PPP Loan Forgiveness FAQs
Paycheck Protection Program (PPP)At Regions, we're committed to helping your business navigate the uncertain economic environment brought about by the coronavirus (COVID-19) crisis. Please review these frequently asked questions to help guide you through the PPP loan forgiveness process.
What You Need to Know About PPP Loan Forgiveness
What You Need to Know Prior to Applying for Loan Forgiveness
What You Need to Know About the Loan Forgiveness Application
What You Need to Know After Applying for Loan Forgiveness
What You Need to Know About PPP Loan Forgiveness
Borrowers who can document that 100% of their PPP loan amount for which they seek forgiveness was spent on eligible payroll costs do not need to detail or otherwise provide documentation of nonpayroll costs. However, these borrowers have the option to detail and provide documentation of nonpayroll costs if they so choose.
For purposes of seeking forgiveness for payroll costs, borrowers may elect in certain instances to use an "alternative payroll covered period" which is measured from the first day of the first payroll cycle in the covered period rather than the date of disbursement of the borrower’s PPP loan.
Note: The alternative payroll covered period applies only to payroll costs, not to nonpayroll costs. The Covered Period always starts on the date the lender makes a disbursement of the PPP loan. Nonpayroll costs must be paid or incurred during the Covered Period to be eligible for loan forgiveness.
What You Need to Know Prior to Applying for Loan Forgiveness
- If your PPP loan is $50,000 or less, use Form 3508S
- If your PPP loan is more than $50,000, use the Checklist for Using SBA Form 3508EZ to determine if you are eligible to use Form 3508EZ
- If you are not eligible to use Form 3508EZ, you must use Form 3508
Sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form automatically qualify to use the Loan Forgiveness Application Form 3508EZ or lender equivalent and should complete that application.
In addition to your loan documents, you will need documentation of payroll costs verifying the eligible cash compensation and the non-cash benefit payments from the covered period or the alternative payroll covered period, as well as documentation of nonpayroll costs verifying existence of the obligations/services prior to February 15, 2020, and eligible payments from the covered period. In addition, borrowers using Form 3508 may elect to provide documentation of full-time equivalency (FTE). This supporting documentation must be available in electronic format, so that you can attach it to the online forgiveness application. You will only be required to provide documentation verifying those costs for which you are seeking forgiveness. For example, if you are only seeking forgiveness of payroll costs, you are not required to provide documentation of nonpayroll costs (though you may elect to do so if you choose).
Common supporting documentation:
Payroll
- Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees
- Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period or the Alternative Payroll Covered Period
- Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941)
- State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported
- Payment receipts, canceled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the borrower included in the forgiveness amount.
Nonpayroll
- Business mortgage interest payments: copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments from the covered period; or lender account statements from February 2020 and the months of the covered period through one month after the end of the covered period verifying interest amounts and eligible payments.
- Business rent or lease payments: copy of current lease agreement and receipts or canceled checks verifying eligible payments from the covered period; or lessor account statements from February 2020 and from the covered period through one month after the end of the covered period verifying eligible payments
- Business utility payments: copy of invoices from February 2020 and those paid during the covered period and receipts, canceled checks, or account statements verifying those eligible payments
Full Time Equivalency (FTE)
- Documentation showing the average number of FTE employees on payroll per week employed by the borrower between February 15, 2019 and June 30, 2019; or
- Documentation showing the average number of FTE employees on payroll per week employed by the Borrower between January 1, 2020 and February 29, 2020; or
- In the case of a seasonal employer, documentation showing the average number of FTE employees on payroll per week employed by the borrower between February 15, 2019 and June 30, 2019; between January 1, 2020 and February 29, 2020; or any consecutive 12-week period between May 1, 2019 and September 15, 2019
Note: Borrowers using Form 3508S are not required to provide full-time equivalency (FTE) supporting documentation.
PPP Schedule A Worksheet if not using the EZ application (Form 3508EZ)
Determine which forgiveness form you will use. If your PPP loan is $50,000 or less, you will use form 3508S. Otherwise, review the Checklist for Using SBA Form 3508EZ to determine whether you must use from 3508 or may use form 3508 EZ. Familiarize yourself with the applicable forms, and gather the required documentation specified in the instructions.
What You Need to Know About the Loan Forgiveness Application
Payroll costs include gross compensation to employees (whose principal place of residence is the United States) in the form of:
- Salary, wages, commissions, or similar compensation
- Cash tips or the 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 separation or dismissal
- Payment for the provision of employee benefits consisting of group healthcare coverage (including insurance premiums) and retirement
- Payment of state and local taxes assessed on compensation of employees
- For an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment, or similar compensation
The following is expressly excluded from the definition of payroll costs:
- Any compensation of an employee whose principal place of residence is outside of the United States
- Compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary
- Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee's and employer's share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees
- Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Pub. L. 116–127)
See payroll costs questions 5, 6, 7, and 8 starting on page 3 of the SBA's Frequently Asked Questions (FAQs) on PPP Loan Forgiveness for detail regarding incentive pay (including lost tips, lost commissions, or bonuses), eligible employer expenses for group health care benefits, employee retirement, and owner compensation.
- Interest payments on any business mortgage obligation on real or personal property incurred before February 15, 2020 (but not any prepayment or payment of principal)
- Rent payments on business rent obligations on real or personal property under a lease agreement in force before February 15, 2020
- Business utility payments for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020
See payroll costs questions 5, 6, and 7 starting on page 7 of the SBA's Frequently Asked Questions (FAQs) on PPP Loan Forgiveness for detail regarding payments made on leases renewed or mortgage loans refinanced on or after February 15, 2020, covered utility payments, and electricity supply charges.
What You Need to Know After Applying for Loan Forgiveness
Yes. The amount of loan forgiveness can be as much as the full principal amount of the loan and any accrued interest only if the loan proceeds were used for forgivable purposes and employee and compensation levels were maintained. The CARES Act, as amended by the PPP Flexibility Act, specifically requires certain reductions in a borrower's loan forgiveness amount. Several factors which might reduce your loan forgiveness include:
- Use of loan proceeds for unforgivable purposes
- Nonpayroll costs which exceed 40% of the total forgiveness amount
- Reductions in hourly wages or salaries of employees by more than 25%
- Reductions in the number of employees or the hours your employees worked.
There are Safe Harbor exceptions which may still allow you to receive full forgiveness even if you reduced employees, hours worked or wages. The SBA instructions and the Regions online application will help guide you through the Safe Harbor calculations. Additional information about reasons for reductions in loan forgiveness amount can be found in the CARES Act, PPP Flexibility Act, and the SBA's various interim final rules.