PPP Loan Forgiveness

The PPP loan was a saving grace that relieved some stress - until we all realized it was being interpreted very differently. The government has tried to clear some of the fine print up, the rules changing has not made it much easier, but we know there are a few things we can rely on when it comes to PPP Loan Forgiveness.
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In the last few months, our vocabulary has expanded and shifted quite a bit. Self-distancing, economic relief, cares act, the curve….we have digested a lot. If you are a business owner you may be paying extra special attention to the news in hopes of some good news, any good news.

Table of Contents:

  • Payroll Costs

  • The Unforgiven Loan

  • Time Limit

  • Trouble Rehiring

  • Document Everything


Payroll Costs 

You have likely heard of how the bulk of this loan should be for payroll expenses (75% to be exact). For some businesses, this is going to be cut and dry, but for others that incorporate commissions or irregular schedules, you may be nervous about how this affects your loan forgiveness.

Yes, payroll costs that have been paid are forgivable. This has been extended to include payroll costs that have been incurred BUT possibly not paid just yet. For example, say an employee receives a commission that has been incurred. If that commission is not due to the employee till the end of the 2nd quarter, (incurred, not paid) then this is acceptable. 


The Unforgiven Loan

The government has worked to clarify what expenses are and are not forgivable. If despite this guidance, you decide to use some of the cash to pay for expenses that were identified as unforgivable, then it becomes a low-interest loan.  

The low-interest loan can have a rate of as little as 1%, with no prepayments for the first 6 months, and payback over the course of two years.


Time Limit

From when you receive the funds, businesses are allowed 8 weeks to spend the loan. If the funds are not spent within that time then they will not be considered forgivable.


Trouble Rehiring 

When businesses were forced to shut down, employers did not necessarily want to lose their employees. So many had promised them their jobs back when things were up and running again.

The issue some employers are now finding is employees are hesitant to come back due to making more money in unemployment or they are worried about their safety when at work. For those employers that have trouble bringing back employees, they will not be penalized.


Document Everything 

Documentation is how you are going to prove you are eligible for forgiveness. If you aren’t sure whether you should keep a certain receipt or paystub, know it never hurts! 

Be sure to hold them in a secure location, whether that be online file storage like Box or in a secure physical location. Guidance suggests holding onto documents for a minimum of 6 years. This will allow for enough time to pass if an audit is necessary or to obtain complete loan forgiveness.


All these bullet points considered, the PPP Loan is not as simple as we once thought. This definitely does not mean it isn’t useful! If you are a small business in need of cash to help get you and your employees through this time, the PPP Loan can be just the relief you need. 

Keeping these items in mind, you will also be required to make a few calculations such as eligible payroll costs, eligible non-payroll expenses, and full-time employee and wage reductions. Luckily, we have accountants standing by to help walk you through the details of each one, ensuring your documents are tidy and you are aware of where you stand with the loan forgiveness.

Schedule a consultation with us to learn how to calculate your eligible payroll costs

This publication is designed to provide information on federal tax and accounting laws and/or regulations. It is presented with the understanding that the author is not rendering legal or accounting services.

This text is not intended to address every situation that arises or provide specific, strategic tax and/or accounting planning advice. This text should not be used solely to answer tax and/or accounting questions and you should consult additional sources of information, as needed, to determine the solution to tax and/or accounting questions.

This text has been prepared with due diligence. However, the possibility of mechanical or human error does exist and the author accepts no responsibility or liability regarding this material and its use. This text is not intended or written by the practitioner to be used and cannot be used by a taxpayer or tax return preparer, for the purpose of avoiding penalties that may be imposed.

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