Business owners across the United States have been scrambling to apply for the Paycheck Protection Program (PPP) to keep their employees on the payroll and their businesses afloat during these uncertain times. While many owners are aware that the PPP is designed to provide forgivable loans to cover payroll and other expenses, some are unsure which part of their payroll is forgivable. That’s where this article comes in – we’ll be breaking down exactly what part of payroll is forgivable under the PPP.
To put things simply, payroll costs that are eligible for forgiveness under the PPP include employee salaries and wages, health insurance premiums, retirement benefits, and state and local taxes on employee compensation. Additionally, owner compensation is also forgivable, with a cap of $15,385 for a single owner or $20,833 for an owner who is also an employee of the business. This means that business owners who use the PPP funds to cover these expenses can have their loans forgiven entirely.
However, it’s important to note that only payroll costs incurred during the 8-week period following loan disbursement are eligible for forgiveness under the PPP. Additionally, at least 75% of the loan must be used for payroll expenses in order for the entire loan to be forgivable. With this information in mind, let’s take a closer look at what part of payroll is forgivable under the PPP and how business owners can ensure they are using the funds correctly for full loan forgiveness.
Understanding PPP Loan Forgiveness
Under the Paycheck Protection Program (PPP), small business owners can have their loans forgiven by meeting certain criteria. Forgiveness is granted for the funds that are used on eligible payroll costs, rent, utilities, and mortgage interest during the covered period. Understanding what part of payroll is forgiven in PPP is crucial for maximizing the amount of the loan that can be forgiven.
- What Payroll Costs are Eligible for Forgiveness?
- Salaries, wages, commissions, or similar compensation up to $100,000 per employee
- Cash tips or equivalent
- Payment for vacation, parental, family, medical, or sick leave
- Separation or dismissal allowance
- Healthcare benefits including insurance premiums
- Retirement benefits
- What Payroll Costs are NOT Eligible for Forgiveness?
- Salaries over $100,000 per employee
- Taxes imposed or withheld under Chapters 21, 22, and 24 of the Internal Revenue Code
- Compensation to an employee whose principal residence is outside the United States
- Qualified sick and family leave for which a credit is allowed under the Families First Coronavirus Response Act
It is important to note that the covered period for PPP loan forgiveness is 8 or 24 weeks from the date the loan proceeds are disbursed to the borrower. The borrower must use at least 60% of the loan amount on eligible payroll costs to qualify for full forgiveness. The remaining 40% can be used on qualified non-payroll costs such as rent, utilities, and mortgage interest.
For small business owners who follow the guidelines outlined by the Small Business Administration (SBA), PPP loan forgiveness can provide much-needed relief during the COVID-19 pandemic. Understanding the payroll costs that are eligible for forgiveness and ensuring those costs are documented correctly can help increase the likelihood of full loan forgiveness.
| Eligible Costs | Forgiven Amount |
|---|---|
| Payroll Costs (60% minimum) | Up to full loan amount |
| Rent, Utilities, and Mortgage Interest | Up to 40% of loan amount |
By taking advantage of the PPP program, small business owners can provide economic support to their employees and communities while also staying afloat during these challenging times.
Eligibility Requirements for PPP Loan Forgiveness
As small businesses across the United States continue to grapple with the economic fallout of the COVID-19 pandemic, the Paycheck Protection Program (PPP) has emerged as a lifeline for many. The PPP provides forgivable loans to small businesses to cover payroll and other expenses, but not all expenses are eligible for forgiveness.
Expenses Eligible for Forgiveness
- Payroll costs: This includes salary, wages, commissions, tips, and employee benefits such as vacation days, health care benefits, and retirement benefits. The Small Business Administration (SBA) has set a cap of $100,000 per employee for payroll costs.
- Business mortgage interest payments: This includes mortgage interest for real or personal property incurred before February 15, 2020.
- Business rent or lease payments: This includes rent or lease agreements for real or personal property that were in effect before February 15, 2020.
- Business utility payments: This includes payments for the distribution of electricity, gas, water, transportation, telephone, or internet access that were in effect before February 15, 2020.
Covered Period and Employee Retention
In addition to the eligible expenses listed above, there are certain time and employee retention requirements that businesses must meet to be eligible for loan forgiveness. The covered period for PPP loans is 24 weeks from the date the loan was disbursed. During this period, businesses must use at least 60% of the loan proceeds for payroll costs to be eligible for full forgiveness.
Businesses must also maintain their employee and compensation levels during the covered period. If there is a reduction in the number of employees or a decrease in employee salaries and wages, the amount of loan forgiveness may be reduced proportionally. There are, however, certain exemptions for businesses that are unable to rehire employees who were laid off or unable to find qualified replacements, as well as for businesses facing operational restrictions due to COVID-19.
Loan Forgiveness Application and Documentation
To apply for loan forgiveness, businesses must complete and submit the SBA’s PPP Loan Forgiveness Application, along with required documentation, to their lender. The documentation required includes:
| Payroll documentation | Bank statements or canceled checks verifying payments on covered mortgage obligations, lease obligations, and utility payments | Documentation showing the number of full-time equivalent employees and their salaries and wages before and after the covered period |
Businesses must retain this documentation for at least six years after the date the loan is forgiven or repaid in full.
In conclusion, businesses that have received PPP loans must ensure they comply with eligibility requirements for loan forgiveness. Eligible expenses include payroll costs, business mortgage interest payments, business rent or lease payments, and business utility payments. There are also specific time and employee retention requirements that must be met to be eligible for full forgiveness of the loan. Documentation is also key to ensure the forgiveness of the loan.
Calculating Payroll Costs for PPP Loan Forgiveness
One of the most crucial factors in calculating the amount of loan forgiveness is knowing how to compute payroll costs. It is important to ensure that all eligible expenses are accounted for to maximize forgiveness.
- Start with determining the covered period – This is the time from when you received the funds until the end of the 8-week or 24-week duration you selected.
- Eligible Payroll Expenses – These include salary or wages, tips, commissions, paid leave, healthcare benefits, and state and local payroll taxes.
- Non-eligible Payroll Expenses – Employee bonuses, federal payroll taxes, and compensation exceeding $100,000 per employee on an annual basis, amongst others, are not covered under PPP forgiveness.
It is recommended that you create a spreadsheet to track all of the eligible payroll expenses during the covered period. Using this will make it easier to submit the information required for forgiveness and to determine if the expenses meet or exceed the amount required for full forgiveness.
To assist in calculating payroll expenses, a table outlining the payroll costs calculation should be used:
| Eligible Payroll Costs | Amount |
|---|---|
| Salary, wages, tips, commissions, bonuses | $ |
| Employee benefits (healthcare, retirement) | $ |
| State and local payroll taxes | $ |
| Total Payroll Costs (add all eligible payroll costs) | $ |
| PPP Loan Amount (75% of total amount for payroll)* | $ |
| Payroll Cost Eligibility (must use at least 60% of PPP loan funds toward payroll costs) | $ |
| Amount Eligible for Forgiveness (equal to or less than the Payroll Cost Eligibility) | $ |
Using this table, it is possible to ensure that all eligible payroll costs are taken into account, and that the amount used to calculate the PPP loan forgiveness is accurate. By tracking and calculating the payroll costs for loan forgiveness carefully, businesses can maximize the amount of the PPP loan forgiven and aid the recovery from the COVID-19 pandemic.
Non-Payroll Costs Eligible for PPP Loan Forgiveness
As a small business owner who received a Paycheck Protection Program (PPP) loan, you may be wondering what non-payroll costs are eligible for loan forgiveness. Non-payroll costs are the other expenses that you incurred during the covered period that you can also seek forgiveness for. These expenses include:
- Business mortgage interest payments: Interest on any mortgage obligation incurred before February 15, 2020, on real or personal property, is eligible for forgiveness.
- Business rent or lease payments: Rent payments for leases in force before February 15, 2020, are eligible for forgiveness.
- Business utility payments: Utility payments such as electricity, gas, water, transportation, telephone, or internet access fees are eligible for forgiveness, but only if the service began before February 15, 2020.
The amount of non-payroll costs you can include for forgiveness is limited to 40% of the total PPP loan amount.
It is important to note that these non-payroll expenses must have been paid or incurred during the covered period. The covered period for PPP loans is the 24-week period beginning on the date the loan was disbursed. If your loan was disbursed before June 5, 2020, you may choose to use an 8-week covered period instead.
You will need to provide documentation to prove your non-payroll costs, such as receipts, canceled checks, and account statements. Be sure to keep accurate records to show that you used your PPP loan funds for the allowable expenses.
| Non-Payroll Costs Eligible for PPP Loan Forgiveness | Eligibility Criteria |
|---|---|
| Business mortgage interest payments | Interest on any mortgage obligation incurred before February 15, 2020, on real or personal property. |
| Business rent or lease payments | Rent payments for leases in force before February 15, 2020. |
| Business utility payments | Utility payments such as electricity, gas, water, transportation, telephone, or internet access fees, but only if the service began before February 15, 2020. |
Overall, understanding what non-payroll costs are eligible for PPP loan forgiveness is important for small business owners who want to maximize their loan forgiveness amount. By keeping accurate records and submitting the necessary documentation, you can ensure that your non-payroll expenses are properly accounted for and ultimately forgiven.
Documentation Needed to Apply for PPP Loan Forgiveness
As a business owner who has received a PPP loan, you need to make sure you keep accurate and complete records of your expenses. This is because only a portion of the loan is forgivable, and you need to be able to show that you used the funds for qualifying expenses. One of the most important aspects of PPP loan forgiveness is providing the necessary documentation.
- A copy of your PPP loan application
- Documentation verifying the number of full-time equivalent employees on your payroll, as well as their pay rates
- Documentation showing that at least 60% of the loan was used for payroll costs, including payroll tax filings, state income, and unemployment insurance filings
- If you are self-employed, documentation showing that you were in operation on February 15, 2020, such as payroll or income tax filings
- Documentation of mortgage interest payments, rent payments, and utility payments during the covered period
It’s important to note that some additional documentation may be required depending on your specific situation. Before you apply for PPP loan forgiveness, make sure you review all of the requirements and documentation with your lender.
Additionally, the Small Business Administration (SBA) has provided a PPP Loan Forgiveness Application form to help guide you through the process. The form includes instructions on what documentation is required, as well as calculation worksheets to determine the forgivable portion of your loan.
What Part of Payroll is Forgiven in PPP?
So, what part of payroll is forgiven in PPP loans? In short, the forgivable portion of your PPP loan includes payroll costs, mortgage interest payments, rent payments, and utility payments. The key is to ensure that at least 60% of the loan is used for payroll costs.
| Payroll Costs | Mortgage Interest Payments | Rent Payments | Utility Payments |
|---|---|---|---|
| Salary, wages, commissions, or tips | Interest payments on any business mortgage obligation | Rent or lease agreements in force before February 15, 2020 | Payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access |
| Employee benefits including costs for vacation, parental, family, medical, or sick leave | Mortgage obligations incurred before February 15, 2020 | ||
| State and local taxes assessed on compensation |
In order to be eligible for loan forgiveness, you must have used the funds for qualifying expenses during the covered period, which is either 8 or 24 weeks after the loan is disbursed. It’s important to track and document these expenses carefully to ensure that you maximize your forgiveness amount.
By keeping accurate records and providing the necessary documentation, you can increase your chances of receiving full or partial loan forgiveness for your PPP loan. Make sure you work with your lender and follow all of the requirements to make the process as smooth as possible.
Reducing Employee Salaries & Wages and Forgiveness Reduction
Under the Paycheck Protection Program (PPP), it is required to maintain the same level of full-time equivalent (FTE) employees and their salary or wages as before the pandemic. If not, the loan forgiveness amount will be reduced. However, there are some exceptions to this rule.
The Small Business Administration (SBA) allows reductions in employee salaries or wages of any single employee that are over 25% of the total salary or wages of that employee during the most recent quarter. In other words, you can reduce an employee’s wages by up to 25% and still be eligible for full PPP loan forgiveness. Beyond that, forgiveness amounts may be reduced.
- Reduction of employee salaries or wages by more than 25% will reduce the loan forgiveness amount.
- If an employee’s salary or wages are reduced by more than 25%, but then brought back up to the original level by December 31, 2020, then loan forgiveness will not be reduced.
- If you reduce the number of FTE employees from the pre-pandemic levels, the loan forgiveness amount will be reduced accordingly, unless you fall within certain exemptions created by legislation.
It’s important to note that if you are unable to rehire employees or find suitable replacements by December 31, 2020, forgiveness reductions can be avoided if it is due to compliance with COVID-19 related orders or if it is due to employee refusal to be rehired.
Keep in mind that any forgiveness amount reduction to your PPP loan will increase your loan balance and will need to be repaid to the lender over two years at a 1% interest rate.
| Situation | PPP Forgiveness Reduction Amount |
|---|---|
| Reduction of employee salaries or wages by more than 25% | Forgiveness amount will be reduced by the amount of reduction over 25%. |
| Reduction of FTE employees | Forgiveness amount will be reduced proportionally to the percentage of the reduction of FTE employees, unless you fall within certain exemptions. |
| Not maintaining salary or wage levels of same employee during the most recent quarter | Forgiveness amount will be reduced proportionally to the percentage of the reduction in salary or wages. |
As a borrower under the PPP, it’s crucial to understand how reducing employee salaries or wages can affect loan forgiveness. Be sure to consult with your CPA or financial advisor to determine how any changes in salary or wages could impact your PPP loan forgiveness amount.
PPP Loan Forgiveness Application Process
As businesses across America struggle to stay afloat in the wake of the COVID-19 pandemic, the Paycheck Protection Program (PPP) has been a critical lifeline for many. As of July 2020, over 5 million businesses have received PPP loans totaling more than $500 billion. For many of these businesses, loan forgiveness will be the key to long-term survival.
The PPP Loan Forgiveness Application Process is a critical step for businesses seeking to have their loans forgiven under the PPP program. The application process can be complex and confusing, so it’s important for business owners to understand what is required in order to qualify for loan forgiveness. One important aspect of the application process is determining what part of payroll is forgiven in PPP.
Here are some key things to know about what part of payroll is forgiven in PPP:
- The PPP loan forgiveness amount is based on the eligible expenses paid or incurred during the eight-week period following disbursement of the loan.
- At least 60% of the loan must be used for payroll costs in order to qualify for loan forgiveness.
- Payroll costs include salaries, wages, and tips, up to an annualized rate of $100,000 per employee.
- The forgivable amount of non-payroll costs, such as rent or utility payments, cannot exceed 40% of the total loan amount.
- Forgiveness is based on maintaining or quickly rehiring employees and maintaining salary levels. If a business reduces headcount or salaries during the eight-week covered period, the forgivable amount of the loan may be reduced.
It’s important to note that the program still has some unanswered questions and has undergone changes even after its initial implementation in March 2020. The PPP loan forgiveness application was recently updated by the Small Business Administration and Treasury to reflect changes made by the PPP Flexibility Act, which was signed into law on June 5, 2020.
For businesses seeking PPP loan forgiveness, navigating the application process can be complex and time-consuming. Working with a qualified accountant or financial advisor can help ensure that the process goes smoothly and that all requirements are met.
| Eligible Payroll Costs | Eligible Non-payroll Costs |
|---|---|
| Salary, wages, commissions, or tips (capped at $100,000 per employee on an annual basis) | Interest on mortgage obligations (incurred before February 15, 2020) |
| Employee benefits including vacation, parental, family, medical, or sick leave (with limitations) | Business rent or lease payments (mortgage payments do not qualify) |
| State and local payroll taxes | Utility payments (electricity, gas, water, transportation, telephone, or internet access) |
Remember, the PPP loan forgiveness application process is complex and subject to change. It’s important to stay informed about the latest requirements and guidelines in order to maximize loan forgiveness and ensure the long-term health of your business.
FAQs: What Part of Payroll is Forgiven in PPP?
Q: What is PPP?
PPP stands for Paycheck Protection Program, a loan program created by the CARES Act to provide emergency funding to small businesses during the COVID-19 pandemic.
Q: What part of payroll is forgiven in PPP?
PPP loans are forgivable if they are used primarily for payroll costs. This includes salaries, wages, commissions, bonuses, and employee benefits like health insurance and retirement contributions.
Q: How much of payroll is forgiven in PPP?
To qualify for full loan forgiveness, at least 60% of the PPP loan must be used to cover payroll costs. The remaining funds can be used for other eligible expenses like rent, utilities, and mortgage interest.
Q: What is the covered period for PPP loan forgiveness?
The covered period for PPP loan forgiveness is 8 to 24 weeks from the date of loan disbursement. During this period, the borrower must use the loan funds for eligible expenses and maintain employee headcount and compensation levels.
Q: Can I include owner compensation in payroll costs for PPP loan forgiveness?
Yes, owner compensation can be included in payroll costs for PPP loan forgiveness. The maximum amount of owner compensation that can be forgiven is limited to the lesser of 2.5 months of the 2019 compensation or $20,833 per individual.
Q: How do I apply for PPP loan forgiveness?
PPP borrowers may apply for loan forgiveness through their lender by submitting a forgiveness application and supporting documentation. The lender will then review the application and make a decision on forgiveness.
Q: When should I apply for PPP loan forgiveness?
PPP borrowers have up to 10 months after the end of their covered period to apply for loan forgiveness. However, it is recommended that borrowers apply as soon as possible to avoid any delays in the forgiveness process.
Thanks for Reading About What Part of Payroll is Forgiven in PPP!
We hope these FAQs answered all your questions about what part of payroll is forgiven in PPP. Remember, PPP loans are forgivable if used primarily for payroll costs, including salaries, wages, commissions, bonuses, and employee benefits. To qualify for full loan forgiveness, at least 60% of the loan must be used to cover payroll costs. If you have any further questions, feel free to reach out to your lender or visit the SBA website for more information. Thanks for reading and check back again soon for more helpful articles!