Paycheck Protection Program Loan Forgiveness Information

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This article was originally published on April 22, 2020, as “How to Spend Your Paycheck Protection Program Loan” and has since been updated to reflect the loan forgiveness rules published by the Small Business Administration and U.S. Treasury Department on May 15, 2020, and in the Paycheck Protection Program Flexibility Act passed on June 5, 2020.

To date, Congress has appropriated $659 billion to the PPP. If you have already applied for a PPP loan, check with your lender to ensure you are still in line. If you have been having difficulty with your PPP application at a traditional national bank, you can also apply through small community banks/credit unions and companies like PayPal and Square. The last day the SBA will approve a PPP loan application, in accordance with the PPP Extension Act, is August 8, 2020.


On June 16, the Small Business Administration (SBA) and Treasury Department released the updated Paycheck Protection Program (PPP) loan forgiveness application to reflect the changes made in the PPP Flexibility Act. In the newly updated version of the application, the SBA made separate documents for the instructions on how to complete the application and the application itself. Further, the SBA created a separate streamlined application for borrowers who meet certain criteria (see below section on how to apply for forgiveness for more information). 

Keep in mind that the government may issue further clarifications. PPP loan forgiveness is not counted as taxable income (and as of May 20, business expenses paid for with forgiven PPP funds are not tax deductible — though proposed legislation could change this). This article will be updated as new information becomes available.  

For specific questions about PPP loan forgiveness, reach out to your lender, accountant, and/or local SBA office or SBA-resource partners (SCORE, Small Business Development Center, Women's Business Center). They are being trained to walk small businesses through this process and may be able to give you more direction. You can find those local resources here.

You can also reach ABA’s Advocacy Team at advocacy@bookweb.org.

This article touches on the following frequently asked questions:

Best practices: To make the loan forgiveness process easier, keep detailed records on how you are spending your PPP funds. Experts recommend opening a separate checking account for your PPP funds. You can use this loan forgiveness calculator from Intuit to estimate how much of your PPP loan will be forgivable. (This calculator may not be updated to reflect the recent forgiveness application.)

What are the conditions for loan forgiveness?

1) Proceeds are used over the earlier of the 24 weeks after the loan is made or by December 31, 2020.  

The amount of PPP loan forgiveness depends on your expenses over a 24-week period (168 days); for loans received before June 5, 2020, borrowers have the option to keep the original eight-week period (56 days). The PPP loan forgiveness application allows you minimal flexibility to choose when this period begins for payroll purposes only. You have two options for the payroll period: the covered period or the alternative payroll covered period.

  • The covered period begins on the date the lender makes the first disbursement of your PPP loan. For example, if you are using a 24-week covered period and received your PPP loan proceeds on Monday, April 20, the first day of the covered period is April 20 and the last day of the covered period is Sunday, October 4. In no event may the covered period extend beyond December 31, 2020.
  • The alternative payroll covered period begins on the first day of your first pay period following the PPP loan disbursement. This option is available if your payroll schedule is biweekly or more frequent. For example, if you are using a 24-week alternative payroll covered period and received your PPP loan proceeds on Monday, April 20, and the first day of its first pay period following your PPP loan disbursement is Sunday, April 26, the first day of the alternative payroll covered period is April 26 and the last day of the alternative payroll covered period is Saturday, October 10. In no event may the covered period extend beyond December 31, 2020.

The alternative payroll covered period is only an option for payroll expenses, not non-payroll expenses. Non-payroll expenses (interest on a mortgage, rent or lease payments, and utility payments) will be determined over the covered period only (beginning on the date of loan disbursement).

2) At least 60 percent of the loan is used for payroll costs.

Payroll costs INCLUDE:

  • Salary, wages, commissions, or tips, including bonuses and hazard pay, (capped at $100,000 on an annualized basis [or $15,385 over an eight-week period or $46,154 over a 24-week period] for each employee. Owners [owner-employees, self-employed individuals, and general partners] are capped at the lesser of $20,833 per person or the 2.5-month equivalent of their compensation in 2019 when using a 24-week or the lesser of $15,385 per person or the eight-week equivalent of their compensation in 2019 when using an eight-week period);
  • Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit; and
  • State and local taxes assessed on compensation.

Payroll costs DO NOT INCLUDE:

  • Compensation of an individual employee in excess of $100,000 annually (or over $15,385 over an eight-week period or $46,154 over a 24-week period), as prorated in the covered period or alternative payroll covered period;
  • Employer-side of federal employment taxes imposed or withheld; and 
  • Qualified sick and family leave wages under the Families First Coronavirus Response Act (already getting a tax credit)

If you do not spend 60 percent of the loan on payroll costs, you will still be eligible for partial loan forgiveness as long as 60 percent of the forgiven portion of the loan is used for payroll costs. For example, if you receive a $100,000 PPP loan, and during the covered period you spend $54,000 (54 percent) on payroll costs, the maximum amount of loan forgiveness you may receive is $90,000 (because $54,000 is 60 percent of $90,000).

**Under the PPP Flexibility Act, borrowers can now delay payment of certain employer payroll taxes. PPP borrowers can delay payment of the employer portion of social security taxes through the end of 2020. Fifty percent is payable on December 31, 2021, and fifty percent is payable on December 31, 2022. See more information here (although it may not be updated yet)**

Payroll costs paid vs. incurred

Payroll costs are considered paid on the day that paychecks are distributed or the day you originate an ACH credit transaction. Payroll costs are considered incurred on the day that the employee’s pay is earned. Payroll costs incurred but not paid during the last pay period of the covered period or alternative payroll covered period are eligible for forgiveness if paid on or before the next regular payroll date. You should count payroll costs that were both paid and incurred only once.

3) No more than 40 percent of the loan is used for non-payroll costs.

Non-payroll costs are:

  • Interest on mortgage obligations, incurred before February 15, 2020;
  • Rent, under lease agreements in force before February 15, 2020; and
  • Utilities, for which service began before February 15, 2020

Non-payroll costs paid vs. incurred

Non-payroll costs must be paid during the covered period or incurred during the covered period. Non-payroll costs incurred but not paid during the covered period are eligible for forgiveness if paid on or before the next regular billing date. You should count non-payroll costs that were both paid and incurred only once.

4) You maintain your staff and payroll.

Loan forgiveness will be reduced if:

  • You decrease your full-time equivalent (FTE) employees; and
  • You decrease salaries and wages by more than 25 percent for any employee that made less than $100,000 annualized in 2019

You can rehire your employees and restore salary levels for reductions you made. You may also hire a new employee to replace an employee who left the business. The last day to restore staffing levels is December 31, 2020.

Your average weekly FTE employees during the covered period or the alternative payroll covered period will be compared to either (at your election):

  • your average weekly FTE from February 15, 2019, to June 30, 2019;
  • your average weekly FTE from January 1, 2020, to February 29, 2020; or
  • (in the case of seasonal employers), either of the preceding periods or a consecutive twelve-week period between May 1, 2019, and September 15, 2019.

Average FTE

You will need to calculate the average full-time equivalency (FTE) during either the covered period or the alternative payroll covered period. To do this, determine the average number of hours paid per week for each employee. Then, divide the average number of hours per week by 40 and round the total to the nearest tenth. The maximum for each employee is 1.0. You can choose to use a simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours.

FTE and salary/wage reductions safe harbor  

There are two separate safe harbors that exempt certain borrowers from the loan forgiveness reduction based on a reduction in FTE employee and/or salary/wage reductions:

A) You, in good faith, are able to document that your business was unable to operate between February 15, 2020, and the end of the covered period at the same level of business activity as before February 15, 2020 due to government requirements or guidance related to sanitation standards, social distancing, or other COVID-19-related requirements.  

B) You reduced your FTE employee levels or salaries/wages in the period beginning February 15, 2020, and ending April 26, 2020; and you then restored your FTE employee levels or salaries/wages no later than December 31, 2020, to your levels in the pay period that included February 15, 2020.

FTE reduction exception

A borrower’s PPP loan forgiveness will not be reduced under an additional three circumstances:

A) An employee rejected a rehire offer and you were unable to hire a similarly qualified employee for the unfilled position on or before December 31, 2020. To exclude this FTE reduction in loan forgiveness calculations, you must provide documentation verifying that you made a good faith, written offer to hire the same employee and that the employee declined the offer.

B) An employee rejected your offer to restore any reduction in hours, at the same salary or wages. To exclude this reduction, you must provide documentation verifying your good faith offer.

C) An employee was fired for cause, voluntarily resigned, or voluntarily requested and received a reduction of hours in the covered period or alternative payroll covered period.

Employees under these circumstances are only exempt from a reduction in loan forgiveness if you did not hire a new employee to fill the position.

**Be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation. For more information, see question 40 of the Treasury Department’s FAQ.**  

Interaction of FTE and salary/wage reductions

The salary and wage reduction applies only to the portion of the decline in employee salary and wages that is not attributable to the FTE reduction. 

Take, for example, an hourly wage employee working 40 hours per week (FTE employee of 1.0) during your selected reference period. If you reduced the employee's hours to 20 hours per week (FTE employee of 0.5) during the covered period or alternative payroll covered period, the employee's reduction in total wages is entirely due to the FTE employee reduction. There was no change to the employee's hourly wage. In this case, you are not required to conduct a salary/wage reduction calculation for that employee.

What if I have an EIDL grant and a PPP loan?

Your PPP loan forgiveness will be affected if you also receive an Economic Injury Disaster Loan (EIDL) grant. Any proceeds from an EIDL grant of up to $10,000 will be subtracted from the loan forgiveness amount on the PPP loan.

In other words, if your business spends 100 percent of the PPP funds (say, $10,000) on forgivable expenses, but you also receive an EIDL grant (say, $3,000), all $10,000 of the PPP funds will technically be forgiven, but you’ll be required to pay back the $3,000 from the EIDL grant under the PPP loan terms.

How do I apply for loan forgiveness?

Following the end of your covered period, you can submit a request to your lender for loan forgiveness. You have until 10 months after the end of your covered period (a max of 10 months following December 31, 2020) to submit a forgiveness application. If you have not applied for forgiveness by this time, payments of principal, interest, and fees will begin.

The SBA released two different forgiveness applications, one of which is streamlined for certain borrowers and one of which is more involved. Check with your lender to ensure you fill out the correct application (lenders may make forms available electronically).

1. EZ Loan Forgiveness Application (more streamlined): You can apply for PPP forgiveness using the EZ application if at least one of the following apply to you:

  • You are a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries when calculating your PPP loan amount. 
  • You did not reduce annual salary or hourly wages of any employee making less than or equal to $100,000 annualized by more than 25 percent during the covered period or the alternative payroll covered period compared to the period between January 1, 2020, and March 31, 2020, AND you did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the covered period, not including reductions due to an inability to rehire individuals who were employees on February 15, 2020, if you were unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020, and reductions in an employee’s hours that you offered to restore and the employee refused.
  • You did not reduce annual salary or hourly wages of any employee making less than or equal to $100,000 annualized by more than 25 percent during the covered period or the alternative payroll covered period compared to the period between January 1, 2020, and March 31, 2020, AND you were unable to operate during the covered period at the same level of business activity as before February 15, 2020, due to government requirements or guidance related to sanitation standards, social distancing, or other COVID-19-related requirements.

If at least one of these applies to you, see the instruction sheet here and see the application sheet here.

2. “General” Loan Forgiveness Application: You'll use this application if none of the above EZ criteria applies to you. This application will be more time consuming due to the numerous calculations it requires to determine your loan forgiveness amount. See the instruction sheet here and see the application sheet here.

What will I need to apply for loan forgiveness?

To apply for loan forgiveness, you will need to submit two main components: (A) the PPP loan forgiveness application and (B) supporting documentation. The lender must make a decision on loan forgiveness within 60 days.

A) PPP loan forgiveness application

The PPP loan forgiveness application provided by the SBA and Treasury Department includes four main components: (1) PPP Loan Forgiveness Application Form (to be submitted to the lender); (2) PPP Schedule A (to be submitted to the lender); (3) PPP Schedule A Worksheet; and (4) PPP Borrower Demographic Information Form (optional to submit to the lender).

**If you are completing the EZ loan forgiveness application, you only need to complete (1) the PPP Loan Forgiveness Application Form and (4) PPP Borrower Demographic Information Form (optional).**

1) PPP Loan Forgiveness Calculation Form (to be submitted to the lender)

This form must be completed for both the EZ loan forgiveness application (pages 1 and 2) and “general” loan forgiveness application (pages 1 and 2) of the application and does need to be submitted to the lender. To complete the form, you’ll need the following information:

  • Basic information about your business including business address and phone number;
  • SBA PPP loan number (the loan number assigned by SBA when the loan was approved. Your lender will have this information);
  • Lender PPP loan number (the loan number assigned to the PPP loan by the lender);
  • PPP loan amount;
  • Employees at the time of loan application and at the time of forgiveness application;
  • PPP loan disbursement date;
  • EIDL advance amount and EIDL application number;
  • Payroll schedule;
  • Covered period and (at your election) alternative payroll covered period dates; and
  • Payroll and non-payroll expenses.

See the EZ and “general” instruction sheets for this form for more detailed explanations of the required information.

2) PPP Schedule A (to be submitted to the lender)

This form must be filled out if you are using the “general” forgiveness application only. PPP Schedule A is on page 3 of the application and does need to be submitted to the lender. You will use the PPP Schedule A Worksheet (see below) to help you prepare this document.

To complete Schedule A, you will need the following information:

  • From the PPP Schedule A Worksheet: table 1 totals, table 2 totals, and the FTE reduction calculation;
  • Non-cash compensation payroll costs; and
  • Compensation to owners.

See the instruction sheet for Schedule A on page 3 of the application for more detailed explanations of the required information.

3) PPP Schedule A Worksheet

This worksheet must be filled out if you are using the “general” forgiveness application only. PPP Schedule A Worksheet is on page 4 of the application and does not need to be submitted to the lender. The worksheet is meant to help you complete the PPP Schedule A which does need to be submitted to the lender.

To complete the worksheet, you will need the following information:

  • Employee names and last four digits of their Social Security numbers;
  • Cash compensation;
  • Average FTE; and
  • Salary/hourly wage reduction, FTE reduction exceptions, FTE reduction safe harbor.

See the instruction sheet for this worksheet on pages 4 through 5 of the application for more detailed explanations of the required information.

4) PPP Borrower Demographic Information Form (optional to submit to the lender)

This form is optional to submit to the lender for both the EZ application (page 3) and the “general” application (page 5). Choosing to not submit this form will not have any bearing on your loan forgiveness. The demographic information form is included in the application form for reporting purposes only (for example, to determine the percentage of PPP loans that went to minority or women-owned businesses).

The form asks for the following information:

  1. Veteran status;
  2. Gender;
  3. Race; and
  4. Ethnicity.

B) Supporting documentation

The required supporting documentation partly depends on which application you fill out: the EZ or “general” application. See the below sections for what each application separately requires.

1) For the EZ loan forgiveness application:

Documents you must submit with your PPP loan forgiveness application:  

1) Payroll documentation verifying cash and non-cash compensation:

  • 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, to the relevant state;
  • Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that you included in the forgiveness amount; and
  • If you checked only the second box on the checklist on page 1 of the instructions, the average number of full-time equivalent employees on payroll employed on January 1, 2020 and at the end of the covered period.  

2) Non-payroll documentation verifying (1) eligible non-payroll costs were in existence before February 15, 2020, and (2) eligible payments were made in the covered period:

1) 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.

2) Rent or lease payments:

  • Copy of current lease agreement and receipts or cancelled 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.

3) Utility payments:

  • Copy of invoices from February 2020 and those paid during the covered period and receipts, cancelled checks, or account statements verifying those eligible payments.

Documents you must maintain, but not submit:

  1.  Documentation supporting the certification that annual salaries or hourly wages were not reduced by more than 25 percent during the covered period or the alternative payroll covered period relative to the period between January 1, 2020, and March 31, 2020. This documentation must include payroll records that separately list each employee and show the amounts paid to each employee during the period between January 1, 2020, and March 31, 2020, and the amounts paid to each employee during the covered period or alternative payroll covered period;
  2. Documentation regarding any employee job offers and refusals, refusals to accept restoration of reductions in hours, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedule, and any inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020;
  3.  Documentation supporting the certification that you did not reduce the number of employees or the average paid hours of employees between January 1, 2020, and the end of the covered period (other than any reductions due to an inability to rehire individuals who were employees on February 15, 2020, if you were unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020). This documentation must include payroll records that separately list each employee and show the amounts paid to each employee between January 1, 2020, and the end of the covered period;
  4. Documentation supporting that you were unable to operate between February 15, 2020, and the end of the covered period at the same level of business activity as before February 15, 2020, due to government requirements or guidance related to sanitation standards, social distancing, or other COVID-19-related requirements. This documentation must include copies of the applicable requirements for each business location and relevant financial records; and
  5. All records relating to your PPP loan, including documentation submitted with the PPP loan application, documentation supporting your certifications as to the necessity of the loan request and your eligibility for a PPP loan, documentation necessary to support your loan forgiveness application, and documentation demonstrating your material compliance with PPP requirements. 

2) For the “general” loan forgiveness application:

Documents you must submit with your PPP loan forgiveness application:

1) Payroll documentation verifying cash and non-cash compensation:

  • 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, to the relevant state; and
  • Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that you included in the forgiveness amount (PPP Schedule A, lines 6 and 7).

2) FTE documentation showing the average number of FTE employees on payroll per month between (at your election):

  • February 15, 2019, and June 30, 2019;
  • January 1, 2020, and February 29, 2020; or
  • (in the case of seasonal employers) either of the preceding periods or a consecutive twelve-week period between May 1, 2019, and September 15, 2019.

3) Non-payroll documentation verifying (1) eligible non-payroll costs were in existence before February 15, 2020, and (2) eligible payments were made in the covered period:

1) 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.

2) Rent or lease payments:

  • Copy of current lease agreement and receipts or cancelled 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.

3) Utility payments:

  • Copy of invoices from February 2020 and those paid during the covered period and receipts, cancelled checks, or account statements verifying those eligible payments.

Documents you must maintain, but not submit:

  1. PPP Schedule A Worksheet or its equivalent and the following:

    • Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 1, including the “Salary/Hourly Wage Reduction” calculation;
    • Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 2; specifically, that each listed employee received during any single pay period in 2019 compensation at an annualized rate of more than $100,000;
    • Documentation regarding any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedule;
    • Documentation supporting that you were unable to operate between February 15, 2020 and the end of the covered period at the same level of business activity as before February 15, 2020 due to government requirements or guidance related to sanitation standards, social distancing, or other COVID-19-related requirements. This documentation must include copies of the applicable requirements for each business location and relevant financial records.
    • Documentation supporting the PPP Schedule A Worksheet “FTE Reduction Safe Harbor.”
  2.  All records relating to your PPP loan, including documentation submitted with the PPP loan application, documentation supporting your certifications as to the necessity of the loan request and your eligibility for a PPP loan, documentation necessary to support your loan forgiveness application, and documentation demonstrating your material compliance with PPP requirements.  

In all cases, you must retain all documentation for six years after the date the loan is forgiven or repaid in full.

What if my PPP loan is not forgiven?

If you spend part or all of your PPP funds on non-forgivable expenses and/or do not maintain staff and payroll, you will have to repay the non-forgiven amount at a 1 percent fixed interest rate. The PPP Flexibility Act increased the minimum loan maturity for new PPP loans made after June 5, 2020, from two years to five years. If you received your loan before June 5, 2020, your loan maturity is still two years. You and your lender must mutually agree to increase your loan maturity to five years. Contact your lender for more information.

All payments of principal, interest, and fees are deferred until the date loan forgiveness is determined. Borrowers who do not apply for forgiveness will not begin repayment until 10 months after the last day of the covered period (either the eight-week period, 24-week period, or December 31, 2020, depending on the individual circumstance). There are no prepayment penalties or fees for paying your loan early.