.

Schedule C and Schedule F filers may only seek forgiveness of these business costs to the extent they are deductible on Form 1040 Schedule C or F.

For more details about non-payroll costs eligible for forgiveness, please refer to SBA and Treasury guidance.

What factors can reduce my forgivable amount?

If you have employees, your loan forgiveness amount may be reduced as a result of reductions to employee headcount or wages. These reductions apply to borrowers that received a PPP loan of more than $50,000, or that together with their affiliates received total first draw loans or total second draw loans of $2 million or more. Please review SBA and Treasury guidance and the specific instructions for the forgiveness application form you are using to understand when these reductions apply.

Reducing the number of employees

Your loan forgiveness amount may be reduced if the average weekly number of full-time equivalent employees you employ during your LFCP is less than the average weekly number of full-time equivalent employees between one of the following reference periods selected by the applicant:

• February 15, 2019 and June 30, 2019, or
• January 1, 2020 and February 29, 2020

Seasonal applicants may choose either of the above reference periods or any consecutive 12-week period between February 15, 2019 and February 15, 2020.

Your loan forgiveness amount will not be reduced based on headcount reductions if either:

• Reductions made between February 15, 2020 and April 26, 2020 are reversed by December 31, 2020 (or by the last day of the LFCP for loans made on or after December 27, 2020); or
• Your business was unable to operate at the same level as before February 15, 2020, due to compliance with certain federal requirements or guidance issued between March 1, 2020 and December 31, 2020 (or not later than the last day of the LFCP for loans made on or after December 27, 2020) related to maintaining standards of sanitation, social distancing, or other work or customer safety requirements related to COVID-19.

In addition, you may exclude a reduction in headcount if you made a good faith, written offer to the employee to restore hours for the same salary or wages and same number of hours as the employee earned during the last pay period prior to reduction, the employee rejected the offer, and you maintained records documenting the offer and rejection. You are also exempted from a loan forgiveness reduction arising from a proportional reduction in FTE employees if you can document in good faith that you were unable to rehire individuals who were your employees on February 15, 2020 and have been unable to hire similarly qualified individuals for unfilled positions. You may also exclude a reduction where an employee is fired for cause, voluntarily resigns, or voluntarily requests a schedule reduction.

Reducing employee salary or wages

Your loan forgiveness amount may be reduced if the average annual salary or average hourly wages for any employee during the LFCP are more than 25% lower as compared to the most recent full quarter during which the employee was employed before the LFCP.

This forgiveness reduction does not apply to reductions associated with employees who received compensation at an annualized rate of more than $100,000 for any pay period in 2019.

If reductions made between February 15, 2020 and April 26, 2020 are reversed by December 31, 2020 (or by the last day of the LFCP for a PPP loan made on or after December 27, 2020), your loan forgiveness amount will not be reduced due to salary or wage reductions.

How do I apply for forgiveness?

If you're a PPP loan recipient, you will submit a PPP Loan Forgiveness Application to your lender or the lender servicing your PPP loan. Once you submit your application, the lender will determine your loan forgiveness eligibility.

You may submit a loan forgiveness application any time on or before the maturity date of the loan. However, a borrower applying for forgiveness of a second PPP loan that is more than $150,000 must submit the loan forgiveness application for its first PPP loan before or at the same time as the loan forgiveness application for its second PPP loan.

You do not need to make any payments on your PPP loan (“Deferment Period”) until you file for forgiveness, and the SBA pays your forgiveness amount to your lender or notifies your lender that you are not eligible for forgiveness. If you do not apply for forgiveness within 10 months from the end of the maximum 24-week LFCP, your Deferment Period will end at this time. Interest on your PPP loan will accrue during the Deferment Period.

If you do not receive full forgiveness of your loan, you will need to pay back any remaining balance on your loan based on the terms of the loan agreement with your lender. The PPP requires that loans made on or after June 5, 2020 have to be repaid within five years from your loan’s disbursement date, and that loans made before June 5, 2020 have to be repaid within two years from your loan’s disbursement date, unless you and your lender agree to extend the payback period to five years.

What documents must I include with my PPP Loan Forgiveness Application or maintain in my files?

Please see the instructions for each SBA application form as documentation requirements differ. In addition, you must maintain but not submit certain documentation. Below is a list of documents required to be submitted with the Form 3508.

Payroll expenses for the Loan Forgiveness Covered Period

•  Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.
•  Payroll tax forms (or equivalent third-party payroll service provider reports) to demonstrate payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941).
•  Tax forms (or equivalent third-party payroll service provider reports) to demonstrate state quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.
• Payment receipts, canceled checks, or account statements documenting the amount of any company contributions to employee group health, life, disability, vision or dental insurance and retirement plans that the borrower included in the forgiveness amount.
•  If applicable, the 2019 Form 1040 Schedule C/F or K-1.

Full-time employees during the reference period selected by the borrower

•  Documentation verifying the average number of FTEs on payroll per week employed by the borrower during the reference period selected by the borrower for purposes of assessing whether a reduction of the forgiveness amount due to an FTE reduction was required.
•  Documents may include payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941) and state quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state. (Documents submitted may cover periods longer than the specific time period.)

Non-payroll expenses

• Business mortgage interest payments: Copy of lender amortization schedule and receipts or canceled checks verifying eligible payments from the LFCP; or lender account statements from February 2020 and the months of the LFCP through one month after the end of that period verifying interest amounts and eligible payments.
• Business rent or lease payments: Copy of current lease agreement and receipts or canceled checks verifying eligible payments from the LFCP; or lessor account statements from February 2020 and from the LFCP through one month after the end of that period verifying eligible payments.
• Business utility payments: Copy of invoices from February 2020 and those paid during the LFCP and receipts, canceled checks, or account statements verifying those eligible payments.
• Covered operations expenditures: Copy of invoices, orders, or purchase orders paid during the Covered Period and receipts, canceled checks, or account statements verifying those eligible payments.
• Covered property damage costs: Copy of invoices, orders, or purchase orders paid during the Covered Period and receipts, canceled checks, or account statements verifying those eligible payments, and documentation that the costs were related to property damage and vandalism or looting due to public disturbances that occurred during 2020 and such costs were not covered by insurance or other compensation.
• Covered vendor costs: Copy of contracts, orders, or purchase orders in effect at any time before the Covered Period (except for perishable goods), copy of invoices, orders, or purchase orders paid during the Covered Period and receipts, canceled checks, or account statements verifying those eligible payments.
• Covered worker protection expenditures: Copy of invoices, orders, or purchase orders paid during the Covered Period and receipts, canceled checks, or account statements verifying those eligible payments, and documentation that the expenditures were used by the Borrower to comply with applicable COVID-19 guidance during the Covered Period.

Additional documentation you'll need to maintain

Please see the instructions to the applicable PPP loan forgiveness application (3508, 3508EZ, or 3508S) for a list of documents that borrowers must retain, and the amount of time that such documents must be retained. Note that there are separate documentation requirements relevant to each application.

It looks like I need to pay back some of my loan. How and when do I pay?

When you submit your complete application, your lender will review it within 60 days before submitting their forgiveness decision to the SBA. The SBA has 90 days after the lender submits your application to issue a final determination. When the lender hears back from the SBA, they'll contact you and include all the details on how to make payments.

Paycheck Protection Program (PPP) loans offered within QuickBooks Capital may be made by Intuit Financing Inc. (d/b/a QuickBooks Capital) or by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC. QuickBooks Capital is licensed as Intuit Financing Inc. (NMLS # 1136148), a subsidiary of Intuit Inc. In California, loans are made or arranged under CFL Licensed #6054856. Minimum loan amount varies by state. Intuit Financing Inc., (d/b/a QuickBooks Capital) is an authorized SBA Paycheck Protection Program Lender.

Regulations and guidance from the SBA and the U.S. Department of the Treasury on the PPP are evolving rapidly and the above information may be outdated.  Please refer to the latest guidance from SBA and Treasury to confirm current program rules and how they apply to your particular situation. Loan and forgiveness calculations and eligibility may vary. Refer to the SBA.gov for information about your particular situation.

The funding described is made available to businesses located in the United States of America and is not available in other locations.

This content is for information purposes only and should not be considered legal, accounting or tax advice, or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Intuit Financing Inc. (d/b/a QuickBooks Capital) does not have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Intuit Financing Inc. (d/b/a QuickBooks Capital) does not warrant that the material contained herein will continue to be accurate nor that it is completely free of errors when published. Readers should verify statements before relying on them.