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Paycheck Protection Program Loan Forgiveness FAQs

On Friday, May 15, 2020, the Small Business Administration (SBA) and Department of Treasury released the Paycheck Protection Program (PPP) Loan Forgiveness Application with detailed instructions. If you’ve received PPP funding through CoastHills Credit Union, please forward your application package as outlined, here

Loan forgiveness is not automatic. After the coverage period, which began on the disbursement date of your loan, you will need to apply for forgiveness. Please be sure to include all supporting documentation for your eligible expenses.

Below are some common questions about the Paycheck Protection Program Loan Forgiveness application process:

When can I apply for Loan Forgiveness?

Borrowers may submit a loan forgiveness application any time on or before the maturity date of the loan, including before the end of the covered period, if the Borrower has used all of the loan proceeds for which the Borrower is requesting forgiveness.

How is the loan forgiveness amount determined?

The amount of loan forgiveness is determined based on the lesser of the total payroll costs, business mortgage interest payments, business rent or lease payments and utility payments incurred or paid during the Covered Period (see below); the PPP loan amount or the Payroll Cost 60% Requirement.

What form(s) do I need to complete?

Borrowers who are self-employed individuals, independent contractors or sole proprietors with no employees can complete PPP Loan Forgiveness Application Form 3508EZ. All other Borrowers are to complete PPP Loan Forgiveness Application Form 3508.

What supporting documentation do I need to provide?

Payroll Costs: Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees; tax forms for the periods that overlap with the Covered Period such as payroll tax filings (typically IRS Form 941) and State quarterly business and individual employee wage reporting and unemployment insurance tax filings; payment receipts, cancelled checks or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans.

Non-Payroll Costs: For business mortgage interest payments, provide a copy of lender amortization schedule and receipts of cancelled checks; or lender account statements.  For business rent or lease payments, provide a copy of current lease agreement and receipts or cancelled checks; or lessor account statements.  For business utilities payments, provide a copy of invoices and receipts or cancelled checks; or account statements.

I am the owner of the business, where do I account for my wages?

C-Corporations: Owner-employers are capped by the amount of their 2019 employee cash compensation and employer retirement and health insurance contributions made on their behalf.

S-Corporations: Owner-employers are capped by the amount of their 2019 employee cash compensation and employer retirement contributions made on their behalf, but employer health insurance contributions made on their behalf cannot be separately added because those payments are already included in their employee cash compensation.

Sch. C or Sch. F: Owners are capped by the amount of the owner compensation replacement, calculated based on 2019 net profit.  Retirement and health insurance contributions made on their behalf cannot be separately added because those payments are already included in their net self-employment compensation.

General Partners: Partners are capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235. Retirement and health insurance contributions made on their behalf cannot be separately added because those payments are already included in their net self-employment compensation.

What is the Owner’s Compensation Limitation?

For 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 an eight-week Covered Period, this amount is capped at 8/52 of 2019 compensation (up to $15,385).

What is an Employee’s Salary Limitation?

Total amount of cash compensation eligible for forgiveness cannot exceed an annual salary of $100,000.00 as pro-rated for the Covered Period.  For an eight-week Covered Period, that total is $15,385.  For a 24-week Covered Period, that total is $46,154.  Include only payroll costs for employees whose principal residence is in the United States.

What are acceptable forms of payroll documentation?

Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees; tax forms for the periods that overlap with the Covered Period such as payroll tax filings (typically IRS Form 941) and State quarterly business and individual employee wage reporting and unemployment insurance tax filings; payment receipts, cancelled checks or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans 

What does Payroll Costs consist of?   

Payroll Costs consist of gross salary, gross wages, gross tips, gross commissions, paid leave (ex: vacation, family, medical or sick leave excluding 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.

What constitutes a full-time employee?

SBA is utilizing an average 40+ hour work-week per employee to determine full time equivalency.

Can I include both Rent and Interest if I pay myself rent? (i.e. the real estate is vested in the business principal’s name and the business pays rent to the principals).

No, only the Rent expense reported by the business is eligible.

What is a “Covered Period”?

The “Covered Period” is either an eight-week (56-day) period or 24-week (168-day) beginning on the PPP Loan Disbursement Date.  In no event may the Covered Period extend beyond December 31, 2020.

What is an “Alternative Payroll Covered Period”?

Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) or 24-week (168-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date.  In no event may the Alternative Payroll Covered Period extend beyond December 31, 2020.

What is the FTE Safe Harbor?

Reductions in FTE employee levels can be off-set through two separate safe harbor exemptions based on 1) Borrower 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 due to compliance with sanitation, social distancing or any other worker or customer safety requirements related to COVID-19 as established 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; and 2) Borrower reduced its FTE employee levels in the period beginning February 15, 2020 and ending April 26, 2020 and then restored its FTE employee levels by no later than December 31, 2020 to its February 15, 2020 FTE employee levels.

For more details regarding any of these topics, please refer to the Paycheck Protection Program Loan Forgiveness Application Instructions.