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ppp loan forgiveness rules

Health care and retirement benefits paid or incurred during the covered period are eligible for forgiveness as payroll costs. Expenses paid by employees for such benefits are not eligible for forgiveness. Expenses for future periods that are accelerated into the covered period are also not eligible for forgiveness. Note that when applying for forgiveness for a Second Draw Loan, Borrowers must certify that they used all First Draw Loan proceeds on eligible expenses prior to disbursement of the Second Draw Loan. Generally speaking, payroll costs paid or incurred during the Covered Period are eligible for forgiveness.

We strive to provide you with information about products and services you might find interesting and useful. Relationship-based ads and online behavioral advertising help us do that. Since Employee Accounting vs Payroll vs Bookkeeping A is hourly, borrowers will need to calculate the average number of hours worked per week between Jan. 1 and March 31, 2020. Step 3Determine whether a full-time equivalent (FTE) reduction occurred.

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The Paycheck Protection Program (PPP) is back, giving small businesses a ray of sunshine in 2021. With PPP loans ranging up to $10 million for first draw loans and up to $2 million for second draw loans, the potential for 100% loan forgiveness, and a non-compounding 1% interest rate, it’s no wonder every eligible business is applying for help. You have to use at least 60% of the funding on payroll costs in order to get the most out of PPP loan forgiveness. You can still receive some forgiveness if you don’t follow this rule, but the amount will reduce in proportion to the percentage you did spend on payroll. The SBA has also opened a Direct Forgiveness Portal through which borrowers of PPP loans of $150,000 or less can apply for forgiveness directly with the SBA.

  • Part V of this interim final rule describes SBA’s procedures for reviewing PPP loan applications and loan forgiveness applications.
  • When your business uses PPP funds to cover qualifying expenses, you can apply for forgiveness to essentially turn the PPP loan into a nontaxable grant.
  • Step 2Determine if loan forgiveness must be reduced due to a salary/hourly wage reduction of more than 25%.
  • The Administrator recognizes that not all borrowers maintain hours-worked data, and has decided to afford such borrowers this flexibility in calculating the full-time equivalency of their part-time employees.
  • If you’re a sole proprietor or independent contractor, self-employment wages, salaries, and commissions not exceeding $100,000 annually qualify as payroll costs.
  • For second-draw loans, borrowers need to show the required revenue loss before their loan can be forgiven.
  • If you don’t qualify for full loan forgiveness, you will be required to pay back loan funds plus interest.

Business expenses on electricity, gas, water, transportation, telephone, or internet access are eligible uses of PPP funds and qualifies for forgiveness. Your lender may allow you to provide additional documentation so they can reevaluate your request. If the SBA finds that you lied on your forgiveness application, you may be subject to up to 30 years imprisonment and https://accounting-services.net/small-business-accounting-101-12-steps-for-basics/ a $1 million fine. Let’s say you have three employees that each made $3,000 per month before COVID-19. You hired back all three of your employees, but at a reduced salary of $2,000 a month. This requirement applies to every employee that received less than $100,000 in annualized pay in 2019 or 2020 (depending on what year you used to calculate your PPP loan amount).

How PPP forgiveness guidelines work

An SBA determination that a borrower is ineligible for a First Draw PPP Loan may also result in an SBA determination that the borrower is ineligible for any Second Draw PPP Loan, and SBA may direct the lender to deny any loan forgiveness application submitted for the Second Draw PPP Loan. Further, if SBA determines that the borrower is ineligible for the loan amount or loan forgiveness amount claimed by the borrower, SBA will direct the lender to deny the loan forgiveness application in whole or in part, as appropriate. SBA may also seek repayment of the outstanding PPP loan balance or pursue other available remedies. Borrowers seeking forgiveness must document their average number of FTE employees during the covered period and their selected reference period. If applicable, a borrower must perform this calculation for both its First Draw PPP Loan and Second Draw PPP Loan.

What happens when PPP loan is not forgiven?

What if your loan isn't forgiven in full? You will have to repay any amount of the PPP loan at a 1% interest over a 5 year term. However, loan payments will be deferred for six months but will start incurring interest immediately. Moreover, PPP loans have no fees and no prepayment penalties.

The lender must submit documents received from the borrower to SBA within five business days of receipt from the borrower. If you are self-employed but received a PPP loan through multiple businesses, you are capped at $20,833 in owner compensation across all the businesses you’ve received a PPP loan through. For PPP loans distributed in 2021, the SBA has not released any information on a potential grace period for rehiring employees.

Exemptions on rehiring employees

If SBA undertakes such a review, SBA will notify the lender in writing and the lender must notify the borrower in writing within five business days of receipt. To ensure that borrowers are not doubly penalized, the salary/wage reduction applies only to the portion of the decline in employee salary and wages that is not attributable to the FTE reduction. Full-time equivalent employee means an employee who works 40 hours or more, on average, each week. The hours of employees who work less than 40 hours are calculated as proportions of a single full-time equivalent employee and aggregated, as explained further below in subsection IV.5.d.