PPP Forgiveness Simplified
Dec 15, 2020
The plethora of reporting requirements created by the PPP loan forgiveness process has left many pulling their hair out trying to assemble the necessary documentation. For some, this is an unfortunate reality. However, for those with smaller PPP loans or relatively straight-forward qualifying expenses, the extra stress may be avoidable. Before spending hours tearing apart your company records, review the considerations below to identify if you are eligible for a more streamlined application process.
#1. If you obtained a loan of $50,000 or less, you are eligible to use forgiveness application Form 3508S which requires fewer calculations and less documentation for borrowers. Borrowers using this form are exempt from reductions in loan forgiveness due to Full-Time Equivalent (FTE) employee reductions and/or salaries and wages. There is also no requirement to show calculations used to determine loan forgiveness amounts. Please use the following links to access the form and instructions.
*There are currently discussions in Congress to implement a similarly streamlined application process for loans up to $150,000. Until a decision on this is made, we generally advise holding off on submitting forgiveness applications if your loan amount falls between $50,000 and $150,000
#2. See if you qualify for the 3508EZ loan forgiveness application – A brief, high-level summary of qualifications is as follows:
- the borrower is self-employed with no wages at the time of PPP application, OR
- the borrow did not reduce wages more than 25% during the covered period AND did not reduce the number of employees or average paid hours between January 1, 2020, and end of the covered period, OR
- the borrow did not reduce wages more than 25% during the covered period AND was unable to operate during the covered period at pre-COVID levels of business activity due to compliance with established governmental requirements.
Please see the following links for more in-depth detail on these qualifications as well as exceptions.
#3. When gathering supporting documentation for your loan forgiveness application, it may not be necessary to gather ALL of the applicable expense information. For example, for a loan amount of $200,000, compile enough expenses to cover that $200,000 with some cushion to account for any unforeseen disallowance, i.e., submit and document around $220,000-$240,000 of expenses although you may have actually spent $500,000 of eligible expenses during your covered period. Additionally, if loan forgiveness will be covered with entirely payroll expenses, something as simple as a report for the covered period from your third-party payroll provider should be sufficient from a documentation standpoint
#4. Lastly, please keep in mind that if your business qualifies for the §199A qualified business income (QBI) deduction and/or the tax credit for research and development (R&D) expenses, there are certain caveats to consider when using payroll expenses for qualified loan forgiveness. Absent relevant guidance, use of these types of expenses could result in a reduction of said expenses available to be allocated toward QBI and R&D.
Please consult your WVC adviser to further evaluate the most beneficial allocation and use of qualified expenses for PPP loan forgiveness. We also encourage you to check-out our PPP Roadmap here.
By: Jon Floering, CPA