As the anchor of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Paycheck Protection Program (PPP) has been instrumental in providing $525 billion in much-needed forgivable loans to U.S. businesses in 2020. The Small Business Administration (SBA) acted swiftly to provide loans to roughly five million businesses adversely affected by the COVID-19 pandemic. IRS rules regarding the process to receive loan forgiveness have required several rounds of clarifications, and many business owners remain uncertain about which forms to use, the covered period, how to calculate loan forgiveness amount, qualifying payroll costs, and several other issues.
Goldin, Peiser & Peiser’s PPP Loan Forgiveness Consulting Services team has released a 5-part video series to succinctly answer each of these questions. Each episode is less than 10 minutes in length. While the videos provide detailed information, GPP encourages you to reach out to our team to address your specific loan circumstances because each company’s situation is different.
Part I: Understanding PPP Loan Forgiveness Forms
The IRS assigned all PPP loan forgiveness forms the same number: 3508. However, there are three variations of the form: 3508S (simple), 3508EZ and 3508 (long form). To qualify for the simple form, the loan must be $50,000 or less, and there is an affiliate rule that loans for all affiliates cannot be greater than $2 million to use the 3508S. The benefit of using this form is that you will not be subjected to loan forgiveness reductions tests.
You can use Form 3508EZ if: you are self-employed, independent contractor or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll ion the original loan application form, or your business can certify that you have not reduced the number of employees or the average paid hours by more than 25% between January 1, 2020 and the end of the covered period, or that you were not able to return to the business levels you were at before February 15, 2020. Other borrowers default to the long form, which includes lines that address the loan forgiveness reduction tests.
To learn more about PPP loan forgiveness forms, watch Part I of our video series: Understanding the PPP loan forgiveness forms.
Part II: Understanding the PPP Loan Covered Period
The PPP covered period is the period borrowers are eligible for loan forgiveness for certain qualified expenditures like payroll costs and certain non-payroll costs. The coverage period begins the date the loan proceeds were deposited into an account. For many borrowers the coverage period is 24 weeks, but if the loan is dated before June 5, the borrower can pick an eight-week covered period. The covered period can’t extend beyond December 31, 2020. The video addresses safe harbors and the loan forgiveness reduction tests and answers questions, such as, “Do I have to use the full 24 weeks?” Borrowers must be strategic in determining the timing they wish to use to maximize their PPP loan forgiveness.
To learn more about the PPP loan covered period, watch Part 2 of our video series: Understanding the PPP loan covered period.
Part III: Understanding the PPP Loan FTE Calculations
FTE calculations take into account both full- and part-time employees working a 40-hour week. There are two ways to calculate the total employee headcount, and this video provides the specific calculations associated with the three loan application forms. Borrowers may be required to submit a certification that uses an FTE analysis of the numbers of hours and employees the business had between January 1, 2020 and the date of the last pay in the covered period, whether the borrower is using eight or 24 weeks. Another certification is required for borrowers unable to operate during the covered period at the same level of business activity as before February 15, 2020. Please note: The FTE analysis is more complicated for those using the 3508 long form. Borrowers should work closely with their accountants and legal counsel.
To learn more about PPP loan FTE calculations, watch Part 3 of our video series: Understanding the PPP loan FTE calculations.
Part IV: Understanding the PPP Qualifying Payroll Cost
The PPP qualifying payroll cost includes both cash and noncash amounts. Cash compensation is a sum of gross salary, gross wages, gross tips, and paid leave, including medical or sick leave during the covered period. However, borrowers cannot include sick leave and expanded family and medical leave taken under the Families First Coronavirus Response Act (FFCRA). Noncash payroll costs like healthcare insurance and retirement may count toward forgiveness, depending on the business entity. This video includes the cap on salaries that can be used to determine the total amount of cash compensation eligible for forgiveness and provides detailed examples of calculations for various entities and loan periods.
To learn more about the PPP qualifying payroll cost, watch Part 4 of our video series: Understanding the PPP qualifying payroll cost.
Part V: FAQs
GPP’s PPP loan consultants work closely with borrowers to answer a wide range of questions pertaining to PPP loan forgiveness. In this final episode in our 5-part video series, we address the most frequently asked questions, including the following:
- Can a borrower switch from eight weeks to 24 weeks for their loan coverage period?
- When can lenders begin to submit loan forgiveness apps to SBA, and how long will the forgiveness process take?
- Can a borrower apply for forgiveness before the end of the covered period?
- Can payments on loans be deferred?
To hear the answers to some of the most frequently asked questions about the PPP loan forgiveness process, watch Part 5 of our video series: Additional FAQs
PPP loan forgiveness is a great boost to businesses adversely affected by the COVID-19 pandemic, but you must approach the complicated application process strategically and carefully to ensure maximum benefits and compliance with every requirement. By working closely with your PPP loan forgiveness consultant, you can determine which application and coverage period makes the most sense for your business.
COVID-19 Resources and Planning Services
Goldin Peiser & Peiser will continue to monitor all matters related to PPP loan forgiveness to provide you with updates. Our CARE team can help ensure you receive the maximum amount of loan forgiveness by complying with program requirements.
Please visit our PPP Loan Forgiveness Consulting Services website page to learn more. If you need help with your PPP Loan Forgiveness application or have additional questions, email us at CARETEAM@GPPcpa.com or call Ann Bond at 972-818-5399.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.