Over the course of 2020, the rules related to PPP forgiveness application have changed.

Some revisions have made the process easier for businesses with smaller loan amounts.

The latest stimulus relief bill passed in December of 2020 had two provisions that could help people with smaller loan amounts.

So in this post, we’re going to cover those two important changes and then dive into some frequently asked questions from the SBA.

Basic PPP Rules

Let us first discuss the basic PPP rules that have been established.

• For loans of $150,000 or less

The PPP revisions allow these borrowers to complete a modified one-page forgiveness application form. The form is still in the process via the SBA.

• For loans of $50,000 or less

The SBA form 3508S is a simplified application form that for the most part requires the business owner to answer some questions.

Changes in EIDL and PPP Loan Forgiveness

Now, what has changed?

So in the stimulus bill passed in December, one of the major changes was around the EIDL or Economic Injury Disaster Loan and PPP loan forgiveness.

Originally, if your business had been a recipient of an EDIL grant, the amount of their PPP loan eligible for forgiveness would have been reduced by the amount of the grant.

However, the latest bill does away with this provision, and PPP forgiveness is no longer impacted by having received an EIDL grant.

So if you applied for both grants, then that means you could have received two grants for your business in 2020.

And even though a lot of our businesses struggled, this stimulus definitely helped us stay afloat last year.

Perhaps the most important part of the December 2020 stimulus surrounds the ability to deduct the expenses that the PPP loan was used to cover for federal tax purposes.

The IRS had previously opposed this referring to it as double-dipping. This is a big deal for your business and will potentially save you a lot of money at tax time.

While the latest stimulus bill resolved the issue of federal tax-deductibility of these expenses, the ability to deduct these expenses at the state level was not covered.

Each impacted business owner will need to review this issue based on their state’s rules.

So those were, in our opinion, the two biggest rule changes as it relates to your PPP forgiveness and overall tax situation.

We’ll now move on to the documents you need for the PPP forgiveness application.

What You Need For Your PPP Forgiveness Application

Now let’s talk about those PPP forgiveness applications.

First of all, there are a lot of people that are delaying getting their application done. And we know there are hundreds of other things to be worried about right now.

But, if you ignore this, your PPP loan will remain a loan and you could miss out on free money.

This is like a grant and if you don’t complete the application in time then you will likely regret it if it becomes a loan.

Now technically you still have plenty of time.

The deadline to apply for your PPP loan is within 10 months after the last day of the covered period.

A quick side note here, if don’t know what a covered period is, it simply means 8 or 24 weeks from the day you received the loan.

And you can choose which period to use and match it up with your payroll which is called the alternative covered period.

Now, if borrowers do not apply, OR if the SBA determines that the loan is not eligible for forgiveness (in whole or in part), the payments on the PPP loan are no longer deferred and the borrower must begin paying principal and interest.

So many lenders recommend taking a full 24 weeks, to give yourself enough time to qualify for full loan forgiveness.

However, you should know that waiting might increase the amount of interest you need to pay with respect to any part of the loan not being forgiven.

FAQs About PPP Forgiveness Application

Now, these questions are just some frequently asked questions directly from SBA, which we assume are the questions most people want to know the answers to.

Question #1:

Which loan forgiveness application should sole proprietors, independent contractors, or self-employed individuals with no employees complete?

These individuals who had no employees at the time of the PPP loan application and did not include any employee salaries will automatically qualify to use the loan forgiveness application form 3508EZ or lender equivalent and should complete that application.

Question #2:

The PPP loan forgiveness application forms (3508, 3508EZ, and 3508S) display an expiration date of 10/31/2020 in the upper-right corner. Is October 31, 2020 the deadline for borrowers to apply for forgiveness?

The SBA directly says that borrowers may submit a PPP forgiveness application any time before the maturity date of the loan, which is either two or five years from loan origination.

But keep in mind that after 10 months, you still need to pay interest and principal.

Question #3:

Are payroll costs that were incurred BEFORE the covered period, but paid during the covered period eligible for loan forgiveness?

The answer is yes.

For example…

If your covered period starts on April 20th, but your payroll cycle ends on April 18th and you made the payment for that cycle on April 24th, then that payment will be eligible for loan forgiveness because they were paid during the covered period.

Question #4:

For purposes of calculating cash compensation, should borrowers use the gross amount before deductions for taxes, employee benefits payments, and similar payments? Or the net amount paid to employees?

The gross amount (which is before any contributions or taxes) should be used when calculating cash compensation to employees.

Question #5:

Are salaries or wages the only ones covered by loan forgiveness? Or can a borrower pay lost tips, lost commissions, bonuses, or other forms of incentive pay and have such costs qualify for loan forgiveness?

Payroll costs include all forms of cash compensation paid to employees, including tips, commissions, bonuses, and hazard pay.

Note that forgivable cash compensation per employee is limited to $100,000 on an annualized basis.

Question #6:

How is the amount of owner compensation that is eligible for loan forgiveness determined?

This is a difficult question to answer because the amount of compensation of owners who work at their business depends on the business entity type.

Businesses range from C Corp, LLC, Partnership, etc. and it depends on whether you are using an 8 or 24 week covered period.

However, at the highest level, the amount of loan forgiveness applied for owner-employees and self-employed individuals’ payroll compensation is capped at $20,833 per individual.

And that is in total, across all businesses in which they have an ownership stake in.

If the total compensation across businesses that receive a PPP loan exceeds the cap, then owners can choose how to allocate it based on the business entities.

Question #7:

Are nonpayroll costs incurred prior to the covered period, but paid during the covered period, eligible for loan forgiveness?

The answer is yes,

Eligible business mortgage interest costs, eligible business rent or lease costs, and eligible business utility costs incurred prior to the covered period and paid during the covered period are eligible for loan forgiveness.

Question #8:

Will a borrower be subject to a reduction to its forgiveness amount due to a reduction in full-time employees during the covered period if the borrower offered to rehire one or more laid off employees but the employees declined?

If you are able to document in good faith that:

1. You had an inability to rehire individuals who were employees of the borrower on Feb 15, 2020.
2. There was an inability to hire similarly qualified individuals for unfilled positions on or before December 31, 2020.

If this is the case, you need to inform your state unemployment insurance office of any employee’s rejected rehire offer within 30 days of the employee’s rejection.

Then you need to maintain documents such as a written offer to rehire an individual, a written record of the offer’s rejection, and a written record of efforts to hire a similarly qualified individual.

So there you have it, we gave you some quick updates for the PPP forgiveness application in 2021.

If you need more assistance with your financial management or tax filings, we’ve got your back. Contact us today to get started!