How to Apply for Forgiveness for Your Paycheck Protection Program (PPP) Loan

How to Apply for Forgiveness for Your Paycheck Protection Program (PPP) Loan

How to Apply for Forgiveness for Your Paycheck Protection Program (PPP) Loan

This article has been significantly updated June 18, to include information from the new PPP Forgiveness Application.

Treasury and SBA have released the new PPP Forgiveness Application that many borrowers will use to apply for forgiveness of their Paycheck Protection Program (PPP) loan. (There is also an alternative EZ form, see below.) In this article, we will walk PPP borrowers through that application and share additional information provided in prior guidance where applicable. 

Please note, the material contained in this article is for informational purposes only, is general in nature, and should not be relied upon or construed as a legal opinion or legal advice. Please keep in mind this information is changing rapidly and is based on our current understanding of the programs. It can and likely will change. Although we will be monitoring and updating this as new information becomes available, please do not rely solely on this for your financial decisions. We encourage you to consult with your lawyers, CPAs and Financial Advisors.

Note this article covers Paycheck Protection Program (PPP) loans. These are different from Economic Injury Disaster Loans (EIDLs) which include a grant of up to $10,000 that does not have to be repaid. Learn about EIDL here

Understand that completing this application will require a number of calculations. If you are not comfortable with this process, get help from your accountant or financial advisor.

Credit Secrets for Entrepreneurs

Credit Secrets for Entrepreneurs

Trying to understand your credit? Get a discount on Gerri’s “Credit Secrets for Entrepreneurs” course with WealthFit.

Learn more

How Does SBA Loan Forgiveness Work?

There is a lot to digest here and hopefully it will make sense once you approach it methodically. In this article, we provide both background information as well as details on specific questions related to the application when that information is available in official guidance. 

Before we dive into details, let’s quickly review the Paycheck Protection Program (PPP) loan program. It is an SBA loan program under the SBA 7(a) program, and was created by the CARES Act that became law March 27, 2020.  On June 5, 2020 the President signed the Paycheck Protection Program Flexibility Act. Then on June 16, 2020 Treasury released a new PPP Forgiveness Application and instructions.

The basic premise of PPP is that business owners—including those who are self-employed—can apply for a loan of 2.5 times their average monthly payroll. Once they get the loan they are to spend the funds during a specific period of time (soon after they get the loan) on approved expenses—mostly for payroll—and if they do so, they can apply to have the entire amount forgiven.

Overall the process is supposed to work like this: 

  • You get a PPP loan.
  • During the covered period (which we’ll describe in a  moment) , you spend it on specific items, primarily payroll. 
  • You apply for forgiveness with your lender and provide required documentation.
  • The lender has up to 60 days to respond to your request for forgiveness, and ideally agrees and the balance is forgiven. 
  • Any balance not forgiven will become a loan at 1% for up to 2 years. (5 years for loans made on or after June 5, 2020). 

We’ll go into more details in this article. 

Filling Out the PPP Forgiveness Application

Filling out your PPP forgiveness application will be very different depending on whether you have employees or not. 

The most complicated part of filling out the forgiveness application is filling out the payroll sections. We’ll provide as much information as possible here but keep in mind this information does not replace professional accounting or legal advice. In fact, I strongly encourage you to  work with your accountant before you submit your application for forgiveness.

What Is Payroll? 

Section 1102 of the CARES Act states that payroll includes:

  • Salary, wages, commissions or similar compensation,
  • Payment of cash tips or equivalent  (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips),
  • Payment for vacation, parental, family, medical, or sick leave;
  • Allowance for dismissal or separation;
  • Payment required for the provisions of employee benefits including insurance premiums (employer cost);
  • Payment of any retirement benefit (employer cost);
  • Payment of State or local tax assessed on the compensation of employees.

It does not include:

  • The compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period;
  • Any compensation of an employee whose principal place of residence is outside the United States;
  • Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.

Also note that payments to independent contractors are not covered under the employer’s payroll. 

Before we dive into the application, there are a couple of important questions you’ll need to be able to answer. Let’s tackle two of them right now. 

What is the Covered Period and the Alternative Covered Period?

On the first page of the application, you’ll see sections asking you to fill in:

Covered Period: _________ to __________ 

Alternative Payroll Covered Period, if applicable: _________ to __________

These time periods are critically important for calculating forgiveness. Here’s how they work: 

The Covered Period

The PPP Flexibility Act changed the Covered Period for purposes of the calculations above. (Note there is more than one “Covered Period” in the CARES Act. Here we are talking about the one that refers to when you spend the funds to qualify for forgiveness.) 

“The Covered Period is either: 

(1) the 24-week (168-day) period beginning on the PPP Loan Disbursement Date, or 

(2) If the Borrower received its PPP loan before June 5, 2020, the Borrower may elect to use an eight-week (56-day) Covered Period. 

For example, if the Borrower is using a 24-week Covered Period and received its PPP loan proceeds on Monday, April 20, the first day of the Covered Period is April 20 and the last day of the Covered Period is Sunday, October 4. In no event may the Covered Period extend beyond December 31, 2020.” 

The Alternative Payroll Covered Period 

However, not all businesses’ payroll periods match up perfectly with the date when they receive their PPP funds so there is an Alternative Payroll Covered Period under which the business can spend PPP funds and still qualify for full forgiveness. This is called the Alternative Covered Payroll Period and the instructions describe it this way: 

“For administrative convenience, borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the 24-week (168-day) period or for loans received before June 5, 2020 at the election of the borrower, the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date. 

For example, if the Borrower is using a 24-week Alternative Payroll Covered Period and 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, October 10. 

Borrowers that elect to use the Alternative Payroll Covered Period must apply the Alternative Payroll Covered Period wherever there is a reference in this application to “the Covered Period or the Alternative Payroll Covered Period.” 

However, Borrowers must apply the Covered Period (not the Alternative Payroll Covered Period) wherever there is a reference in this application to “the Covered Period” only. In no event may the Alternative Payroll Covered Period extend beyond December 31, 2020.”

Keep in mind as you go through the application process that there may be times you need to use one or the other, which is why you need to make a note of both and read the questions on the application carefully. (Emphasis added here): 

  • If you decide to use the alternative payroll covered period, use that whenever the application references “the Covered Period or the alternative payroll covered period.” 
  • However, if the application states “the Covered Period’ only, make sure you use that time period. Details matter.

How to Calculate FTE

Another term you’ll see throughout the application is “FTE,” which stands for Full-time Equivalent or Full-time Equivalency. This is a calculation based on the number of hours an employee works. 

Full-time equivalent (FTE) can take into account both full-time and part-time employees. The PPP Forgiveness Application explains how to calculate FTE for PPP loan forgiveness. Here’s what it says: 

“For each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0. 

“A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the election of the borrower.” 

Make sure you understand that you have these two options for calculating FTE. This calculation is going to be very important for forgiveness purposes as you’ll see when we walk through the application. 

As you follow along here, note that we have copied actual fields and their instructions from the SBA application. Tips in italics below those fields are our comments, based on our understanding of the current guidance. 

PPP Schedule A Worksheet Employee Information

To fill out the application, you may not want to start at the beginning. Instead, it may make sense to skip ahead to the PPP Schedule A Worksheet on page 3 of the application. You’ll need to calculate information about employees’ hours and wages in order to plug that information back into the application. 

Table 1: List employees who: 

• Were employed by the Borrower at any point during the covered period or the alternative payroll covered period whose principal place of residence is in the United States; and 

• Received compensation from the Borrower at an annualized rate of less than or equal to $100,000 for all pay periods in 2019 or were not employed by the Borrower at any point in 2019. (Note: Other employees will be in the next table.) 

Let’s look at each of these fields: 

Employee’s Name: Here you list each employee’s name. Do not include any independent contractors, owner-employees, self-employed individuals, or partners.

Employee Identifier: This is the last four digits of their Social Security numbers. 

Enter Cash Compensation: Enter the sum of gross salary, gross wages, gross tips, gross commissions, paid leave (vacation, family, medical or sick leave, not including leave covered by the Families First Coronavirus Response Act), and allowances for dismissal or separation paid or incurred during the covered period or the alternative payroll covered period. 

Average FTE: Earlier we talked about how to calculate FTE. You need to calculate average FTE for the covered period or the alternative payroll covered period for each employee included in this table. 

FTE Reduction Exceptions: 

Do you see the grey box in Table 1 on the application that says “FTE Reduction Exceptions?” This is essentially where you identify employees who could not or would not return to work so you (ideally) won’t be penalized with a reduction in forgiveness.

Specifically, here you indicate the FTE of: 

  1. Any positions for which the Borrower made a good-faith, written offer to rehire an individual who was an employee on February 15, 2020 and the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020;
  2. Any positions for which the Borrower made a good-faith, written offer to restore any reduction in hours, at the same salary or wages, during the Covered Period or the Alternative Covered Period and the employee rejected the offer, and 
  3. Any employees who during the Covered Period or the Alternative Payroll Covered Period (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours.  

In all of these cases, include these FTEs on this line only if the position was not filled by a new employee. Any FTE reductions in these cases do not reduce the borrower’s loan forgiveness.

Rehiring “Safe Harbor” Calculations

By way of background, the CARES Act and PPP Flexibility Act provides a “safe harbors” that allows employers to avoid a reduction in forgiveness.

FTE Safe Harbor

The FTE safe harbor “exempts certain borrowers from the loan forgiveness reduction based on FTE employee levels.

The PPP Flexibility Act added a new safe harbor: 

“The Borrower is exempt from the reduction in loan forgiveness based on a reduction in FTE employees described above if the Borrower, in good faith, is able to document that it was unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.” 

In addition, the original safe harbor still applies (with a modification of dates). Specifically, the Borrower is exempt from the reduction in loan forgiveness based on FTE employees described above if both of the following conditions are met: 

  1. The Borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and 
  2. The Borrower then restored its FTE employee levels by not later than December 31, 2020 to its FTE employee levels in the Borrower’s pay period that included February 15, 2020.”

The worksheet for calculating the second safe harbor (on page 4 of the application) involves multiple steps:  

FTE Reduction Safe Harbor 

Step 1. Enter the borrower’s total average FTE between February 15, 2020 and April 26, 2020. Follow the same method that was used to calculate Average FTE in the PPP Schedule A Worksheet Tables. Sum across all employees and enter: ______________. 

Step 2. Enter the borrower’s total FTE in the Borrower’s pay period inclusive of February 15, 2020. Follow the same method that was used in step 1: ______________. 

Step 3. If the entry for step 2 is greater than step 1, proceed to step 4. Otherwise, the FTE Reduction Safe Harbor is not applicable and the Borrower must complete line 13 of PPP Schedule A by dividing line 12 by line 11 of that schedule. (Note: we’ll get to that in shortly.) 

Step 4. Enter the borrower’s total FTE as of the earlier of December 31, 2020, and the date this application is submitted: ______________. 

Step 5. If the entry for step 4 is greater than or equal to step 2, enter 1.0 on line 13 of PPP Schedule A; the FTE Reduction Safe Harbor has been satisfied. Otherwise, the FTE Reduction Safe Harbor does not apply and the Borrower must complete line 13 of PPP Schedule A by dividing line 12 by line 11 of that schedule.

You’ll enter this information in the forgiveness calculation in a moment. 

Salary/Hourly Wage Reduction Safe Harbor 

Under the CARES Act, reducing salaries or wages during the covered period by more than 25% generally reduces forgiveness. But, again, there is a safe harbor provision. Let’s dive into how that actually works.

This is found on page 4 of the application instructions: 

For each employee listed in Table 1, complete the following (using salary for salaried employees and hourly wage for hourly employees): 

Step 1. Determine if pay was reduced more than 25%

1a. Enter average annual salary or hourly wage during the covered period or the alternative payroll covered period: ______________. 

1b. Enter average annual salary or hourly wage between January 1, 2020 and March 31, 2020: ______________. 

1c. Divide the value entered in 1.a. by 1.b.: ______________. 

If 1.c. is 0.75 or more, enter zero in the column above box 3 for that employee (note: this is the column titled Salary / Hourly Wage Reduction); otherwise proceed to Step 2. 

Step 2. Determine if the Salary/Hourly Wage Reduction Safe Harbor is met. 

2a. Enter the annual salary or hourly wage as of February 15, 2020: ______________. 

2b. Enter the average annual salary or hourly wage between February 15, 2020 and April 26, 2020: ______________. 

If 2.b. is equal to or greater than 2.a., skip to Step 3. Otherwise, proceed to 2.c. 

2c. Enter the average annual salary or hourly wage as the earlier of December 31, 2020 and the date this application is submitted: ______________. 

If 2.c. is equal to or greater than 2.a., the Salary/Hourly Wage Reduction Safe Harbor has been met – enter zero in the column above box 3 for that employee. 

Otherwise proceed to Step 3. 

Step 3. Determine the Salary/Hourly Wage Reduction

3a. Multiply the amount entered in 1.b. by 0.75: ______________. 

3b. Subtract the amount entered in 1.a. from 3.a.: ______________.

If the employee is an hourly worker, compute the total dollar amount of the reduction that exceeds 25% as follows: 

3c. Enter the average number of hours worked per week between January 1, 2020 and March 31, 2020: ______________. 

3d. Multiply the amount entered in 3.b. by the amount entered in 3.c. ______________. Multiply this amount by 24 (if borrower is using a 24-week covered period) or 8 (if borrower is using an 8-week covered period): ______________. 

Enter this value in the column above box 3 for that employee. 

If the employee is a salaried worker, compute the total dollar amount of the reduction that exceeds 25% as follows: 

3e. Multiply the amount entered in 3.b. by 24 (if borrower is using a 24-week covered period) or 8 (if borrower is using an 8-week covered period): ______________. 

Divide this amount by 52: ______________. 

Enter this value in the column above box 3 for that employee.

Boxes 1 through 3 Totals: Enter the sum of the amounts in each column: Cash Compensation, Average FTE and Salary/Hourly Wage Reduction 

If you’ve made it this far, you have completed Table 1 on the PPP Schedule A Worksheet. Congratulations! 

Now let’s fill out Table 2. We’ve bolded a few key items to make sure you read them carefully. 

Table 2: List employees who: 

  • Were employed by the borrower at any point during the covered period or the alternative payroll covered period whose principal place of residence is in the United States; and 
  • Received compensation from the Borrower at an annualized rate of more than $100,000 for any pay period in 2019.

Remember, you are entering the cash compensation during the covered period or the alternative payroll covered period. For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the covered period; therefore, do not enter more than $15,385 if using the 8-week covered period or $20,833 if using the 24-week covered period in Table 1 or Table 2 for any individual employee.

Similarly for the Average FTE, remember this calculates the average full-time equivalency (FTE) during the covered period or the alternative payroll covered period.

Now you have completed the PPP Schedule A Worksheet. Congratulations! 

Get your full credit picture in one spot

Get your full credit picture in one spot

Nav brings your personal and business credit together in one FREE account so you can monitor your full credit picture.

Sign up for free

Filling Out PPP Schedule A

Now you will use the information you just filled out to fill out the PPP Schedule A. This is found on Page 3 of the application. 

PPP Schedule A Worksheet, Table 1 Totals

Lines 1 – 5 should be pretty self-explanatory as they will be filled out using the information from the worksheet you just completed. (PPP Schedule A Worksheet) 

Non-Cash Compensation Payroll Costs During the Covered Period or the Alternative Payroll Covered Period 

Note that you will fill this section out using the covered period OR the alternative payroll covered period. 

Line 6. Total amount paid by Borrower for employer contributions for employee health insurance: ___________________ 

Enter the total amount paid by the Borrower for employer contributions for employee health insurance, including employer contributions to a self-insured, employer-sponsored group health plan, but excluding any pre-tax or after tax contributions by employees. Do not add employer health insurance contributions made on behalf of a self-employed individual, general partners, or owner-employees of an S-corporation, because such payments are already included in their compensation.

Line 7. Total amount paid by Borrower for employer contributions to employee retirement plans: ___________________ 

Enter the total amount paid by the borrower for employer contributions to employee retirement plans, excluding any pre-tax or after-tax contributions by employees. Do not add employer retirement contributions made on behalf of a self-employed individual or general partners, because such payments are already included in their compensation.

Line 8. Total amount paid by borrower for employer state and local taxes assessed on employee compensation: ___________________

Enter the total amount paid by the borrower for employer state and local taxes assessed on employee compensation (e.g., state unemployment insurance tax); do not list any taxes withheld from employee earnings.

These additional payroll costs may be included in the calculations for forgiveness purposes. 

Compensation to Owners

Line 9. Total amount paid to owner-employees/self-employed individual/general partners: _____________________ 

This amount may not be included in PPP Schedule A Worksheet, Table 1 or 2. If there is more than one individual included, attach a separate table that lists the names of and payments to each.

“Enter any amounts paid to owners (owner-employees, a self-employed individual, or general partners). For Borrowers using a 24-week Covered Period, this amount is capped at $20,833 (the 2.5-month equivalent of $100,000 per year) for each individual or the 2.5-month equivalent of their applicable compensation in 2019, whichever is lower. For Borrowers using an 8-week Covered Period, this amount is capped at $15,385 (the eight-week equivalent of $100,000 per year) for each individual or the eight-week equivalent of their applicable compensation in 2019, whichever is lower.”

You’ll find more information in this Interim Final Rule

Total Payroll Costs Line 

10. Payroll Costs (add lines 1, 4, 6, 7, 8, and 9): ___________________

This figure will also go on line 1 of the PPP Loan Forgiveness Calculation Form

Full-Time Equivalency (FTE) Reduction Calculation 

If you satisfy any of the following three criteria, check the appropriate box, skip lines 11 and 12, and enter 1.0 on line 13; otherwise, complete lines 11, 12, and 13: 

No reduction in employees or average paid hours: If you have not reduced the number of employees or the average paid hours of your employees between January 1, 2020 and the end of the Covered Period, check here ☐. 

FTE Reduction Safe Harbor 1: If you were unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19, check here ☐. 

FTE Reduction Safe Harbor 2: If you satisfy FTE Reduction Safe Harbor 2 (see PPP Schedule A Worksheet), check here ☐. 

Line 11. Average FTE during the Borrower’s chosen reference period: _________ 

Enter the Borrower’s total average weekly full-time equivalency (FTE) during the chosen reference period. For purposes of this calculation, the reference period is, at the Borrower’s election, either (i) February 15, 2019 to June 30, 2019; (ii) January 1, 2020 to February 29, 2020; or (iii) in the case of seasonal employers, either of the preceding periods or a consecutive twelve-week period between May 1, 2019 and September 15, 2019. 

For each employee, follow the same method that was used to calculate Average FTE on the PPP Schedule A Worksheet. Sum across all employees during the reference period and enter that total on this line. The calculations on lines 11, 12, and 13 will be used to determine whether the Borrower’s loan forgiveness amount must be reduced based on reductions in full-time equivalent employees, as required by the statute. Specifically, the actual loan forgiveness amount that the Borrower will receive may be reduced if the Borrower’s average weekly FTE employees during the Covered Period (or the Alternative Payroll Covered Period) was less than during the Borrower’s chosen reference period. The Borrower is exempt from such a reduction and should skip lines 11 and 12, if any of the three criteria listed on PPP Schedule A under Full-Time Equivalency (FTE) Reduction Calculation has been met.

Line 12. Total Average FTE (add lines 2 and 5): ___________________ 

Remember Line 2 is based on Average FTE (Box 2) from PPP Schedule A Worksheet, Table 1 while Line 5 is Average FTE (Box 5) from PPP Schedule A Worksheet, Table 2. 

Line 13. FTE Reduction Quotient (divide line 12 by line 11) or enter 1.0 if FTE Safe Harbor is met: ___________________ 

Divide line 12 by line 11 (or enter 1.0 if the FTE Reduction Safe Harbor has been met, according to PPP Schedule A Worksheet—FTE Reduction Safe Harbor). If more than 1.0, enter 1.0. You’ll enter this amount on line 7 of the Loan Forgiveness Calculation Form when we get there.

PPP Loan Forgiveness Calculation Form

Now that the calculations in the worksheets are completed, you should be able to fill out the rest of the application. We’ll go back to page 1 of the application. 

First you’ll fill out some basic loan information: 

This information should be straightforward, and you will generally use the information you used to apply unless it has changed from the time you applied.  

SBA PPP Loan Number: ________________________ 

This is the number assigned by the SBA to your loan. If you don’t have it, ask your lender. 

Lender PPP Loan Number: __________________________ 

Enter the loan number assigned to the PPP loan by the Lender. Again, if you don’t know, ask your lender. 

PPP Loan Amount: _____________________________ 

This is the amount you received. 

PPP Loan Disbursement Date: _______________________

Again, this is when the funds were deposited in your bank account. If you received more than one disbursement, use the date of the first one. 

Employees at Time of Loan Application: ___________ 

Enter the total number of employees at the time of the Borrower’s PPP Loan Application. It’s unclear whether owner-employees should be included here. Check with your lender. 

Employees at Time of Forgiveness Application: ___________

Enter the total number of employees at the time the borrower is applying for loan forgiveness. Same question as the previous question. 

EIDL Advance Amount: ______________________

If you have received an EIDL advance (grant), enter it here. Note that the advance does not have to be repaid. It is different from an EIDL loan which must be repaid. (The deposit into your bank account would have included the notation EIDG for EIDL grant.)

EIDL Application Number: __________________________

If you applied for an EIDL, enter your application number. If you can’t find your application number, try contacting the SBA Disaster Assistance hotline. If they can’t help, ask your lender for advice on what to do.

Payroll Schedule: The frequency with which payroll is paid to employees is: ☐ Weekly ☐ Biweekly (every other week) ☐ Twice a month ☐ Monthly ☐ Other _____________

Covered Period: _________ to __________ 

Alternative Payroll Covered Period, if applicable: _________ to __________

We discussed these two periods at the beginning of this article. 

If Borrower (together with affiliates, if applicable) received PPP loans in excess of $2 million, check here: ☐

Check the box if the Borrower, together with its affiliates (to the extent required under SBA’s interim final rule on affiliates (85 FR 20817 (April 15, 2020)) and not waived under 15 U.S.C. 636(a)(36)(D)(iv)), received PPP loans with an original principal amount in excess of $2 million. If you received more than $2 million (with or without affiliates) make sure you review this with your advisors. 

Self-Employed PPP Loan Forgiveness Calculator - Estimated your Forgivable Amount

Self-Employed PPP Loan Forgiveness Calculator – Estimated your Forgivable Amount

Use this calculator if you are self-employed with no employees and filed or will file Schedule C for 2019.

Get Estimate

Forgiveness Amount Calculation

Payroll and Nonpayroll Costs 

This is where the information you filled out earlier for the worksheets will be helpful: 

Line 1. Payroll Costs (enter the amount from PPP Schedule A, line 10): _____________________ 

Enter total eligible payroll costs incurred or paid during the covered period or the alternative payroll covered period. Enter the amount you calculated and entered earlier on Line 10 of the PPP Schedule A.

Nonpayroll Costs: For the next three nonpayroll costs (line 2-5), a few instructions are in order. First, only include them if you want to apply for forgiveness for those amounts. As with payroll, there is a little flexibility in the event that the billing period for your mortgage, rent or utilities doesn’t match up perfectly with the covered period. The instructions clarify that:

“An eligible nonpayroll cost must be paid during the covered period or 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. Eligible nonpayroll costs cannot exceed 40% of the total forgiveness amount. Count non-payroll costs that were both paid and incurred only once.”

Line 2. Business Mortgage Interest Payments: _____________________ 

Enter the amount of business mortgage interest payments during the covered period for any business mortgage obligation on real or personal property incurred before February 15, 2020. Do not include prepayments.

Line 3. Business Rent or Lease Payments: _____________________ 

Enter the amount of business rent or lease payments for real or personal property during the covered period, pursuant to lease agreements in force before February 15, 2020. 

Line 4. Business Utility Payments: _____________________ 

Enter the amount of business utility payments during the covered period, for business utilities for which service began before February 15, 2020. Under the CARES Act, utility includes payment for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access. 

Adjustments for Full-Time Equivalency (FTE) and Salary/Hourly Wage Reductions 

Line 5. Total Salary/Hourly Wage Reduction (enter the amount from PPP Schedule A, line 3): _____________________ 

This amount reflects the loan forgiveness reduction required for salary/hourly wage reductions in excess of 25% for certain employees as described in PPP Schedule A.

Line 6. Add the amounts on lines 1, 2, 3, and 4, then subtract the amount entered in line 5: _____________________ 

If this amount is less than zero, enter a zero.

Line 7. FTE Reduction Quotient (enter the number from PPP Schedule A, line 13): _____________________ 

Enter the number from PPP Schedule A, line 13.

Potential Forgiveness Amounts

Line 8. Modified Total (multiply line 6 by line 7): _____________________ 

Enter the amount on line 6 multiplied by the amount on line 7. This calculation incorporates the loan forgiveness reduction required for any full-time equivalency (FTE) employee reductions as described in PPP Schedule A. For more information, see Interim Final Rule on Paycheck Protection Program posted on April 2, 2020 (85 FR 20811). 

Line 9. PPP Loan Amount: _____________________ 

Enter the loan amount you received from your lender. 

Line 10. Payroll Cost 60% Requirement (divide line 1 by 0.60): _____________________ 

Divide the amount on line 1 by 0.60, and enter the amount. This determines whether at least 60% of the potential forgiveness amount was used for payroll costs. 

Forgiveness Amount Line 11. Forgiveness Amount (enter the smallest of lines 8, 9, and 10): _____________________

If you’ve made it this far, you have calculated your potential forgivable amount. Congratulations!

There’s one caveat, though: the EIDL Reduction.  Strangely, the application does not require you to subtract the amount of an EIDL grant you received here, though previous guidance indicates the grant should be subtracted from the PPP for forgiveness purposes. The instructions for Line 11 note that “If applicable, SBA will deduct EIDL Advance Amounts from the forgiveness amount remitted to the Lender.” But it’s not a line item on the worksheet. If you did receive an EIDL grant, don’t be surprised if the amount of forgiveness is reduced by that amount. 

Representations and Certifications

On page 2 of the application you’ll see a list of representations and certifications the borrower must make. These will no doubt make some borrowers nervous about potentially running afoul of the rules and either not qualifying for forgiveness, or worse, putting themselves at risk of criminal penalties. If you are uncertain about any of the (often confusing) calculations in this application, you should get help from a legal or tax professional.

Documenting Forgiveness

You will need to keep certain records documenting forgiveness for six years after the date the loan is forgiven or paid in full. In addition, you must “permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.” 

The documentation requirements are found on page 6 of the instructions. 

The Borrower Demographic Form

Finally there is an optional PPP Borrower Demographic Information Form. It’s up to you whether you want to fill this out though it may be helpful to understand the demographics of business owners served by this program. 

More FAQs About PPP Forgiveness

Unfortunately Treasury and SBA did not include all of the guidance they’ve released in various FAQs and Interim Final Rules with the updated application or instructions. So we have incorporated some of that guidance here. There are still unanswered questions, however. 

What About Interest?

In previous guidance Treasury and SBA seemed to indicate that any interest accumulated on forgiven balances will be forgiven.  Though it’s not indicated in the forgiveness application, the June 19, 2020 Interim Final Rule clearly states: “The amount of loan forgiveness can be up to the full principal amount of the loan plus accrued interest.”

Will PPP Forgiven Balances Be Taxed? 

No. Read: Are Forgiven PPP Loans Taxable?

Chat with our Credit & Lending Experts

Chat with our Credit & Lending Experts

Get free, unbiased financing recommendations based on your business needs from our team of Credit & Lending Experts.

Schedule a call

Can I Pay Bonuses or Increase Salaries? 

There does not appear to be any restriction on paying bonuses or offering salary increases to employees, but experts advise that: 

  1. You document the need for providing those increases (such as hazard pay and/or necessary to retain employees) and 

Owners employees and general partners may not issue bonuses to themselves to fill shortfalls in eligible expenses used to apply for loan forgiveness. (Wendell Rosen LLP)

This article was originally written on May 21, 2020 and updated on June 18, 2020.

Rate This Article

This article currently has 27 ratings with an average of 5 stars.

ABOUT AUTHOR

Gerri Detweiler

Gerri Detweiler

Education Director for Nav

Credit expert Gerri Detweiler is Education Director for Nav. She has more than three decades of experience in consumer credit education, has been interviewed in more than 3500 news stories, and answered over 10,000 credit questions online. Her articles have been widely syndicated on sites such as MSN, Forbes, and MarketWatch. She is the author or coauthor of five books, including Finance Your Own Business: Get on the Financing Fast Track. She has testified before Congress on consumer credit legislation.

Have at it! We'd love to hear from you and encourage a lively discussion among our users. Please help us keep our site clean and protect yourself. Refrain from posting overtly promotional content, and avoid disclosing personal information such as bank account or phone numbers.

Reviews Disclosure: The responses below are not provided or commissioned by the credit card, financing and service companies that appear on this site. Responses have not been reviewed, approved or otherwise endorsed by the credit card, financing and service companies and it is not their responsibility to ensure all posts and/or questions are answered.

Leave a Reply

Your email address will not be published. Required fields are marked *

10 responses to “How to Apply for Forgiveness for Your Paycheck Protection Program (PPP) Loan

  1. Same question as April, but maybe I missed the answer? My husband is self employed and received the sba loan based on His schedule C net. He is the inly employee and only pays himself from business checking to personal checking what is leftover after business expenses each month. How does he need to “pay” himself each month? Write a check? Is business to checking still ok? Since his normal payroll to himself varies, is one transfer or check a month ok or does he have to it weekly?

    1. The guidance doesn’t really specify so we’re recommending business owners pay themselves out of a business checking account and keep a record of those payments. There’s nothing that says a self employed person who pays themselves has to do so on a specific schedule.

  2. What documentation will SBA require for self-employed individuals (Schedule C) in payments to themselves? Will the SBA require cancelled checks made payable to themselves or will a printed proof of transfer from a business account to a personal account suffice?

  3. On line 11 is says “forgiveness enter the smaller amount for lines 8, 9, 10.” Witch makes no since as line 10 will be the smaller since its 75% of the payroll coast of the loan. This does not include the Non payroll coast that can be forgiven if at least 75% of the loan was used for pay roll.

    In the instructions it says line 10 is “this determines weather at least 75% of the potential forgiveness amount was used for payroll coast”.

    If 75% of the loan was used on payroll then the other 25% can be used on non payroll coast that were outlined.

    1. Jared – It’s confusing no doubt. Note that now it’s 60% minimum for payroll. And you divide by .60 (not multiply) which should produce a different result.

      Note this article has been updated with the new application form. Also keep in mind you may qualify to use the EZ form, which is also new and referenced in this article.

      Hope that helps!

  4. Thank you for all the fantastic information on this topic. I’m interested in your thoughts/guidance in general about the 10 weeks of payroll expense for applications versus the 8 weeks for forgiveness – it seems strange to me that these do not align. In my case I’m a SMLLC and received a loan based on 10 weeks of Schedule C prorated net income. Aside from “payroll” (which in my case are owners draws) I do not have any of the other qualifying expenses (rent, utilities, etc.) in meaningful amounts. My intention was to use 100% of the loan proceeds for my payroll and I scheduled out the amounts/timing to conform to Sched C. Doing so however, means that my final pay period falls outside the 8 week forgiveness window. To illustrate the point let says net income Sched C was $52K, I’d qualify for a $10K loan, but payroll at the same amounts/same timeline as Sched C for an 8 week period would only be $8K – meaning the final $2K would not be eligible for forgiveness. Is there a requirement to tie payroll during the forgiveness period back to the same schedule C payroll used to qualify? Would a business owner simple forfeit the forgiveness on that final payroll of $2K in the example and have to repay it? Or, can the business owner simply pay himself (either at an increased rate each pay period, or as a “bonus” at the end of 8 weeks) all of the loan proceeds to ensure the full loan proceeds are used for payroll and thus have it all forgiven?