A Guide to Earning Maximum Forgiveness on Your PPP Loan

The Paycheck Protection Program (PPP) is a complicated, seemingly ever-changing process. From applying for and receiving the loan, to getting the loan forgiven, several important steps need to be taken in order to ensure you’re getting the most out of this legislation and possibly not having to pay back any of the loan amount. When the PPP Flexibility Act was passed, modifications were made to the original loan forgiveness part of this process. We are going to walk you through each those modifications and offer insight on how they can benefit you and your business.

Length of PPP Forgiveness Period Extended

One of the major modifications made by the PPP Flexibility Act is the length of the forgiveness period. Originally, every loan recipient received an 8-week forgiveness period, beginning the date the funding was received and ending 55 days later. During this period 75% of the funding must have been used to cover eligible payroll costs while a maximum of 25% could have been used for non-payroll costs. Anything over 25% for non-payroll costs would result in the individual not receiving 100% of their loan forgiveness.

Now, with this new legislation, that forgiveness period has been extended to 24 weeks, also beginning the date the funding was received. The new 24-week period also comes with new percentages. Only 60% of the loan must be used to cover eligible payroll costs, not 75%—meaning up to 40% of funding can be used for non-payroll costs in order to receive full forgiveness. If any LESS than 60% of the loan is used to cover eligible payroll costs, then the forgiveness amount will be reduced proportionately. We told you this modification was major.

Let’s take a closer look at this bill to better understand how it affects YOU.

As you know, PPP was enacted to provide emergency funding to businesses negatively impacted by COVID-19. This funding is intended to help those businesses continue payroll and related benefits and cover certain overhead costs during the pandemic. If everything is navigated correctly, you can achieve 100% forgiveness on this loan and never pay back a cent, but it requires a lot of attention to detail.

Tracking Your PPP Eligible Expenses

We recommend downloading one of our PPP Trackers to stay on top of all your expenses. Choose between the 8-Week PPP Tracker and the 24-Week PPP Tracker. If you’re unsure which one you will need, keep reading or go ahead and download both.

The difference between the two trackers is the length of the forgiveness period. This is the time during which expenses must be incurred and/or paid in order to be eligible for forgiveness. Anyone who received funds before the PPP Flexibility Act was passed (June 5, 2020) had the option to choose between a forgiveness period of 8 weeks or 24 weeks. If you received funds after the new legislation, you must use the 24-week forgiveness period. There is, however, an Alternative Payroll Covered Period specifically for eligible payroll costs. This applies only to employers with a payroll frequency of every 2 weeks or more. There is no alternative period option for non-payroll costs. So, even if you use the Alternative Payroll Covered Period for your eligible payroll costs, you will still have to use either the 8-week or 24-week period to calculate your non-payroll costs.

How the PPP Loan Forgiveness Process Works

  • Choose Your Time Frame (8 Weeks or 24 Weeks)
    Now that we’ve discussed all the changes made to PPP under this new law, it’s time to talk about the loan forgiveness process. First, if applicable, you’ll want to determine whether to use the 8-week or 24-week forgiveness period. This is where those PPP Trackers we mentioned earlier can really come in handy. One of these periods may result in more forgiveness than another, and the goal is to maximize that forgiveness amount as much as possible. The good news is that you have some time to decide. Your forgiveness application (3508 or 3508EZ) is not due to your lender until 10 months after the last day of your covered period. While we certainly do not encourage waiting that long to file, we do want to call attention to the fact that you have time. To help determine which period to use, our advice is to go ahead and start calculating forgiveness for both.
  • Calculate Your Full-Time Equivalent (FTE) Employees
    Start by calculating the number of full-time equivalent (FTE) employees you have during the lookback period vs. the covered period. Remember, an FTE is an employee who works an average of 40 hours per week. Employees who work more than 40 hours are still considered 1 FTE. Any employees working less than 40 hours on average are considered part-time. Part-time employees are counted as a percentage of an FTE based on their hours worked OR can be counted with the simplified method where each part-time employee equals 0.5 FTE.
  • Accumulate Payroll and Non-Payroll Costs Eligible for Forgiveness
    Next, accumulate payroll and non-payroll costs eligible for forgiveness along with any and all supporting documentation. Again, a great reason to use our 8-week or 24-week trackers. Then, prepare your 3508 or 3508EZ form to submit to your lender within 10 months of the last day of your covered period, as previously stated. Your lender has 60 days after receipt of your application to review and submit a decision regarding forgiveness to the SBA. The SBA then has 90 days to review and submit a decision to the lender. All in all, you will receive word about your forgiveness in no more than 150 days of submitting your application.

Possible PPP Forgiveness Reductions

While we outlined some forgiveness guidelines at the start of this article, in regard to percentages of funds spent, there are some possible forgiveness reductions of which you should be aware. First and foremost, reduction in wages mean a reduction in forgiveness.

If employers have reduced employee salaries by more than 25% during the covered period, compared to the employee’s wage level from January 1 to March 31, 2020, they may be subject to reduced forgiveness. If employers have reduced FTE employees compared to either January 1 to February 29, 2020 OR February 15 to June 30, 2020, then they may be subject to reduced forgiveness. Please note that an employer who has a reduction in FTE employees that results in a reduction in wages will NOT be penalized for both reductions.

However, there are a few exemptions to these reductions. Employers can be exempt from reductions if they:

  • Eliminate the reduction in FTE employees or salary wages by June 30 (8-week forgiveness period) or December 31 (24-week forgiveness period), then they can be deemed exempt from reductions.
  • Can document the inability to rehire individuals who were employed on February 15 of this year, the inability to rehire qualified individuals by December 31, or the inability to return to the same level of business activity as before February 15, then they can be deemed exempt from reductions.
  • Can document a reduction in FTE employees as a result of an employee refusing to return to work, so long as the employer made a good faith offer for the same wages and hours, or if the employer can demonstrate that an employee resigned, was fired for cause, or requested a reduction in hours.

Phew! Talk about a lot of information. If at any point in this process you feel overwhelmed, we strongly encourage you to contact a CPA. The entire team at DeAnna Ford, CPA is available to provide advice and assist you through this extremely difficult time. As always, changes in legislation are still being made and the understanding of this process is ongoing.

Please contact us at 704-935-5431 with any questions or concerns you have related to PPP. We’re here to help.

*This material is for guidance and reference purposes only. It is not intended to be all inclusive or to constitute accounting, legal or professional advice. Users of this material should not consider this material as authoritative. This material is based on the authors’ opinions and interpretations based on available resources at the time of creation. Updated interpretations and clarifications should be expected in the coming days and weeks that may clarify or contradict information included herein. Users of this material have not entered into an engagement with the Authors, DeAnna Ford, CPA. Users should engage professionals to assist with their specific situation and needs.

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