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Your Guide To PPP Forgiveness Rules, Qualified Expenses, & How To Apply For PPP Loan Forgiveness

  • 44 comments
  • Updated on:
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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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44 Comments

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.

    Ray

    Does anyone have problems with line 7 of the EZ form, it appears to cap loan forgiveness at 60% of payroll costs incurred during the covered 8 week period.

      Jessica Dinsmore

      Hi Ray,

      The 60% is referring to how to spend your PPP funds in order to get them forgiven. You must spend at least 60% of your loan to cover payroll costs in order to be forgiven. The remaining 40% can be used to pay mortgage interest, utilities, and rent.

      Before the passage of the Paycheck Protection Flexibility Act, borrowers were required to use at least 75% of loan funds for payroll costs. Failure to meet this requirement would result in a reduction in the portion of the loan that is forgiven. Now, only 60% of funding must be used toward payroll costs. If you don’t meet this threshold, you may still be eligible for partial forgiveness. Also, borrowers that received funding before the passage of the Paycheck Protection Flexibility Act can stick with the original eight-week period or extend the covered period an additional 16 weeks. Hope this helps!

        Tommy Rogers

        I have allocated all of my loan protection funds, and am ready to send in my documents to be forgiven. I have tried numerous of times contact someone via phone, and after hours of hold time I get disconnected. Where do I send my documentation? Please help. I do not want to get stuck paying this back.

          Jessica Dinsmore

          Hi Tommy,

          In the “When & How To Apply For Forgiveness” section of this article, it states that you are to apply for forgiveness through the lender that serviced your PPP loan. You can also find links to the necessary forms there as well. Good luck!

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            Bull Tuff Mud Company Ready Mix LLC 0850510176

            On the Eligible nonpayroll costs, transportation is listed as one of the covered utilities. Can you tell me what that covers. (fuel, loan payment, rental of auto) this is not clear on what is considered transportation.
            Thank You

              Jessica Dinsmore

              Hi there,

              On the bottom of page three column two, the SBA final interim rules state that:

              Mortgage interest payments (but not mortgage prepayments or principal payments) on any business mortgage obligation on real or personal property (e.g., the interest on your mortgage for the warehouse you purchased to store business equipment or the interest on an auto loan for a vehicle you use to perform your business), business rent payments (e.g., the warehouse where you store business equipment or the vehicle you use to perform your business), and business utility payments (e.g., the cost of electricity in the warehouse you rent or gas you use driving your business vehicle). You must have claimed or be entitled to claim a deduction for such expenses on your 2019 Form 1040 Schedule C for them to be a permissible use during the eight-week period following the first disbursement of the loan (the ‘‘covered period’’). For example, if you did not claim or are not entitled to claim utilities expenses on your 2019 Form 1040 Schedule C, you cannot use the proceeds for utilities during the covered period.

                Bill White

                Regarding the Salary/Hourly Wage Reduction portion of the forgiveness application, it still states that a reduction in forgiveness is required if an individual employees wages were less than 75% during the covered period. With the covered period now 24 weeks, and if a business uses the full time, will there be a reduction in forgiveness if any individual employees average wages during the 24 weeks is less than 75% of the first quarter 2020?

                Similar to the FTE reduction. All computations are based on the full term of the covered period but then it states that full staffing must be acquired by December 31 or June 30. To use the last date, is it the final payroll that determines if headcount was achieved?

                  Jessica Dinsmore

                  Hi Bill,

                  Under the revised rules, borrowers will have until December 31, 2020, to get their staff numbers back up in order to receive full loan forgiveness.

                  Re: the wages, the borrower will have to certify, per the forgiveness application: “The Borrower did not reduce salaries or hourly wages by more than 25 percent for any employee during the Covered Period or Alternative Payroll Covered Period compared to the period between January 1, 2020 and March 31, 2020.” If they did, forgiveness will be reduced.

                    DS

                    Great article – thanks! Question – with the new revised rules which just came out , they reference “Alternative Payroll Covered Period”. I have 2 separate payroll periods within the same company. One is paid weekly and the other monthly. We received our PPP funds on April 17. I am wondering if I can use the “Alternative Payroll Period” for the weekly payroll which started on April 23 and the “Covered Period” for the monthly payroll which runs from the 15th – 14th of the month? If so, would I need to complete 2 separate forgiveness applications? Thanks!

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

                      Jessica Dinsmore

                      Hi DS,

                      The Alternative Payroll Covered Period is available for bi-weekly (or more frequent) payroll. The coverage period begins on the day employees are paid. So in this case, yes, you could use the Alternative Payroll Period for the weekly payroll and the Covered Period for the monthly payroll. There are spaces on the loan forgiveness application for both covered and alternative periods, so you should be good to submit just one application.

                        Donna F.

                        We applied for our PPP the very first day and used our 2019 payroll information from our payroll provider. We ended up using the average employee count for 2019, which was 20% higher than at the end of 2019. In late 2019 and all of 2020 we have maintained our employee count, which is lower than the average # reported on the PPP. Will it be admissible to show my employee count for several months prior to February 2020 to establish my employee count and prove that I have not reduced the staff? Or am I stuck showing the decrease because we used the average employee count for 2019, which our lender advised (obtaining payroll reports from our payroll provider)?

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

                          Jessica Dinsmore

                          Hi Donna,

                          For the PPP application, you needed to put the number of full-time equivalent employees you had, not the average from the previous year. While you would be able to use 2019’s average payroll, you would have had to accurately calculate the number of FTE employees you had when applying for the loan.

                            Bill Neve

                            Thanks for this article. Am confused on one point regarding what portion of the PPP is now forgivable. As a sole proprietor, I figured out the forgivable portion of the PPP Loan I received in May over the 8 week period, which was not the full amount of the loan, even with rent, utilities, etc. Does the new legislation extending the period of expenditure from 8 to 24 weeks now allow me to use the full amount of the loan on forgivable expenses, and have those forgiven in their entirety, over that 24 week period? Or does it just allow a longer period within which to allocate the same forgivable expenses i would have incurred in the original 8 week period – so that even with the extended period it will not increase the forgivable portion of the PPP loan.

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

                              Jessica Dinsmore

                              Hi Bill,

                              Not only does the Flexibility Act now allow for 24 weeks to spend the funds, but it has also reduced the payroll cost rule from 75 percent to 60 percent. So you can now spend 30% on other forgivable expenses.

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

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                                Bill

                                We operate a 1120S in which a few of the owners earn commissions on sales.
                                We also have employees earning salaries and commissions.

                                My question is how much of each owner’s compensation can be forgiven?
                                There are two primary owners and another with a small percentage.

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

                                  Jessica Dinsmore

                                  Hi Bill,

                                  The PPP Forgiveness Rules state:

                                  The amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation can be no more than the lesser of 8/52 of 2019 compensation (i.e., approximately 15.38 percent of 2019 compensation) or $15,385 per individual in total across all businesses. Owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement and health care contributions made on their behalf. Schedule C filers are capped by the amount of their owner compensation replacement, calculated based on 2019 net profit. General partners are capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235.

                                  I hope that helps!

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

                                    Oluwole Elegbede

                                    Owner- Employee or self-employed can be forgiven up to 2.5 months’ worth (2.5/12) of their 2019 compensation (i.e , approximately 20.83 percent of 2019 compensation) if chosen 24 weeks “Alternative Payroll Covered Period”.

                                      Irene

                                      I made a careless and stupid mistake and listed 4 employees on my PPP loan application, They’re actually 3FTE. I havent reduced salaries or number of employees. I have the payroll documents showing all 4 people were employed all last year at the same salaries . What should I do with the forgiveness application so it doesn’t look like I lost an employee? List each one as a FTE?

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

                                        Jessica Dinsmore

                                        Hi Irene,

                                        Your question is a little confusing — I’m not sure I understand. Do you have three full-time employees and one part-time employee? If that person isn’t a FTE, you can’t put that on the forgiveness application. Instead, you will have to go through the calculations on the application and assign that person a value of 0.5. So, instead of 4 FTE, your number will be 3.5. This will, of course, reduce your amount of loan forgiveness. I hope that answers the question you were asking.

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

                                          Mary

                                          Does FICA expense paid by employer, qualify for the “other expense” on the PPP loan?

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

                                            Jessica Dinsmore

                                            Hi Mary,

                                            The application states:

                                            The Act expressly excludes the following: Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees.

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

                                              JIM FROST THOMPSON

                                              My company is nearing the end of the 8 week period and will be very close to 100% forgiveness. Obviously, using the 24 week period, we will be well over the 100% forgiveness. If we choose the 24 week period, do we have to wait until the end of the period to apply for forgiveness or once we meet the 100% mark, can we apply for forgiveness at that time?

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

                                                Jessica Dinsmore

                                                Hi Jim,

                                                We haven’t seen anything indicating that there is any sort of timeline for applying for forgiveness early. Our understanding is that a borrower can go ahead and apply for forgiveness with their lender without waiting until the end of the 24 weeks.

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

                                                  SHERI HENNEBERRY

                                                  If I am a partnership or corporation and pay myself rent can I deduct the rent as a qualified other expense?

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

                                                    Jessica Dinsmore

                                                    Hi Sheri,

                                                    The rules state that for rent to be a qualified expense for loan forgiveness, it must be rent that is paid under a lease agreement that was in force prior to February 15, 2020.

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

                                                      Judy P

                                                      I have been wading thru all the information on the web but am unable to find the answer to my question. We pay for our employee’s uniforms and are wondering if this is a qualified expense to be forgiven under the PPP loan.

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

                                                        Jessica Dinsmore

                                                        Hi Judy,

                                                        As far as we can tell, uniforms aren’t specifically mentioned as a forgivable expense — at least not yet. Hopefully, the SBA will offer more clarity in the coming days and weeks.

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

                                                          Lloyd

                                                          Regarding PPP expense forgiveness (under the 25% non-payroll portion of our loan), what qualifies as legitimate “transportation” expenses? Gas for our vehicle fleet? Mileage reimbursements for employees using their own vehicles (reimbursed at the federal mileage rate)? Maintenance of vehicle fleet, etc?
                                                          thanks!

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

                                                            Jessica Dinsmore

                                                            Hi Lloyd,

                                                            This is a great question. The SBA hasn’t defined what’s covered under transportation to our knowledge. However, in its April 20th interim final rule, the SBA does mention that “gas you use driving your business vehicle” does fall under “business utility payments” that are eligible for PPP loan use. Based on that, our interpretation is that gas for business vehicles would for sure be covered. However, we aren’t so sure about general maintenance costs because the SBA seems otherwise unclear about transportation/utilities.

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

                                                              Madelyn White

                                                              Dear Jessica,
                                                              My payroll for 2019 contained 2 full time and 2 part time workers. This is the gross payroll amount I used for the PPP loan application. Now all of a sudden I am reading it is ‘full time employees’. Will I be penalized or have a reduction in my forgiveness as I am spending the same amount in payroll as I have not reduced the employees or their hours in the loan forgiveness time frame,( nor do I intend to)?

                                                              Please help as I cannot find any mention of part time workers. Payroll liabilities are paid on a weekly basis, quarterly payroll is done my accountant with all the proper forms. I appreciate your answer.

                                                              Regards,
                                                              Madelyn

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

                                                                Jessica Dinsmore

                                                                Hi Madelyn,

                                                                You will have to calculate the average number of hours of your employees (full and part-time) and you’ll use this calculation to determine if you have full loan forgiveness. The PPP Forgiveness application states:

                                                                “This calculates the average full-time equivalency (FTE) during the Covered Period or the Alternative Payroll Covered Period. For each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0. A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the election of the Borrower. This calculation will be used to determine whether the Borrower’s loan forgiveness amount must be reduced due to a statutory requirement concerning reductions in full-time equivalent employees. “

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

                                                                  Dave Jay

                                                                  Thank you for your informative article.

                                                                  I am a self employed sole proprietor, and was approved.

                                                                  Am I able to use 100% of the loan to pay myself?

                                                                  If so, may I do so by transferring each payment amount (I am typically paid monthly, so I would break the loan in two during the 8 weeks), from my business checking account into my personal checking account, and printing the receipt as proof? Can I do this and still have the loan forgiven?

                                                                  Also, I work from home, so not sure how much of my rent and utilities to apply to loan. Therefore, would it be safer for me to just pay myself 100% of the loan as income?

                                                                  Hope my questions are clear.

                                                                  Thank you for your time and consideration.

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

                                                                    Jessica Dinsmore

                                                                    Hi Dave,

                                                                    You can potentially use 100% of the loan on payroll if you want (75% is the minimum). Assuming that you applied for the loan based on just having one employee (yourself), what you’re describing could be fine, but it depends how much you were approved for. You can’t pay yourself more than $100K or give yourself a big raise. And certainly, a percentage of the loan could be spent on home office costs as well. This post on PPP for Self-Employed might be helpful to you.

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

                                                                      jessica

                                                                      Hi, if I got my PPP founds on May 4th and My payroll is from 1-15 and 16-end of the month, can I start the 8 weeks of payroll en May 16 to July 15?

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

                                                                        Jessica Dinsmore

                                                                        Funds should be used for payroll for the eight-week period starting from the date that funds were disbursed. In this case, that would be May 4th, and it looks like the eight-week period would run through June 29. Any payroll that’s run between those two dates can be forgiven, even if it hasn’t been paid yet. (i.e., in this case, payroll run from June 15 to 29 could be forgiven, even if it’s not actually paid to employees until July.)

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

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                                                                          Amelia Berger

                                                                          What about GL and WC? Could these be considered “Utilities”?

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

                                                                            Jessica Dinsmore

                                                                            Hi Amelia,

                                                                            The application defines utilities as “Electricity, gas, water, transportation, telephone or internet access, for which service began before February 15, 2020.”

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

                                                                              Janice Reid

                                                                              Can someone clarify this for me? If two of the five employees got a 50% pay cut due to not meeting sales goals, are we completely disqualified from loan forgiveness or just subject to a partial reduction? Also, if we hired someone February 2, 2020, but terminated them May 4th, 2020, for performance issues and want to wait to rehire, are we completely disqualified from receiving any loan forgiveness?

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

                                                                                Jessica Dinsmore

                                                                                Hi Janice,

                                                                                You must maintain the average number of employees and wages that you listed on your application in order to qualify for full forgiveness. If you don’t maintain these averages, some of the principal will be forgiven but a portion (based on the number of employees that were let go and how payroll costs were reduced) will have to be repaid. While it’s certainly fine that you cut employees, you would need to rehire and maintain your numbers through the 8-week duration of the loan to qualify for full forgiveness.

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

                                                                                  Amie Diaby

                                                                                  Hi, I am self employed business owner I have a hair salon. I have people that work with me. I got approved for the ppp loan I have 6 employees I pay them in commission and In cash, what are some things I can do for me to be eligible for the payment forgiveness Plan and also can I pay myself with the ppp loan?

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

                                                                                    Jessica Dinsmore

                                                                                    Hi Amie,

                                                                                    I think you’ll find the answers to all those questions and more within this post! Check it out and let us know if you have any additional questions. Congrats on your PPP loan approval!

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

                                                                                      rick vanduzer

                                                                                      Question if you only bring back 50% of your payroll in the 8 week period after your loan is funded you will lose 50% of your payroll funding. Would you also lose 50% of your non-payroll funding?? or would you be able to spent the entire 25% of non-payroll funding?

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

                                                                                        Jessica Dinsmore

                                                                                        Hi Rick,

                                                                                        The good news is you won’t lose any of that money! The not so good news is that if it doesn’t go to payroll then you lose the option for that amount to be forgiven.

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

                                                                                          La Vie

                                                                                          Hey! this is a very interesting article, these are the important rule for qualifying loans.

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

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