Breaking the Code: Paycheck Protection Program Forgiveness Application for Loans Under $50,000
By: Rachel Speigle Dunnigan, CPA, MSA, CFP®
Earlier this year, we wrote about the CARES Act and the Paycheck Protection Program Flexibility Act. A major incentive of these loans was the potential for forgiveness if the funds were used according to the program’s guidelines. Now that the application for forgiveness has been released, we wanted to walk you through the process.
Loan Forgiveness
In order to qualify for full forgiveness, 60% of the loan must have been used for payroll expenditures during the covered period. The remainder of the loan must have been used for other costs that are eligible for forgiveness (mortgage interest, rental or lease payments, utilities related to the business, etc.)
Application
In early October, the Small Business Administration (SBA) released a simplified loan forgiveness application for borrowers with loans of $50,000 or less. This Form (SBA Form 3508S) requests information regarding any Economic Injury Disaster Loan (EIDL) or PPP loans that taxpayers may have received: SBA & lender loan numbers, loan amounts, the loan disbursement date, employee counts, and forgiveness amount. Along with the loan related information, taxpayers will also need to provide basic information on their business.
Currently, EIDL advances do not qualify for forgiveness. If a taxpayer received both a PPP loan and an EIDL, the EIDL advance received will be backed out of the total forgiveness amount of the PPP loan. The forgiveness amount on the application should report the total of the PPP loan, regardless of the EIDL advance.
Timing
After loans have been used, borrowers have up to ten months after their covered period to apply for forgiveness without any loan payments coming due. The expiration date on the application is not the required filing date - it is merely a placeholder to allow the SBA to update the form at that time. The current expiration date is listed as 11/30/2020.
As we’ve seen for other planning considerations in 2020, many businesses and politicians are lobbying for changes to the current process. Some expect automatic forgiveness (no application needed), but there are no new updates at this time. While we are still waiting on further guidance for loans greater than $50,000, we recommend beginning to compile underlying support for reports and documentation that will likely be needed from payroll providers.
As always, we will continue to keep up-to-date on the current regulations and guidelines and will plan to keep you informed as well. Please don’t hesitate to reach out if you have any questions about your specific situation.
To ensure compliance with the requirements imposed on us by IRS Circular 230, we inform you that any tax advice contained in this communication (including any attachments) is not intended to and cannot be used for the purpose of: (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.