{"id":53481,"date":"2021-03-18T04:31:00","date_gmt":"2021-03-18T09:31:00","guid":{"rendered":"https:\/\/resource-center.hrblock.com\/?p=53481"},"modified":"2024-02-19T11:49:10","modified_gmt":"2024-02-19T17:49:10","slug":"ppp-loan-forgiveness","status":"publish","type":"post","link":"https:\/\/hrbcomlnp.hrblock.com\/tax-center\/small-business\/ppp-loan-forgiveness\/","title":{"rendered":"PPP loan forgiveness: What business owners need to know"},"content":{"rendered":"\n

Editor\u2019s Note: <\/strong>The article below was published on September 3, 2020. It includes updates from the American Rescue Plan (ARP) Act of 2021 and other recent legislation as noted.  <\/em> <\/em><\/p>\n\n\n\n

The Paycheck Protection Program<\/a> (PPP) has been a critical lifeline keeping business afloat in the wake of the coronavirus pandemic\u2019s economic devastation. A signature feature of the program \u2014 PPP loan forgiveness \u2014 is one reason why it was in such high demand. Essentially, if businesses follow the rules and use the loan for permitted purposes, the balance is forgiven, and the PPP loan is more like a grant.<\/span><\/p>\n\n\n

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\"PPP<\/figure><\/div>\n\n\n

If you\u2019re like many of the business owners who received a PPP loan<\/a>, you don\u2019t want any surprises when it comes to applying for PPP forgiveness. We understand that concern and want to help by distilling the key details, so you know how they affect your forgiveness calculation and your bottom line.<\/p>\n\n\n\n

From the forms you\u2019ll need to tax filing implications of PPP loan forgiveness, we\u2019ll cover the essentials you need to know. However, you should check with your lender concerning the facts and circumstances surrounding your specific business that may affect your forgiveness eligibility.<\/p>\n\n\n\n

PPP loans: Rules that affect your forgiveness<\/strong><\/h2>\n\n\n\n

Several factors can affect your loan forgiveness, so it\u2019s important to keep track of the details and work with your lender. You\u2019ll need to account for these on your PPP forgiveness application if they apply. Keep in mind, Congress created the program to help businesses keep employees on the job and receiving a paycheck. That said, many of the rules around PPP forgiveness were designed to ensure that happens.<\/p>\n\n\n\n

Payroll as primary use:<\/strong> In addition to payroll costs, businesses can use some of the funds to cover other expenses on a commercial property, such as rent, utilities, and mortgage interest. In order to receive forgiveness for the entire PPP loan, however, the payroll portion must be at least 60% of the loan. If your payroll costs account for less than the threshold, you may receive partial forgiveness for your PPP loan.<\/p>\n\n\n\n

Maintaining salary and wages:<\/strong> Keeping pay consistent while you\u2019re experiencing a dramatic downturn in business can be a struggle. With that in mind, room for some flexibility with wages has been built in and a safe harbor may be available. Here\u2019s what that means: The PPP rules state that your forgiveness may be reduced if you have more than a 25% drop in payroll for employees earning less than $100,000 unless the wage reduction safe harbor applies.<\/p>\n\n\n\n

What about employees that you had to let go and later declined an offer to be rehired? If that\u2019s your situation, there\u2019s still a way for you to exclude a reduction of full-time employees into your PPP forgiveness calculation.<\/p>\n\n\n\n

According to the guidance from the Treasury and Small Business Association (SBA), you can do this if you are able to:<\/p>\n\n\n\n

document in good faith the following: (1) an inability to rehire individuals who were employees of the borrower on February 15, 2020 and (2) an inability to hire similarly qualified individuals for unfilled positions on or before December 31, 2020<\/em>.<\/p>\n\n\n\n

Review additional Treasury guidance<\/a> regarding the December 2020 legislation.<\/p>\n\n\n\n

You must also inform your state\u2019s unemployment insurance office within 30 days if your former employee rejects a rehire offer. You\u2019ll need to keep written documentation of your rehire offer, the employee\u2019s rejection and records of your effort to hire a similarly qualified person.<\/p>\n\n\n\n

PPP Forgiveness FAQs<\/strong><\/h2>\n\n\n\n

When can I apply for PPP forgiveness?<\/strong><\/p>\n\n\n\n

You can apply for forgiveness on or before your loan\u2019s maturity date. You can also submit your application before the end of your covered period (a period of between eight and 24 weeks after origination), but there\u2019s a good reason you may not want to do so. If you apply for forgiveness before the covered period is up and have reduced any salary in excess of 25%, you\u2019ll forfeit any potential use of the wage reduction safe harbor and will need to account for the excess salary reduction for the full covered period. Work with your lender to determine when to apply.<\/p>\n\n\n\n

Keep in mind, although the forgiveness application isn\u2019t due until your loan matures, you\u2019ll have to start making payments 10 months after the covered period if you haven\u2019t yet applied for forgiveness.<\/p>\n\n\n\n

How long does the process take?<\/strong><\/p>\n\n\n\n

After you submit your application with the lender, they will have up to 60 days to review your application. After your lender approves it, the SBA has another 90 days to review your application and make a forgiveness determination.<\/p>\n\n\n\n

Do I need to make principal and interest payments while I wait for the decision?<\/strong><\/p>\n\n\n\n

You won\u2019t need to pay principal or interest as long as:<\/p>\n\n\n\n