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UPDATED PPP essentials for small business owners: Qualifying Expenses, Forgiveness, and Recent Changes

It’s been several months now since many small business owners have received and spent their Paycheck Protection Program (PPP) loan awards, and many businesses are now ready to start the forgiveness process.  But SBA rules and legislation have significantly changed the terms of the program since the Cares Act was first passed, and we expect significant changes to come within the next few months.

To recap and update, here’s how the rules surrounding PPP loan forgiveness are being interpreted at this time:

  1. Once the funds are received, the borrower now has 24 weeks to use the funds for eligible expenses in order to qualify for loan forgiveness. Loans dated through June 5, 2020, though, can elect to keep the original 8-week period.
  2. The funds must be used for qualifying expenses within 24 weeks (or if elect, 8 weeks) starting on the date the PPP funds were received (the “covered period”), but in no event later than December 31, 2020.
  3. Qualifying expenses include payroll costs, rent, utilities, and interest on mortgages of real and personal property. Related party rent though is now limited to the amount of mortgage interest paid that is attributable to the space being rented by the PPP borrower.
  4. At least 60% of the PPP funds must be used for payroll costs in order to obtain full forgiveness. Otherwise, there is partial forgiveness.
  5. Payroll costs include: wages (but no more than $100,000 as prorated per employee, which results in a cap of $15,385 for the 8-week period or $46,154 for the 24-week period), employer state and local payroll taxes (mainly state unemployment taxes for Michigan employers), health insurance premiums and other employee benefit programs, and employer retirement contributions.

    However, limitations apply to business owners.  For health insurance, only C-corporation owners are eligible to include this cost, and for retirement contributions, only C and S corporations can include this cost.  These costs though are limited to 2019’s amounts as follows: 8/52 for 8-week Covered Period, and 2.5/12 for 24-week Covered Period.

    For limits on cash compensation to business owners, see chart below:


  6. SBA guidance [2] has provided additional information regarding timing issues for eligible payroll costs:

7. Non-related party rent, utilities, and interest on mortgages of real and personal property qualify as long as these were already in place as of 2/5/20. Utilities include electricity, gas, water, telephone, internet access, and transportation.

8.  The forgiven amount of eligible PPP costs is reduced if there is a reduction in the average full-time employee counts during the covered period (or APCP) as compared to the “reference period.”

9.  Any PPP funds used and not forgiven, as well as any unused PPP funds, will remain as a PPP loan, and subject to the PPP loan repayment terms which are now as follows: no payments until the SBA grants forgiveness or forgiveness is denied, 1% interest rate, and 5 year repayment period for new borrowers, and for current borrowers as well if the lender agrees. If the borrower does not apply for forgiveness within 10 months after the 24-week covered period (or 12/31/20 if earlier), he must begin making payments at that time.


10.  If an EIDL grant was received, it is considered an advance of PPP forgiven funds, and thus the PPP forgiven amount is reduced by the EIDL grant amount.  This means that there will be a PPP loan repayment for the amount of any EIDL grant received, to the extent there is any PPP forgiveness.

11.  The most recent act also expanded the deferral of the employer’s share of social security taxes to 12/31/20 for PPP borrowers.

The SBA has since released three Loan Forgiveness Applications:

If you would like help managing your PPP loan and preparing for the forgiveness application, please schedule an initial consultation [7] with a ShindelRock tax professional.