Kutchins, Robbins & Diamond, Ltd. Certified Public Accountants and Advisors

Paycheck Protection Loan Forgiveness

When the CARES Act was signed into law, it created the Paycheck Protection Program (PPP), which is a new loan designed to help small businesses pay employee wages and other critical expenses. Proceeds from this loan can be forgiven if certain criteria are met.

Once the PPP proceeds are deposited to a borrower’s account, the business must spend those funds within twenty-four weeks in order to be assured maximum loan forgiveness.

Loan proceeds must be used on payroll costs, mortgage interest on loans in place before February 15th, 2020, rent (lease agreement must be in force before February 15, 2020), and utilities (for which service began before February 15, 2020).

Payroll costs include:

  • Salary, wages, commissions, or tips (max of $100,000 per employee);
  • Employee benefits, including vacation, parental, family, medical, or sick leave;
  • State and local payroll taxes.

Examples of Situations That Would Reduce Loan Forgiveness

  • Loan forgiveness will be reduced if an employer decreases their number of full-time employees.
  • Salaries/wages must not be decreased by more than 25% for any employee earning less than $100,000 per year.
  • Full-time employment and salary levels may be restored by December 31, 2020.

Requesting Loan Forgiveness

Comprehensive recordkeeping is imperative! To request loan forgiveness, the borrower must contact the lender that is servicing the loan and submit the completed SBA Form 3508 or Form 3508EZ along with supporting documentation. The lender has 60 days to make a determination on whether or not the borrower qualifies for loan forgiveness.

Changing Rules and Lots of Gray Areas

Congress, the Treasury Department, the Small Business Administration, banks, and the IRS are all involved in this program, which has led to conflicting guidance and many unanswered questions. The penalties are stiff for impropriety or fraud.

What Happens If My Loan Is Not Forgiven?

Payments are deferred until a determination on forgiveness is reached. For any portion of the PPP loan that is not forgiven, interest is charged at a rate of 1%, and full repayment of the loan is due in 5 years.

The above is a very brief overview of a complex program. If you need help with calculations or interpretations, feel free to contact us so we can guide you through the process.


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