PPP Loan Forgiveness Guide
Our PPP Loan Forgiveness Guide is an easy to use resource to help you navigate the PPP loan forgiveness process and avoid (or mitigate) potential consequences of noncompliance. This Guide includes:
- Detailed commentary on the Paycheck Protection Program
- Clear instructions to help you complete the SBA loan forgiveness application
- Guidance on how to calculate the amount of loans eligible for forgiveness
- Ready-to-use checklists to support your documentation efforts
- Additional resources and recommended practices
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act established the Paycheck Protection Program (PPP), authorizing loans of up to $10 million for business and nonprofits with fewer than 500 employees. To cover losses caused by the COVID-19 pandemic, these loans were intended to be forgivable if a borrower retained workforce levels.
In implementing the program, the Small Business Administration (SBA) issued an evolving set of rules that restricted the loan amounts eligible for forgiveness. For example, SBA guidance limited the extent to which payroll and nonpayroll costs are eligible for loan forgiveness. At the same time, the rules established exceptions and safe harbors for reductions to amounts eligible for forgiveness due to layoffs and salary cuts.
Federal grantees that received PPP loans face additional legal complications. To avoid charging the same costs to both the PPP loan and other federal grant programs (i.e., so-called “double dipping”), federal grantees need to carefully consider which costs are charged to the PPP program and which are charged to other federal programs.
Borrowers that fail to comply with SBA guidance or lack proper documentation could face a variety of potential consequences, including:
- Forgiveness for less than the full amount of the loan, up to repayment of the loan in full
- Scrutiny by the Department of Justice, federal watchdog agencies, and whistleblowers
- Cost disallowances from funding agencies
TABLE OF CONTENTS
I. A Short History of the PPP Loan Program
- CARES Act Paycheck Protection Program
- Paycheck Protection Program Flexibility Act of 2020
- Frequently Asked Questions (FAQs) on loan forgiveness
- SBA Interim Final Rule on loan forgiveness
II. Costs Eligible for Forgiveness
- Definition of payroll costs
- Definition of non-payroll costs
- The 60% payroll costs requirement
III. Timing of Costs Eligible for Forgiveness: Loan Covered Periods
- Importance of the loan “Covered Period”
- Definition of loan “Covered Period,” including the 8-week and 24-week options
- Definition of “Alternative Payroll Covered Period”
- Options for selecting a loan covered period
- Applying eligible costs to your Applicable Loan Covered Period
IV. FTE and Salary Reduction Limitations on Loan Forgiveness
- Defining an FTE for loan forgiveness purposes
- Calculating FTE reduction penalty
- Calculating salary/wage reduction penalty
- Safe harbors to forgiveness reduction penalties
- Exceptions to forgiveness reduction penalties
V. Deconflicting Funding Streams for Federal Grantees
- Maximizing loan forgiveness while avoiding “double dipping”
- Tracking PPP and grant expenditures
- Sample tracking spreadsheet
VI. Documents that Must be Submitted with your PPP Loan Forgiveness Application
- Payroll documentation
- FTE Employees documentation
- Non-payroll documentation
VII. Documentation that Must be Maintained
- PPP Loan Forgiveness Application
- PPP Loan Forgiveness Application certifications
- PPP Loan Forgiveness Application Worksheet Schedule A
- Document retention period
VIII. Certain Tax Implications of PPP Loans
- Federal income tax
- State taxes
- Federal tax credits for employee retention
- Deferral of federal employment taxes
Checklists & Additional Resources
- Required documentation
- Documentation that must be maintained
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