Tax & Assurance Guidance

PPP Loan Forgiveness FAQs

Posted on August 10, 2020 by

Tim Hilligoss

Tim Hilligoss

Sarah Russell

Sarah Russell

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The COVID-19 pandemic caught many by surprise including business owners who were required to comply with forced business closures and others who experienced modified operating rules or dwindling demand. These changes were made against the backdrop of fear and concern about virus transmission that significantly altered consumer behavior. The combination of these events resulted in sharp cost-cutting measures including employee furloughs, layoffs, and terminations. In a search for much-needed capital many turned to the popular Paycheck Protection Program (PPP) due to the favorable terms and opportunity for loan forgiveness. As the SBA will begin accepting forgiveness applications from lenders on August 10 many borrowers have refocused on securing the maximum forgiveness amount possible. In addition, on August 4, the SBA released an updated version of the PPP Loan Forgiveness FAQ document. The update addresses specific forgiveness details such as FTE reductions, employee pay reductions, group healthcare costs, and more. To help clients, prospects, and others, Clayton & McKervey has provided a summary of key updates below.

PPP Loan Forgiveness FAQs

Which loan forgiveness application should sole proprietors, independent contractors, or self-employed individuals with no employees complete?

Sole proprietors, independent contractors, and self-employed individuals 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 in the Borrower Application Form automatically qualify to use the Loan Forgiveness Application Form 3508EZ or lender equivalent and should complete that application.

Are payroll costs that were incurred during the Covered Period or the Alternative Payroll Covered Period but paid after the Covered Period or the Alternative Payroll Covered Period eligible for loan forgiveness?

Yes, if the payroll costs are paid on or before the next regular payroll date after the Covered Period or Alternative Payroll Covered Period.

Are payroll costs that were incurred before the Covered Period but paid during the Covered Period eligible for loan forgiveness?


For purposes of calculating cash compensation, should borrowers use the gross amount before deductions for taxes, employee benefits payments, and similar payments, or the net amount paid to employees?

The gross amount should be used when calculating cash compensation.

What expenses for group health care benefits will be considered payroll costs eligible for loan forgiveness?

Employer expenses for employee group health care benefits that are paid or incurred by the borrower during the Covered Period or the Alternative Payroll Covered Period are eligible for forgiveness. However, payroll costs do not include expenses for group health care benefits paid by employees (or beneficiaries of the plan) either pre-tax or after tax, such as the employee share of their health care premium. Forgiveness is not provided for expenses for group health benefits accelerated from periods outside the Covered Period or Alternative Payroll Covered Period. If a borrower has an insured group health plan, insurance premiums paid or incurred during the Covered Period or Alternative Payroll Covered Period qualify as “payroll costs,” as long as the premiums are paid during the applicable period or by the next premium due date after the end of the applicable period.

Are nonpayroll costs incurred prior to the Covered Period, but paid during the Covered Period, eligible for loan forgiveness?

Yes, eligible business mortgage interest costs, eligible business rent or lease costs, and eligible business utility costs incurred prior to the Covered Period and paid during the Covered Period are eligible for forgiveness.

Are nonpayroll costs incurred during the Covered Period, but paid after the Covered Period, eligible for loan forgiveness?

Nonpayroll costs are eligible for loan forgiveness if they were incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.

Will a borrower be subject to a reduction to its forgiveness amount due to a reduction in FTE employees during the Covered Period if the borrower offered to rehire one or more laid-off employees but the employees declined?

In calculating its loan forgiveness amount, a borrower may exclude any reduction in FTE employees if the borrower is able to document in good faith the following: (1) an inability to rehire individuals who were employees of the borrower on February 15, 2020 and (2) an inability to hire similarly qualified individuals for unfilled positions on or before December 31, 2020. Borrowers are required to inform the applicable state unemployment insurance office of any employee’s rejected rehire offer within 30 days. The documents that borrowers should maintain include the written offer to rehire an individual and a written record of the offer’s rejection.

For purposes of calculating the loan forgiveness reduction required for salary/hourly wage reductions more than 25% for certain employees, are all forms of compensation included or only salaries and wages?

For purposes of calculating reductions in the loan forgiveness amount, the borrower should only consider decreases in salaries or wages


Contact Us

Like many other aspects of the PPP, the loan forgiveness process continues to be clarified and shaped by essential updates such as this one. It is necessary to carefully review relevant information to determine how you may be impacted. Given the complexity of loan forgiveness, it is important to work with a qualified advisor to guide you through the process. If you have questions about the information outlined above or need assistance with loan forgiveness, Clayton & McKervey can help. For additional information call us at 248-208-8860 or click here to contact us. We look forward to speaking with you soon.

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Tim Hilligoss

Shareholder, Tax & Assurance

As a trusted advisor, Tim guides clients through business transactions, tax issues and international expansion.

Sarah Russell

Shareholder, Tax

As the leader of the firm's tax group, Sarah supports growth-driven domestic and international businesses with tax planning, consulting and compliance.

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