PPP Loan Forgiveness: New SBA FAQs
The SBA has released more guidance FAQs about PPP loan forgiveness. The highlights are summarized below.
Application Forms
Sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of their PPP loan application and didn’t include any employee salaries in the computation of average monthly payroll should use the 3508EZ Forgiveness Application form
Lenders are permitted to accept forms with E-signatures that comply with electronic signature requirements
Payments & Interest
Borrowers do not need to make any payments on their loan while the forgiveness application is being processed so long as they submit the forgiveness application promptly
Interest on the loan accrues during the time between the disbursement of the loan and the SBA remittance of the forgiveness amount. The borrower is responsible for paying the accrued interest on any amount of the loan not forgiven
Cash Compensation Calculations & Owner Compensation
For purposes of calculating cash compensation, borrowers should use the gross amount before deductions for taxes, benefits, etc.
The amount of owner compensation eligible for loan forgiveness depends on the business type and whether the borrower chose an 8-week or 24-week Covered Period
Owner compensation is capped at $15,385 for an 8-week Covered Period;
Owner compensation is capped at $20,833 for a 24-week Covered Period;
If total compensation across businesses that receive a PPP loan exceeds the cap, owners can choose how to allocate the capped amount across different businesses;
Owner compensation: Examples below use a 24-week Covered Period:
C-Corp:
Employee cash compensation for an owner-employee is eligible for forgiveness for up to 2.5/12 of their 2019 employee cash compensation;
Eligible for forgiveness for employer state and local taxes paid by the borrower and assessed on their compensation;
Eligible for the amount paid by the borrower for employer contributions for their employees’ health insurance;
Eligible for employer retirement contributions to employee retirement plans capped at 2.5/12 of their 2019 employer retirement contribution;
Payments other than for compensation should be included on lines 6-8 of PPP Schedule A and do not count towards the $20,833 cap per individual;
S-Corp:
Employee cash compensation for an owner-employee is eligible for forgiveness for up to 2.5/12 of their 2019 employee cash compensation;
Eligible for forgiveness for employer state and local taxes paid by the borrower and assessed on their compensation;
Eligible for employer retirement contributions to employee retirement plans capped at 2.5/12 of their 2019 employer retirement contribution;
Employer contributions for health insurance are not eligible for additional forgiveness for S-Corp employees with at least a 2% stake in the business, including employees who are family members of at least 2% owner because those contributions are included in cash compensation;
Eligibility for non-cash compensation payments should be included on lines 7 & 8 of PPP Schedule A and do not count toward the $20,833 cap per individual;
Self-Employed Schedule C (or Schedule F) filers:
The compensation of self-employed individuals, including sole proprietors and independent contractors, eligible for loan forgiveness is limited to 2.5/12 of 2019 net profit as reported on IRS Form 1040 Schedule C line 31 (or 1040 Schedule F line 34);
Separate payments for health insurance, retirement, or state and local taxes are not eligible for additional loan forgiveness as expenses paid out of net self-employment income;
2019 IRS Form 1040 Schedule C (or F) must be included with the forgiveness application if not included with the original PPP application;
General Partners:
Compensation of a general partner eligible for forgiveness is limited to 2.5/12 of the 2019 net earnings from self-employment; Compensation is subject to self-employment tax computed from the 2019 IRS Form 1065 Schedule K-1 box 14a (reduced by box 12 section 179 expense deduction, unreimbursed partnership expenses deducted on their IRS Form 1040 Schedule SE, and depletion claimed on oil and gas properties) multiplied by 0.9235;
Compensation is only eligible for forgiveness if the payments to partners are made during the Covered Period (or Alternative Covered Period);
Payments for health insurance, retirement, or state and local taxes are not eligible for additional loan forgiveness;
If the partnership didn’t submit its 2019 IRS Form 1065 K-1s when applying for the loan, it must be included with the forgiveness application;
LLC Owners:
Follow the instructions for how your business was organized for tax filing purposes for 2019 (or if new, the expected tax filing situation for 2020)
Non-Payroll Costs & Expenses
Interest on unsecured credit is not eligible for loan forgiveness. Only payments of interest for business mortgages on real or personal property (such as an auto loan) are available for forgiveness
Interest on unsecured credit incurred before February 15, 2020, is a permissible use of the PPP loan proceeds, but the expense is not eligible for forgiveness;
Payment of transportation utility fees assessed by state and local governments are eligible for forgiveness
The entire electricity bill payment is available for loan forgiveness even if electricity supply charges are invoiced separately from electricity distribution charges
Calculating FTE & Salary Reductions/Exemptions
When calculating the FTE Reduction Exemptions in Table 1 of PPP Schedule A Worksheet, borrowers should also include employees who made more than $100k/year
For purposes of calculating the loan forgiveness reduction required for salary/hourly wage reductions in excess of 25%, the borrower should only take into account decreases in salaries or wages, not other forms of compensation