PPP Loan Forgiveness

Denise Henning

NOTE: The information on this page is dynamic and may have been updated since the date of this post. Please check for updated information on this blog or the reference sources.

It is here! The guidance so many of you have been waiting for…the details necessary to make sure your Payroll Protection Program (PPP) loan is forgiven are now available.

From the outset, I advised my clients to document, document, document how PPP funds are being used. Those who followed this advice now have an advantage—the PPP Loan forgiveness process will be simpler and faster to complete.

Critical news recently released regarding PPP loan forgiveness includes clarification of the forgiveness period, eligible expenses, and necessary required documentation. Here is what we now know: a confirmed eight-week forgiveness window exists that begins on your PPP loan disbursement date. The only potential adjustment to the 56-day forgiveness window is the “Alternative Payroll Covered Period,” which applies to companies with a biweekly or more frequent pay cycle. (On a side note, legislation has been introduced to adjust the PPP loan forgiveness period for businesses that have been unable to operate due to state closure orders. This prospective legislation, however, is not current law.)

Below is a summary of the eligible expenses included in the forgiveness program along with methods of computation and required documentation most borrowers are required to submit with their forgiveness application.

Eligible Expenses and Documentation Requirements for PPP Loan Forgiveness
  • Payroll – Two methods are available to compute your payroll costs. The first method begins the day you received your loan proceeds. The second method uses the eight-week (56-day) period of forgiveness that begins the first pay period following your loan disbursement date. The documentation necessary for both methods includes bank account statements or third-party payroll services provider reports and tax forms.
  • Health Insurance – Costs for employer contributions for health insurance, including employer contributions to self-insured and employer-sponsored group plans are eligible for forgiveness. The required documentation options for these costs include payment receipts, canceled checks, or account statements showing the employer’s contribution.
  • Retirement Plan – Only employer contributions are included in this amount. The necessary documentation required for these costs includes payment receipts, canceled checks, or account statements showing the employer’s contribution.
  • State and Local Payroll Taxes – This expense includes amounts paid by the employer only and is assessed based on employee compensation such as state unemployment insurance. Accepted documentation of these costs is state quarterly business and individual employee wage reporting and unemployment insurance tax filings.
  • Eligible Nonpayroll Costs – Documentation is required for each of these to ensure the obligation was incurred, in force, or in service prior to February 15, 2020.
    • Mortgage Obligations – interest payments that are documented with an amortization schedule and receipts, canceled checks, or lender account statements verifying interest amounts and eligible payments.
    • Rent Obligations – payments of business rent or lease are to be documented by a copy of the current lease agreement and receipts or canceled checks verifying the eligible payments or an account statement from the lessor.
    • Utility Payments – business payments for electricity, gas, water, transportation, telephone, or internet access. Document these costs by providing copies of invoices from February 2020 and those paid during the covered period require canceled checks, receipts, or account statements verifying eligible amounts.
Other Need-to-Know Details

For organizations that reduced their employee count and/or payroll costs, an additional calculation is necessary to determine the number of payroll costs eligible for forgiveness. This calculation is defined more clearly in the application, and you should seek assistance if you have any questions.

Additionally, the greater than $100,000 cap on annual salary applies, and a separate calculation is necessary to ensure your submitted payroll costs do not include any payment to an employee who earns more than the allowable $100,000.

Nonpayroll costs are limited to 25 percent of the forgiveness amount and should be reported as paid or incurred only once. Do not count both the incurred amount and associated payment amount. This will typically mean that only two payments of each non-payroll cost item will be included in the non-payroll cost amount. 

Truly, it is critical that you work with your banker, CPA, or other trusted advisor if you have any concerns regarding applying for PPP Loan forgiveness. The past months have been challenging for all of us and it is my hope that each of you reading this will receive the maximum amount of forgiveness available to you.

The PPP Loan forgiveness application, supplement forms, and detailed instructions can be found in this PDF link from the Treasury’s website. As always, we are available to assist with anything you may need.