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PPP Loan Forgiveness Q and A

Updated: Aug 17, 2020

Here are answers to some of the most common questions re: the PPP Loan


Question: When can we apply for our PPP loan forgiveness?

Answer: Currently Congress is considering changes to the loan forgiveness guidelines, and the SBA is not yet ready to accept forgiveness application. At this time, we are waiting for further clarification until we submit your application for loan forgiveness. You do not need to fill out the application on the SBA website and submit it to us, and you do not have to send us any documents yet.


Question: I am an independent contractor who uses a single household checking account only. No payroll account or separate business account. How do I document that my PPP loan was used for ‘payroll’?

Answer: As an independent contractor, sole proprietor, or self-employed individual, if your covered period is eight weeks, you get eight weeks of your 2019 net profit (as reported on your Form 1040 Schedule C) forgiven, capped at $15,385 per individual. If your covered period is 24 weeks, you get 2.5 months of your 2019 net profit (as reported on your Form 1040 Schedule C) forgiven, capped at $20,833 per individual. This is called the Owner Compensation Replacement and was recently introduced by the SBA. To get your remaining PPP funds forgiven, you will need to spend it on business utilities, rent, and mortgage interest expenses (to the extent such expenses are deductible on your Form 1040 Schedule C). Telephone and internet bills are considered utilities costs. Other types of expenses appear to be ineligible for forgiveness at this time. Make sure to keep your documents showing your payments for these expenses during the covered period.

Question: I have a sole proprietorship and received the PPP. When I was offered the loan, it gave me two amounts. One smaller and one bigger. I chose the smaller amount as it said it did not have to be repaid. Is this true?

Answer: If you chose the smaller amount, it is likely that most, if not all, of this amount will be eligible forgiveness when you apply. For PPP forgiveness, “owner compensation replacement” counts as an eligible payroll cost, because - in effect - you are paying yourself by replacing the net profits that your business would otherwise have earned without the crisis. If you had the choice between two loan sizes and you chose the smaller one, then your loan size was equal to 8 weeks of your business’s 2019 net profits, which is the cap on owner compensation replacement. As a result, 100% of your loan proceeds will be considered a payroll cost and the entire loan amount should be eligible for forgiveness, regardless of what you spend the money on. Please note that you still need to submit a forgiveness application in order to get the loan forgiven.

Question: Do I have to use an official payroll system (like Quickbooks) to pay myself instead of transfers between my business and personal bank accounts (which is how I currently pay myself)?

Answer: You do not need an official payroll system to be eligible for forgiveness. If you are an independent contractor, sole proprietor, or self-employed, you do not need to show transfers between your business and personal bank accounts for your payroll costs to be eligible for forgiveness. For PPP forgiveness, “owner compensation replacement” counts as an eligible payroll cost, because - in effect - you are paying yourself by replacing the net profits that your business would otherwise have earned without the crisis.

If you choose the 8-week covered period, then your “owner compensation replacement” will equal 8 weeks worth (8/52) of your 2019 net profit, capped at $15,385. If you choose the 24-week covered period (or received your loan after June 5, 2020), then your “owner compensation replacement” will equal 2.5 months worth (2.5/12) of your 2019 net profit, capped at $20,833. You do not need to show documentation of how you spent these funds, just that you had this net profit in 2019 (e.g., with a 2019 Form 1040 Schedule C).

If your loan proceeds exceed the above amounts for “owner compensation replacement”, you will need to show documentation that the excess was spent on eligible non-payroll costs (business mortgage interest, business utilities, business rent) in order for it to be eligible for forgiveness. Such non-payroll costs must be deductible on your Form 1040 Schedule C.


Question: Is it true that the timeline has been changed from 8 weeks to 24 weeks to use the PPP money?

Answer: Yes. If you received your loan before June 5, 2020, you can now elect between a covered period of 8 weeks or 24 weeks from the day you received your funds to spend on expenses eligible for forgiveness. If you received your loan after June 5, 2020, you have 24 weeks to spend your funds on expenses eligible for forgiveness. You also have until the earlier of December 31, 2020 or the date your loan forgiveness application is submitted to rehire staff and return wages to 75% of pre-crisis levels to maximize your forgiveness amount. You can also spend up to 40% of your loan on eligible non-payroll costs, up from 25% previously, and still have the full loan forgiven. The updates to the safe harbor deadline and the non-payroll cost percentage apply to all PPP loans, including those issued before the new rules went into effect.

Question: Why is the EIDL grant being deducted from the forgiveness amount on the PPP loan?

Answer: If you received both an EIDL advance and a PPP loan, the CARES Act specifies that the EIDL advance will be deducted from your PPP loan forgiveness amount. For example, if you receive a $5,000 EIDL advance and a $15,000 PPP loan, only $10,000 of your PPP loan is eligible for forgiveness. Your EIDL advance does not need to be repaid.

Question: I just received PUA unemployment and I also got the PPP loan. Was that ok and is my loan still forgivable?

Answer: You’re able to apply for either the PPP or unemployment, but you cannot have both. If you choose to keep your PPP loan, you must withdraw from receiving unemployment benefits.

Question: Can 100% of the loan be used to pay for payroll? What is the maximum that can be used toward payroll?

Answer: Yes, you can use 100% of your PPP loan for payroll costs and have the loan be fully forgiven. A minimum of 60% of your loan amount must go to payroll costs in order to qualify for full forgiveness.

Question: Does PPP forgiveness apply to new employees?

Answer: Yes. If you have reduced your headcount, you can either rehire the same employees or hire new employees to get back to pre-crisis staffing levels to be eligible for full forgiveness. You will need to get back to the same pre-crisis headcount levels by the earlier of December 31, 2020 or the date your loan forgiveness application is submitted to be eligible for full forgiveness.

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