October 27, 2020
Updates on Paycheck Protection Program (PPP) Loan Forgiveness
PPP Loans of $50,000 or Less:
- Earlier this month the SBA and US Treasury issued a joint Interim Final Rule (IFR) that created two new de minimis exemptions:
- A de minimis exemption from the full-time equivalent (FTE) employee reduction penalty for PPP loans of $50K or less and
- A de minimis exemption from the employee salary and wages reduction penalty for PPP loans of $50K or less.
- The IFR also announced the release of a simpler loan forgiveness application for PPP loans of $50K or less; the Form 3508S.
- Borrowers will still need to make sure they have paid sufficent payroll and non-payroll costs, as defined under the CARES and Paycheck Protection Program Flexibility (PPPF) Acts, during the covered period to qualify for the maximum amount of loan forgiveness. However, there will be NO reduction in loan forgiveness for loans of $50K or less if the business has a reduction in FTEs or wages during the covered period (either 8-weeks or 24-weeks).
- Borrowers with loans of $50K or less will be required to make 7 representations/certifications on the Form 3508S but will be required to provide less supporting documentation with the application as compared to loans greater than $50K.
- If you are a borrower with a PPP loan of $50K or less, you should consider submitting your PPP loan forgiveness application with your lender once your covered period has ended. Most lenders have set up PPP loan forgiveness application portals and have or are in the process of sending portal invitations to their borrowers.
- Below are links to Form 3508S and Form 3508S Instructions:
PPP Loan Forgiveness Application Form 3508S Instructions for Borrowers
Comments applicable to all PPP borrowers:
- PPP loan forgiveness applications are due within 10 months from the end of the covered period.
- It is not recommended that a borrower file a PPP loan forgiveness application before the end of the covered period. This is because the AICPA has advised they believe the SBA's position is that the cap on employee compensation eligible for forgiveness should be prorated based upon the number of weeks used during the covered period.
- If you are a self-employed borrower (sole proprietor or single member LLC) you must elect the 24-week covered period in order to achieve maximum loan forgiveness. In addition, a self-employed borrower should write himself a check during the covered period equal to the amount of 'owner compensation replacement' as calculated on the PPP loan application.
- If you have payroll, we recommend you contact your payroll service provider and inquire about payroll reports that have been developed to assist borrowers with the PPP loan forgiveness application. All of the major payroll providers can produce such reports and a borrower should submit these customized PPP payroll reports as part of the PPP loan forgiveness documentation.
- While the IRS has taken a position that a taxpayer cannot deduct expenses paid with a forgiven PPP loan, the AICPA does NOT believe that was the intention of our lawmakers. We remain hopeful this issue will be addressed in the next round of COVID-19 relief legislation. Stay tuned...
PPP Loans Greater than $50,000:
- The AICPA believes there is still bi-partisan support to streamline the PPP loan forgiveness process for loans greater than $50,000 but less than $100,000. Thus, if you fall into this category we recommend that you exercise patience and wait to see if any changes are enacted before year-end.
- On June 16, 2020 the SBA released a new Form 3508EZ. A borrower is eligible to use the Form 3508EZ if the borrower meets at least one of the following:
- Are self-employed AND have no employees
- Did NOT reduce the salaries or wages of their employees by more than 25% AND did NOT reduce the number or average hours of their employees
- Experienced reductions in business activity as a result of health directives related to COVID-19 AND did NOT reduce the salaries or wages of their employees by more than 25%.
- Form 3508EZ eliminates the need to complete Schedule A as well as the Schedule A Worksheet and is intended to be a simplified method for borrowers that meet the above criteria.
- Below are links to Form 3508EZ and Form 3508EZ Instructions:
PPP Loan Forgiveness Application Form 3508EZ Instructions for Borrowers
- If a borrower is not eligible to file Form 3508EZ, the borrower must complete the standard Form 3508 which was also updated on June 16, 2020 to incorporate changes that were enacted with the PPPF Act.
- Below are links to Form 3508 and Form 3508 Instructions:
The PPP loan forgiveness process is likely to be time consuming and complex. If you have questions or want assistance with the process, please reach out to Jennifer. Wishing you continued health and safety during these challenging times.
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