PPP Loan Forgiveness FAQs

After qualifying for a PPP loan, you may now be wondering about PPP loan forgiveness. Here's our list of FAQs, asked by small business owners like you.



Update: On June 17, 2020, the SBA released two “borrower-friendly” updates to the PPP loan forgiveness application to reflect changes made to the program by the PPP Flexibility Act. See the latest revised standard version and instructions.

There was also a new three-page “EZ” version released for borrowers who (i) are self-employed, or (ii) did not reduce wages by more than 25 percent and did not reduce the number or hours of their employees, or (iii) experienced reductions in business activities as a result of health directives related to COVID-19 and did not reduce wages by more than 25 percent. See the latest EZ application and instructions.

If your company was able to secure a PPP loan to cover *8 weeks of payroll and other related expenses, you may be wondering about the forgiveness portion of that loan. Here is our list of FAQs regarding PPP Loan Forgiveness, as asked by Stratus.hr clients.

How will we apply for loan forgiveness?

The lender from whom the original loan originated will be the responsible party to determine loan forgiveness. This could mean that each lending institution might have a different interpretation of what they are willing to accept for forgiveness. The SBA released the loan forgiveness application (with instructions) on May 15, 2020. The SBA is expected to release further regulations and guidance to help borrowers with the applications, so watch for more information.

How will we demonstrate a good faith effort that the “current economic uncertainty” made the loan request necessary to support our business operations?

As of May 13, 2020, SBA announced a certification of safe harbor for loans less than $2 million. In other words, if your loan is less than $2M, you are automatically deemed to have met the qualification of financial-necessity for the loan application. Loans beyond $2M will be subject to review by SBA to determine if there’s an “adequate basis for the necessity of the loan request.”

What should we do if 8 weeks from the date our loan was funded only captures 3 pay cycles (bi-weekly)?

In the SBA guidance released May 15, 2020, the SBA outlined an “Alternative Payroll Covered Period” that allows Borrowers with a biweekly or more frequent payroll to begin the calculation of eligible payroll costs on the first day of their first pay period following their PPP Loan Disbursement Date. “For example, if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20.” Borrowers using this method must apply the Alternative Payroll Covered Period throughout the application whenever there is reference to “the Covered Period or the Alternative Payroll Covered Period.

Can we squeeze a 5th pay cycle (bi-weekly) into the 8-week window and have that qualify for forgiveness?

The IRS uses the term “incurred and paid” which would disallow this from being a qualified expense. Remember, the intent of the program is to cover *8 weeks of payroll costs; we anticipate the IRS issuing a penalty or fine if this is manipulated.

If we decide to pay a bonus during the 8 weeks, how will that be treated for forgiveness?

Bonuses should be treated as incurred for a period of time (monthly, quarterly, annually) and should be annualized (de-annualized) into a weekly amount, then calculated for *8 weeks only.

  • Example: Company A has a typical bonus schedule of annual bonuses. Company A institutes a bonus to pay out $100k during the 8-week period.
    • Calc: $100,000 / 52 weeks = $1,923.08; $1,923.08 x 8 weeks= $15,384.62 of bonuses would qualify within the incurred expenses.

If we hire back all our employees by June 30, 2020 will we be penalized under the FTE requirements?

The program indicates that if any employees laid off between February 15, 2020 and April 26, 2020 are brought back by Dec. 31, 2020 at the same wage level as before, those employees will count towards the FTE calculation, per the PPP Flexibility Act.

Do we count all employees or only full-time equivalent employees to determine eligibility under the CARES Act?

For purposes of loan eligibility, any individual “employed on a full-time, part-time or other basis” is considered as one employee rather than a fraction of a full-time equivalent.

  • For example, if a borrower has 200 full-time employees and 50 part-time employees each working 10 hours per week, the borrower has a total of 250 employees.

By contrast, the CARES Act uses the standard of “full-time equivalent employees” to determine the extent to which the loan forgiveness amount will be reduced in the event of workforce reductions.

  • Eligible Costs x # of FTEs for covered *8-week period
    • FTEs covered period of (2/15/19 thru 6/30/19) or (1/1/20 thru 2/29/20)

What if I furloughed an employee, then attempt to rehire that employee but they refuse the offer for rehire?

Document the written offer of rehire, as well as the employee’s rejection, and retain the documentation in your records. The SBA’s guidance released on May 15, 2020 includes an “FTE Reduction Exception” that allows employers in this situation to number all FTEs who have rejected offers of rehire and exclude them from what would have been a reduction of loan forgiveness. Employees who reject offers of re-employment may be ineligible for continued unemployment compensation.

Is the forgivable portion of the PPP Loan taxable to the IRS?

The forgiveness of your PPP Loan is not subject to be taxed directly as any type of income. However, the wages and expenses paid with the PPP Loan monies are not eligible to be deducted as they were previously, or as paid without PPP Loan funds.

How should we determine the $100k cap per employee?

Given the program is deemed *8 weeks, any wage paid during this period should be annualized to determine the $100k cap and then minimized to a weekly count. Under this logic, no employee should have eligible wage costs in excess of $15,384.62 for the *8-week forgivable period. This does NOT include qualified benefits, retirement contributions, or state and local taxes. Those “other” costs do not have a per employee cap.

What will Stratus.hr provide to help support our forgivable portion?

Stratus.hr will provide reporting based on client’s applicable loan date that includes wage costs separated from other costs by employee. We will break out bonus costs so you can determine how much of those bonuses should be included in your eligible costs. We will also identify those employees whose wages exceed $15,384.62 during the *8-week period.

What if we use PPP Loan funds for something other than payroll?

You will be directed by the SBA to repay those amounts and may be subject to fraud charges for the unauthorized use.

*The 8-week period was extended to 24 weeks, per the Paycheck Protection Flexibility Act.


Treasury.gov FAQs
SBA.gov (PPP Loan Program)
SBA Interim Final Rule (federalregister.gov)

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