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PPP Forgiveness Guide: Qualified Expenses, Forgiveness Rules, & How To Apply

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Erica Seppala

Erica Seppala

Erica is a writer based in Greenville, South Carolina. She is a graduate of Limestone College. Initially determined to be an accountant, she put away the calculator and picked up a laptop to pursue her dream of being a writer. Erica has spent the past 10 years writing blogs and articles for hundreds of private clients, and she loves sharing her love of research and the written word with everyone around her.

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Responses are not provided or commissioned by the vendor or bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the vendor or bank advertiser. It is not the vendor or bank advertiser's responsibility to ensure all posts and/or questions are answered.

    Kimberly Carson

    Hello,
    I have an LLC for which I am the only employee and all of my work is contract work. I have qualified for the PUA for contract workers but didn’t apply for PPP as it wasn’t clear it was available to contract workers like myself. If I applied for PPP for 2.5 x my monthly average compensation plus mortgage interest, paid it fully to myself for personal salary and interest paid this year, then it should be fully forgiven. Is that correct? Also, if I apply for PPP now, I think I understood from your thread that I cannot continue to apply for PUA. Is that also correct? In Oregon, will the new legislation cover PUA benefits for myself as a contractor until early September if I continue to apply (and my work status doesn’t change)?

      Jessica Dinsmore

      Hi Kimberly,

      The one mistake that I see here is in the calculations. If you file a Schedule C, you can use either gross income or net profit to calculate the total of your loan. You would take that number, divide it by 12, then multiply by 2.5. Mortgage interest wouldn’t apply in the calculation itself, but it could be a factor in loan forgiveness. If you use the funds to pay your own salary and on eligible expenses (including mortgage interest), then yes, the loan would be forgiven.

      As far as PPP and PUA, you CAN NOT collect from both at the same time. You can apply for both, but if you were to apply for the PPP and received a loan, these funds would need to be reported as income to the state unemployment office.

      As far as the PUA benefits in Oregon, it appears that yes, if you continue to file your claims and your work status doesn’t change, you will be able to collect benefits through September 4. It looks like updates are being posted on the implementation of everything in the ARP Act, so you can check out the State of Oregon Employment Department if you have additional questions or want to see the latest updates: https://unemployment.oregon.gov/americanrescueplan.

      I hope that helps!

        Doug Williams

        I’m a sole proprietor contractor who used a Schedule C to qualify for my PPP loan. I’ve found very little reliable information on the issue of “what do I do with the check I received?”.
        There is a lot about a) don’t deposit this in your personal account, b) disburse it over 8-24 weeks, etc. So if this is for a loss of income I experienced due to covid last year and I have the loan (I qualified)
        – can I just deposit this entire check in my personal account or is that a “red flag”? That is what I do with my monthly consulting checks from my clients
        – or do I have to make 8 equal payments from one personal account to another to document 8 weeks of pay?
        I am very wary of doing the wrong thing. I want to follow all the laws exactly so I’m not in trouble. What do I do? Even my bank is conflicted somewhat.

          Jessica Dinsmore

          Hi Doug,

          You will definitely want to read through this post on Owner Compensation Replacement. Within the post, there is a section that breaks down how to calculate & claim your owner compensation as well.

          Basically, your 2019 net profit is used to determine your monthly average net profit. The Owner Compensation Replacement rule allows you to allocate 2.5 months’ worth of net profit to personal compensation.

          This amount is considered forgivable, meaning you won’t be expected to pay it back. Better yet, there are no restrictions on how you can spend that portion of your funds.

            Pal

            So they let you use gross income for amount of loan the net profit divided by 12 x2.5 for max amount you can pay yourself per month?

              Jessica Dinsmore

              Hi Pal,

              Not quite. (2019 Net Profit / 12 months = monthly average) x 2.5 months = TOTAL amount you can allocate to yourself as Owner Compensation Replacement. It is not how much you can pay yourself every month. I hope that helps!

                Anne

                I see the comment in the article that rent is limited to two months? I have not been able to find that in the SBA material. Can you provide the reference where you found that limitation?

                  Jessica Dinsmore

                  Hi Anne,

                  Rent is not limited to just two months–If you’re using the eight-week (two-month) period, for example, the post states that you can use a portion of your funds to cover rent and it will be forgiven. There are no limitations except for the percentage spent on payroll and the percentage spent on other qualified expenses. I hope that helps clarify!

                  If you rent your commercial space, you can use a portion of your funds to cover rent over the next two months. To be considered a qualified expense, a lease agreement for the property must have been in effect before February 15, 2020.

                  Again, you need to keep all documentation proving your funds were spent toward this qualified expense. So don’t forget to hang onto your account statements, receipts, bank statements, and canceled checks.

                    Abby M

                    Can the second draw be used for just the software itself or can it be used for the implementation as well?

                      Jessica Dinsmore

                      Hi Abby,
                      As far as we can tell, the implementation of software is an eligible expense for PPP loan forgiveness. Business software and cloud-computing products, services, and service delivery are all eligible expenses. Thanks!

                        MJ

                        Can you contiue to claim unemployment insurance (filed under a w2 with an employer) after receiving a recent PPP loan as a sole proprietor if you also have a schedule c on your tax return? In other words can you see the PPP loan to cover utilities but continue to certify every week?

                          Jessica Dinsmore

                          Hi MJ,
                          No, you cannot have a PPP loan and claim unemployment at the same time. Everything we’ve read indicates that funds from the PPP would need to be reported to the unemployment office as income.

                            Debbie

                            Do I understand correctly that in order to qualify for the PPP due 3/31/2021, you must have full time employees rather than part-time employees?.

                              Jessica Dinsmore

                              Hi Debbie,
                              If your employees are not FTE (Full-time equivalent), you will have to go through the calculations on the application and assign each person a value of 0.5. So, if you have 4 part-time employees, you’d be reporting 2 FTE instead of 4 FTE. This will, of course, reduce your amount of loan forgiveness.

                                Lauren

                                I applied for the EILD Grant when we were told it would be $10,000.00. 2 months later I received $3,000.00. It was $1,000.00 per full time employee. I am a sole proprietor with 3 full time employees and a part time employee.

                                I then applied for a PPP loan. I received $21,000.00. When my bank helped me complete my loan application I qualified for $24,000.00.

                                When I received the 21K instead of the 24k I thought it was due to deduction the grant of 3k.

                                I filled out the forgiveness application with my bank. Per the application I would be 100% forgiven. I used the funds exactly how we were instructed. The funds lasted approximately 6 weeks.

                                I did received 18k worth of forgiveness, which I am so grateful, but I really thought I would have been forgiven 100%.

                                I called the SBA and I was told if you received a grant it was deducted from your loan amount and you had to pay that dollar amount back, but I thought they deducted it from the qualified PPP loan amount of 24k when they only gave me 21k.

                                Can someone verify all of this information please?

                                Thank You

                                  This comment refers to an earlier version of this post and may be outdated.

                                  Jessica Dinsmore

                                  Hi Lauren,

                                  This is what the SBA says:
                                  “If a borrower received an EIDL advance, SBA is required to reduce the borrower’s loan forgiveness amount by the amount of the EIDL advance. SBA will deduct the amount of the EIDL advance from the forgiveness amount remitted by SBA to the lender. The lender will be able to confirm the amount of the EIDL advance that will be automatically deducted by SBA from the forgiveness payment by reviewing the borrower’s EIDL advance information in the PPP Forgiveness Platform.”

                                  You can see it doesn’t really address your particular situation, and unfortunately, the SBA is our source of information, so we can’t offer much advice here. The best thing you can do is review all of the information that you have regarding the loan, and contact the lender directly. It’s entirely possible that, for example, the actual amount you were approved for was lower than what you were initially told. We can’t say for sure what the case may be, so you need to really review your paperwork and speak directly to the lender to find out what’s going on. We wish you all the best!

                                    This comment refers to an earlier version of this post and may be outdated.

                                    Michele

                                    We received a PPP loan and we were unable to utilize it all prior to the end of the initial 8 week period, but did so within 12 weeks of receiving those funds. Is the requirement that you have to still maintain the same number of employees at the end of 24 weeks, or just at the end of when you utilized all of the funds (i.e. at the end of 12 weeks in my example)? We can no longer support all of our staff and will need to lay off some employees so we will not have the same headcount at the end of the 24 week period.

                                      This comment refers to an earlier version of this post and may be outdated.

                                      Jessica Dinsmore

                                      Hi Michele,

                                      Looking at the PPP Forgiveness application, one of the conditions states this:

                                      The Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period.

                                      The covered period would be the entire 8-week or 24-week period. It should also be noted that the number of employees at the time of the loan application and the number at the time of the forgiveness application also have to be submitted. So, salaries and headcounts will need to be maintained during the entire 24-week duration.

                                        This comment refers to an earlier version of this post and may be outdated.

                                        Wondering

                                        If you are approved to be forgiven for the PPP loan. Does this count as income for a company when filing taxes? Would this change to a grant status?

                                          This comment refers to an earlier version of this post and may be outdated.

                                          Jessica Dinsmore

                                          Hi Wondering,

                                          Great questions. This post How Will PPP Loans & EIDL Advances Affect My 2020 Taxes? should be able to answer all of your tax questions. Thanks! And all the best.

                                            This comment refers to an earlier version of this post and may be outdated.

                                            Ferd

                                            HI, I’m confused. We are an LLC and do i count the general partner in the payroll cost? What about the other partner who is 30% owner but isn’t a general partner? Also, we are well above the 60% threshold for payroll cost but not enough for the 40% for other expenses. What happens? Is my loan still forgiven?

                                            Thanks.

                                              This comment refers to an earlier version of this post and may be outdated.

                                              Jessica Dinsmore

                                              Hi Ferd,

                                              Apologies for the wait!

                                              In regards to the general partner. The SBA says:

                                              The compensation of general partners that is eligible for loan forgiveness is limited to 2.5/12 of their 2019 net earnings from self-employment that is subject to self-employment tax, which is computed from 2019 IRS Form 1065 Schedule K-1 box 14a (reduced by box 12 section 179 expense deduction, unreimbursed partnership expenses deducted on their IRS Form 1040 Schedule SE, and depletion claimed on oil and gas properties) multiplied by 0.9235.5 Compensation is only eligible for loan forgiveness if the payments to partners are made during the Covered Period or Alternative Payroll Covered Period. Separate payments for health insurance, retirement, or state or local taxes are not eligible for additional loan forgiveness. If the partnership did not submit its 2019 IRS Form 1065 K-1s when initially applying for the loan, it must be included with the partnership’s forgiveness application.

                                              As far as the person who is 30% owner, the SBA says that forgiveness can be calculated based on how the LLC was organized for the tax year 2019. There are a whole lot of rules around this, and the SBA outlines everything in this document on pages 5 and 6.

                                              As far as forgiveness, at least 60% must be spent on payroll costs. The remaining funds can be spent on qualifying expenses — mortgage interest, rent, and/or utilities. As long as funds were spent on these expenses, you should receive full forgiveness. If a portion was spent on other expenses, the forgiveness amount will be reduced.

                                                This comment refers to an earlier version of this post and may be outdated.

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