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PPP Loan Forgiveness Application Form Released

Posted by Keith Hughes on May 16, 2020 12:14:39 PM

Close up of businessperson hand holding money bags

Alas, the SBA released on May 15, 2020 the Paycheck Protection Program (PPP) Loan Forgiveness Application along with detailed instructions.  The application and its instructions address some of the questions that have to this point remained unanswered.  Notably, the instructions include the following which seem to provide some clarification and flexibility in calculating the forgiveness amount:

  1. Borrowers have the option of picking an 8-week payroll period from one of the following two covered periods:

    1. “Covered Period” – the 8-week (56-day) period which begins the day the PPP loan proceeds were received, or

    2. “Alternative Payroll Covered Period” – if payroll cycle is bi-weekly or more frequent, may elect to use the 8-week (56-day) period that begins on the first day of their first pay period following the day the PPP loan proceeds were received.

  2. Payroll costs “paid” vs. “incurred” question – the instructions state that payroll costs incurred but not paid during the last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date.  Otherwise, payroll costs must be paid during the Covered Period (or Alternative Payroll Covered Period).  Either way, it appears the 8-week amount will end up being based on amounts actually paid either during the 8-week period or shortly thereafter.

  3. Nonpayroll costs “paid” vs. “incurred” question –  for these costs, the instructions state that they must be either paid during the Covered Period (note: there is no alternative covered period for nonpayroll costs), or incurred during the Covered Period and paid on or before the next regular billing date (even if the billing date is after the Covered Period).  Either way, it appears the 8-week amount will end up being based on amounts actually paid either during the 8-week period or shortly thereafter.

  4. Employer contributions to a self-insured health plan are listed as costs eligible for “employer contributions for employee health insurance”.

  5. Compensation paid to owners (owner-employees, a self-employed individual, or general partners) – the instructions state that any amount paid to these individuals during the 8-week covered period is capped at the lesser of:

    1. $15,385 ($100,000 x 8/52), or

    2. The 8-week equivalent of their applicable compensation in 2019

      Note: the above appears to indicate that a borrower cannot pay an owner-employee, self-employed individual or general partner an annualized compensation of $100,000 during this 8-week covered period if such person was not paid that much in annualized compensation during 2019.

  6. Full-time equivalency (FTE) – the instructions state that an FTE is one who works an average of 40 hours per week.  The borrower may also elect to use a simplified method that assigns a factor of 1.0 for employees who work at least 40 hours per week and 0.5 for employees who work fewer hours per week.

  7. FTE Reduction Exceptions – the instructions state that a borrower will not have to reduce its loan forgiveness for any reductions to FTE employees to the extent:

    1. Written offers for rehire were made, but rejected by the employee; and

    2. Any employees who during the Covered Period or the Alternative Payroll Covered Period:

      1. Were fired for cause,

      2. Voluntarily resigned, or

      3. Voluntarily requested and received a reduction of their hours.

  8. FTE Reduction Safe Harbor – borrowers are exempt from a reduction to their loan forgiveness if both of the following conditions are met:

    1. Borrower reduced its FTE employee levels in the period beginning February 15, 2020 and ending April 26, 2020; and

    2. Borrower restored its FTE employee levels by not later than June 30, 2020 to its FTE employee levels in the Borrower’s pay period that included February 15, 2020.

And the above is just on page 1!  Kidding…the announcement also stated that the SBA will “soon issue regulations and guidance to further assist borrowers as they complete their applications…”.  The application and instructions are a good start addressing many of the questions we have all had up to this point. 

As always, please reach out to us at Meaden & Moore and your other trusted advisors so we can assist you through the next phase of this process.

Topics: Tax Planning & Strategies, Small Business, Accounting & Auditing, Accounting and Tax Resource, COVID-19

Keith Hughes

Keith Hughes

Keith Hughes is a Vice President in Meaden & Moore’s Tax Services Group. With 25 years of experience, he is skilled in managing the complex tax issues and transactions that his clients encounter when making financial and business decisions. He also has extensive experience in the areas of trust and estate tax planning.