Payroll Protection Program Forgiveness
The Paycheck Protection Program (PPP) ended on May 31, 2021, however, existing borrowers may be eligible for PPP loan forgiveness.
First Draw PPP loans qualify for full forgiveness if, during the 8-24 week covered period following loan disbursement:
- Employee and compensation levels are continued
- The loan proceeds are spent on payroll costs and other eligible expenses; and
- A minimum of 60% of the proceeds spent on payroll costs
Second Draw PPP loans qualify for full forgiveness if, during the 8-24 week covered period following loan disbursement:
- Employee and compensation levels are continued in the same manner as required for the First Draw PPP loan
- The loan proceeds are spent on payroll costs and other eligible expenses; and
- A minimum of 60% of the proceeds spent on payroll costs
How and When to Apply for Forgiveness (according to the SBA website)
- A borrower can apply for forgiveness once all loan proceeds for which the borrower is requesting forgiveness have been used.
- Borrowers can apply for forgiveness any time up to the maturity date of the loan.
- If borrowers do not apply for forgiveness within 10 months after the last day of the covered period, then PPP loan payments are no longer deferred, and borrowers will begin making loan payments to their PPP lender.
The steps to applying for forgiveness:
- Contact your PPP lender and complete the correct form or application for borrowers who meet specific requirements. Your lender can provide you guidance.
- Compile your documentation. This will include payroll (provide documentation for all payroll periods that overlapped with the Covered Period), nonpayroll (for expenses that were incurred or paid during the Covered Period and showing that obligations existed prior to February 15, 2020 for some of the services).
- Submit the forgiveness form and documentation to your PPP lender.
- Continue to communicate with your lender throughout the process.
PPP History
The CARES Act, passed in the early days of the COVID-19 pandemic, established the Payroll Protection Program (PPP) to help employers cover their payrolls during the resulting economic downturn. The program was open to almost every U.S. business with fewer than 500 employees affected by the pandemic.
Generally, the loans are 100% forgivable if the proceeds are allocated on a 60/40 basis between payroll and eligible nonpayroll costs. While the latter initially were limited to mortgage interest, rent, utilities and interest on any other existing debt, the Consolidated Appropriations Act (CAA), enacted in late December 2020, expanded the qualifying nonpayroll costs. They now include, for example, certain operating expenses and worker COVID-19 protection expenses.
The CAA also provided another $284 billion in funding for forgivable loans for both first-time and so-called “second-draw” borrowers. The second-draw loans are restricted to smaller and harder-hit businesses. In addition, the CAA established a simplified, one-page forgiveness application for loans up to $150,000. It clarified that PPP borrowers aren’t required to include any forgiven amounts in their gross income for tax purposes and that borrowers can deduct otherwise deductible expenses paid with forgiven PPP proceeds.
Under the America Rescue Plan Act (ARPA), Nonprofit organizations and online news services received expanded PPP eligibility.
SBA Resources
More information about loan forgiveness may be found HERE.
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