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.
Learn how you can prepare for Paycheck Protection Program (PPP) loan forgiveness.
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, and an EZ version and an S version available to borrowers that meet certain criteria. This article focuses on the standard PPP Loan Forgiveness Application. Please refer to the latest guidance from SBA and Treasury and the related Instructions for Borrowers to confirm current program rules and how they apply to your particular situation.
|Note: The amount of the loan forgiveness can be up to the loan principal amount plus accrued interest.
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 $50,000 or less, and if your business along with entities that are its affiliates under SBA’s affiliation rules (as modified by the Interim Final Rule on Applicable Affiliation Rules) received less than $2 million in PPP loans.
- Form 3508EZ. You may use this application if:
- You are self-employed, an independent contractor, or a sole proprietor, 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; or
- 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 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,” 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 Loan Forgiveness Covered Period, 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 Loan Forgiveness Covered Period won’t be forgiven.
Your Loan Forgiveness Covered Period generally begins on the date you received your PPP funds (or if you received them on more than one date, the first date you received PPP funds) and must end no later than December 31, 2020. If you received your PPP loan proceeds from your lender on or after June 5, 2020, your Loan Forgiveness Covered Period is 24 weeks. If you received PPP loan proceeds before June 5, 2020, you can choose to use either an 8-week or 24-week Loan Forgiveness Covered Period.
Alternative Payroll Covered Period: Solely for the purpose of calculating payroll (and certain required reductions), if you are a borrower with a biweekly or more frequent payroll schedule, you may choose an “Alternative Payroll Covered Period” that aligns with your payroll cycle. The Alternative Payroll Covered Period begins on the first day of the first pay period following receipt of your PPP funds. For example, if you received your PPP funds on Monday, April 20, and the first day of your first pay period following receipt of your PPP funds is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26. If you choose to use this alternative period, it applies only to payroll costs and certain required reductions. Please note that your total forgiveness amount depends on other criteria as well. For example, as discussed below, salary, wage, or headcount reductions may reduce the forgivable amount for some borrowers.
Use 60% or more of your PPP funds on eligible payroll costs in order to maximize loan forgiveness.
If you use less than 60% of your PPP funds for payroll costs, you will only be eligible for partial loan forgiveness.
Certain payroll costs are eligible for forgiveness if paid in the Covered Period or, if applicable, the Alternative Payroll Covered Period, or incurred in that time period 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 employer paid compensation for (non-owner) employees whose principal 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 and insurance premiums
- Payment of retirement benefits
- Payment of certain state and local taxes assessed on employee compensation
Qualified sick and family leave wages covered by the Families First Coronavirus Response Act, as well as the employer’s share of certain payroll taxes, 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 an 8-week Loan Forgiveness Covered Period applies, or $46,154 if a 24-week Loan Forgiveness Covered Period applies).
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 limited to (i) for borrowers with an 8-week Loan Forgiveness Covered Period, the 8-week equivalent of their applicable compensation in 2019 (or owner compensation replacement), capped at $15,385, or (ii) for borrowers with a 24-week Loan Forgiveness Covered Period, the 2.5 month equivalent of their applicable compensation in 2019 (or owner compensation replacement), capped at $20,833. These caps apply to each individual in total across all businesses in which they have an ownership stake. Please refer to SBA guidance for additional limits on owner compensation depending on your business type.
Sick and family leave wage equivalents under the Families First Coronavirus Response Act should be excluded from owner compensation and owner compensation replacement.
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 paid during the Loan Forgiveness Covered Period (or incurred during the last pay period of your Loan Forgiveness Covered Period and paid on or before the next regular billing date) are eligible for forgiveness.
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
In order for Schedule C filers to seek forgiveness of these business costs, they must have been deductible on the 2019 Form 1040 Schedule C submitted with the loan application.
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. Whether these factors reduce your forgivable amount depends in part on the version of the forgiveness application you use to apply for forgiveness. 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 Loan Forgiveness Covered Period (or, if applicable, your Alternative Payroll Covered Period) 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 May 1, 2019 and September 15, 2019.
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 the earlier of (i) the date you submit your application for loan forgiveness or (ii) December 31, 2020, or
- Your business was unable to operate between February 15, 2020 and the end of your Loan Forgiveness Covered Period at the same level as before February 1, 2020, due to compliance with certain federal requirements or guidance issued between March 1, 2020 and December 31, 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 and wages 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 Loan Forgiveness Covered Period (or, if applicable, your Alternative Payroll Covered Period) are more than 25% lower as compared to Q1 2020.
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 the earlier of (i) the date you submit your application for loan forgiveness or (ii) December 31, 2020, your loan forgiveness amount will not be reduced due to salary or wage reductions.
Economic Injury Disaster Loan Advance
If you received an advance through the EIDL program, it will be deducted from your forgivable amount on a PPP loan.
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 your forgiveness application before the end of your Loan Forgiveness Covered Period as long as you have used all of the loan proceeds for which you are requesting forgiveness. Keep in mind that if you submit your forgiveness application before the end of your Loan Forgiveness Covered Period, and also have reductions in employee salary or wages, your amount of forgiveness will be determined as if the reductions continued throughout the full Loan Forgiveness Covered Period (whether 24 or 8 weeks).
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 earlier of (1) the end of the 24-week forgiveness covered period; or (2) December 31, 2020, your Deferment Period will end at this time. Interest on your PPP loan will accrue during the Deferment Period.
Once you submit your application for forgiveness, the lender will have 60 days to accept or deny your application.
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. At a minimum, your PPP Loan Forgiveness application must include documents verifying payment of the payroll and non-payroll expenses included in your forgiveness request. 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 or, if applicable, the Alternative Payroll 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 health 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.)
- Business mortgage interest payments: Copy of lender amortization schedule and receipts or canceled checks verifying eligible payments from the Loan Forgiveness Covered Period; or lender account statements from February 2020 and the months of the Loan Forgiveness Covered Period 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 Loan Forgiveness Covered Period; or lessor account statements from February 2020 and from the Loan Forgiveness Covered Period 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 Loan Forgiveness Covered Period and receipts, canceled checks, or account statements verifying those eligible payments.
Although not specifically required by the PPP Loan Forgiveness Application, you should be prepared to provide documentation of any advance received under the CARES Act EIDL Emergency Grant program to your lender. As mentioned above, the amount of any EIDL advance will be deducted from your forgiveness amount.
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 any additional 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.
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.