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August 2020

PPP Loan Forgiveness – SBA Updates FAQs to Clarify Forgiveness Rules

August 19, 2020

On August 11, 2020, the United States Small Business Administration (“SBA”) updated its Frequently Asked Questions regarding forgiveness of loans extended under the Paycheck Protection Program (“PPP”). The SBA’s FAQS on PPP Loan Forgiveness, as updated on August 11, 2020, are available here. If small businesses have any questions regarding submission of loan forgiveness applications, they should contact their lenders under the PPP. As of August 14, 2020, the SBA opened its loan forgiveness portal to lenders. 

This update serves as a summary of the highlights of the PPP Forgiveness FAQs as published by the SBA on August 11, 2020. The FAQs largely restate rules and guidelines published in the final rules and loan forgiveness applications with respect to forgiveness generally, payroll costs, non-payroll costs, and reductions to forgiveness. However, the FAQs also clarify a more recently established rule with respect to owner-employee cash compensation based on entity type.

FAQ Highlights on Forgiveness Generally

  • Borrowers who have their PPP loans fully forgiven are not responsible for any payments.
  • Borrowers who submit the loan forgiveness application within ten months of end of Covered Period and obtain full forgiveness are not required to make any payments.
  • Borrowers who submit the loan forgiveness application within ten months of end of Covered Period and obtain partial forgiveness will be notified by their Lenders regarding repayment start date and amounts pursuant to their loan documentation.

FAQ Highlights on Payroll Costs

  • Payroll costs incurred during or paid during the Covered Period are eligible for forgiveness.
  • The SBA reiterates that the determining cash compensation of an employee, borrowers should use the gross amount paid to employees.
  • Eligible payroll costs include tips, commissions, bonuses and hazard pay.
  • Employer expenses for employee group health care benefits that are paid or incurred by the borrower during the Covered Period or the Alternative Payroll Covered Period are payroll costs eligible for loan forgiveness. However, payroll costs do not include expenses for group health care benefits paid by employees (or beneficiaries of the plan) either pre-tax or after tax, such as the employee share of their health care premium. Forgiveness is not provided for expenses for group health benefits accelerated from periods outside the Covered Period or Alternative Payroll Covered Period.
  • The employer contributions for retirement benefits included in the loan forgiveness amount as payroll costs cannot include any retirement contributions deducted from employees’ pay or otherwise paid by employees. Forgiveness is not provided for employer contributions for retirement benefits accelerated from periods outside the Covered Period or Alternative Covered Period.
  • Owner-employee cash compensation paid with PPP loan proceeds is capped at a maximum of $20,833 total per owner-employee in total across all businesses in which he or she has an ownership stake, subject to the following additional restrictions by business-type:
    • C Corporations: Up to 2.5/12 of an owner-employee’s 2019 cash compensation is eligible for loan forgiveness.
    • S Corporations: Up to 2.5/12 of employee-owners 2019 cash compensation is eligible for loan forgiveness.
    • Self-Employed (Schedule C or Schedule F Filers): Up to 2.5/12 of 2019 net profit as reported on IRS Form 1040 Schedule C line 31.
    • Partnerships (for General Partners) Up to 2.5/12 of a general partner’s 2019 net earnings from self-employment that is subject to self-employment tax, based upon 2019 IRS Form 1065 Schedule K-1 box 14a (reduced by box 12 section 179 expense deduction, unreimbursed partnership expenses deducted on their IRS Form 1040 Schedule SE, and depletion claimed on oil and gas properties) multiplied by 0.9235.
  • Borrowers that are C Corporations and S Corporations may seek forgiveness for employer state and local taxes paid by the borrowers and assessed on an owner-employee’s compensation, and for borrower retirement contributions to an owner employee’s retirement plans capped at the amount of 2.5/12 of their owners’ 2019 employer retirement contribution. 
  • Borrowers that are C Corporations may also seek forgiveness for the amount paid by the borrower for employer contributions to their owner-employee’s health insurance.
  • Borrowers that are S Corporations may not seek forgiveness for employer contributions for health insurance for S-corporation employees with at least a 2% stake in the business, including for employees who are family members of an at least 2% owner, because those contributions are deemed to be included in cash compensation under federal law.
  • Borrowers that are self-employed or partnerships (payments for general partners) may not seek forgiveness for separate payments for owner-employees’ or general partners’ health insurance, retirement, or state or local taxes.

FAQ Highlights on Non-Payroll Costs

  • While the Alternative Covered Period does not apply to non-payroll costs, non-payroll costs owed and paid during the Covered Period (even if not incurred) may be eligible for forgiveness.
  • Interest on unsecured credit is not eligible for forgiveness. Only interest on business mortgages on real or personal property (such as an auto loan) are eligible for loan forgiveness.
  • The forgivable non-payroll cost of “distribution of transportation” includes only transportation utility fees assessed by state and local governments.
  • The forgivable non-payroll cost of electric utility includes gross receipt taxes, supply and distribution charges.

FAQ Highlights on Forgiveness Reductions

  • Borrower may exclude any reduction in FTE employees if the borrower is able to 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.
  • Borrowers are required to inform the applicable state unemployment insurance office of any employee’s rejected rehire offer within 30 days of the employee’s rejection of the offer.
  • If the salary or hourly wage of a covered employee is reduced by more than 25% during the Covered Period or the Alternative Covered Period, the portion in excess of 25% reduces the eligible forgiveness amount unless an exception or safe harbor rule applies.
  • For purposes of calculating reductions in the loan forgiveness amount as a result of salary/hourly wage reductions in excess of 25%, the borrower should only take into account decreases in salaries or wages.

Visit our COVID-19 Task Force for ongoing updates.

Banking & Finance

Jonathan M. Boulahanis
W. Kent Carter
Tyler Duff
Craig S. Heryford



Banking & Finance
COVID-19 Task Force