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What You Need to Know About the SBA PPP Loan Forgiveness Application


With the moving target that is the details on the SBA’s Payroll Protection Program, it should come as little surprise clients that were able to get it now wonder if they have to pay it back, or how much. To offer some relief, our contributor tax practice owner Susan Tinel, EA offers her insights on filling out the PPP Loan Forgiveness Application.

Jun 1st 2020
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For those of us that are familiar with filling out government forms, overall, the 11-page PPP Loan Forgiveness Application, SBA Form 3508 (05/20) is not too bad. The 11 pages consist of a mix of instructions, worksheets and application, not as twisted as some IRS forms can be, but definitely requires focus to fill out accurately and completely. The application reinforces the 75 percent/25 percent ratio of the eligible expenditures of payroll, rent and utilities plus brings in new formulas for more benchmarks a business must pass in order to obtain forgiveness.

The Basics

Businesses have eight weeks from the deposit date of the PPP funds into their account to spend towards eligible expenses. Eligible expenses are payroll, business mortgage interest or rent payments, and business utilities.

Lease agreements and utility services must start prior to February 15, 2020. Seventy-five percent of the forgivable amount is to be utilized towards payroll, with the remaining 25 percent going towards the allowable non-payroll costs.

The Loan Forgiveness Application, which is submitted to the Lender either electronically or by paper, consists of five parts, the fifth being an optional demographic survey:

1. PPP Loan Forgiveness Calculation Form. Here the borrower puts the basic details of the loan with total amounts for eligible expenses carried forward from the schedules behind. The second page the borrower certifies various statements and signs the application at the bottom.

2. PPP Schedule A. Here, it is advised that you do the PPP Schedule A Worksheet first. Many of the amounts on the Schedule A are carried in from the worksheet. Schedule A calculates the amount of eligible payroll costs, limited for owner-employees, general partners and self-employed individuals, and the FTE reduction calculation, both to be carried forward to the main form.

3. PPP Schedule A Worksheet. As I mentioned, do this first! One thing to note before starting, check your payroll provider and see if they have this report ready for you. An equivalent report from the borrower’s payroll system can replace the Schedule A Worksheet. This worksheet calculates the average full-time equivalency (FTE) during the covered or alternative covered period (yes! there is an alternative!). The worksheet will also determine whether the forgiveness amount must be reduced if there is a reduction in employee salary and wages. The FTE Reduction Safe Harbor is also figured on the Schedule A Worksheet. Remember, the amounts from this worksheet are carried forward to the PPP Schedule A!

4. Documents. This breaks into three parts: Payroll, FTE and Non-payroll. This documentation will need to be submitted with the PPP Loan Forgiveness Application. Payroll documentation consists of bank account statements or 3rd party payroll service provider reports, tax forms, and proof of employee payments. The FTE documentation shows the number of FTE employees, such as payroll tax filings. Non-payroll documentation consists of proof of the existence of the obligations or services prior to February 15, 2020 and proof of payments. The instructions stipulate that the borrower also must maintain, but is not required, to submit documentation supporting, well, everything.

5. PPP Borrower Demographic Information Form (Optional). The pupose of this form is to collect various demographic data for program reporting purposes only. Enough said. Numbers 1-4 were quite enough already!

Highlights of Note

Throughout the 11-page SBA document, there are many twists and turns which jump to the eye at first read:

  • Alternative payroll covered period. When companies were first receiving the PPP funds into their account the advice at the moment was to hold payroll until after the date of the SBA deposit if you knew it was coming. Not sure how that is going to interpreted by the state labor boards, but considering this alternative, that may not have been sound advice. The section starts, “For administrative convenience.” The SBA, it seems, thought ahead here a little bit. Borrowers that have a payroll frequency of biweekly, or more frequent, can elect to start their covered period (the eight weeks) on the day of their first pay period following their PPP Loan Disbursement Date. Be sure to read this section to get the full parameters around this election.
  • A clear definition of mortgage, rent and utilities. Clear terms of “business mortgage interest payments,” “business rent or lease payments,” “business utility payments” are used. There is nothing, however of self-rentals. It is stated that payments that the borrower does not want to be included in the forgiveness amount is not required to be reported.
  • Line 11 of the PPP Loan Forgiveness Calculation Form. If applicable, the SBA will deduct the EIDL Advance Amounts from the forgiveness amount remitted to the Lender. The “if applicable” is not located anywhere in the eleven-page long extravaganza.
  • Caps on owner compensation. From the certification portion of the Calculation Form: “The dollar amount for which forgiveness is requested does not exceed eight weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $15,385 per individual.”
  • Sharing. Yes, the Lender is going to have authorization to share with the SBA the tax information the borrower submits to the Lender.
  • Full-time equivalent (FTE). Despite the many calculations of FTE on the form, there is a safe harbor provision. The FTE Reduction Exceptions is there for the employer to remove an employee from the FTE position count when the employer makes a good faith written offer to rehire an employee. In previous guidance from the SBA in a FAQ (FAQ’s 40-42) document posted by the US Treasury, employees that refuse these job offers can be denied their unemployment payments.

Because Things Keep Changing

If you haven’t seen already, the House on Thursday, May 28, passed legislation to give small business more flexibility in regard to the spending of the funds obtained through the PPP. This bill would extend the covered period deadline from 8 weeks to up to 24 weeks.

In addition, more of the funds can be spent towards non-payroll costs, changing the current ratio to 60/40. The Senate has yet to vote on this bill at of the time of this writing and has a similar version which only extends the time frame for business to spend the funds up to 16 weeks, with no change in the ratio of payroll vs. non-payroll costs.

Related Articles

Are Your Clients Ready for a PPP Audit?

How to Post PPP Loan Income and Expenses

Replies (3)

Comments for this post are now closed.

By Christian Braun
Jun 2nd 2020 16:25 EDT

Thanks for the article. We have principally spent our PPP money and would be keen to file the current forgiveness form. Will it be optional to apply under the current terms after 8 weeks or the new terms after 16 weeks (assuming the Senate passes those)? We currently qualify for 100% forgiveness given our FTEs in the past, now and on June 30 but I am not sure if we will also eight weeks later.

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By Dean_Owen
Jun 3rd 2020 13:19 EDT

I suggest put this on the shelf and look at it next month. The form will probably change, the rules will probably change, and for the better. Why wade into this first and fight more strict rules when we can procrastinate and the process will be simpler, and more friendly? My office processed hundreds of these loans, and right now, I am telling everyone to ignore this for now.

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Replying to Dean_Owen:
By Christian Braun
Jun 3rd 2020 13:48 EDT

That depends, for us the changes are not good as we might not have same team size two months later.

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