This article was published on June 18, 2020.
The SBA has finally released updated Paycheck Protection Program (PPP) Loan Forgiveness Applications and instructions. You read that right, two forgiveness applications were released. The initially released PPP Loan Forgiveness Application (Form 3508) combined the instructions and the various parts of the application into a single 11 page document. The new documents released by the SBA and the Treasury include a revised PPP Loan Forgiveness Application (Form 3508) and separate instructions, and a PPP Loan Forgiveness Application Form 3508EZ and separate instructions. These updated applications and instructions reflect changes to the PPP which were brought about by the Paycheck Protection Program Flexibility Act of 2020.
Borrowers that meet at least one of the three sets of criteria listed on the first page of the Form 3508EZ instructions are allowed to use the Form 3508EZ instead of the regular Form 3508. The Form 3508EZ is two pages shorter than the regular form by excluding the “PPP Schedule A” and “PPP Schedule A Worksheet” parts of the regular application. The EZ form provides a simplified forgiveness calculation for borrowers who did not have employees at the time they applied for their PPP loan, and for those that do not need to go through the detailed Salary/Hourly Wage Reduction or FTE Reduction calculations. (See specific criteria on page 1, here.)
As expected, the new applications take into account the option to have a 24-week Covered Period, and reflect the new Payroll Cost 60% Requirement. However, the newly released documents provide new forgiveness guidance as well. See below for some of the biggest questions clarified by these new documents.
Owner Compensation Clarification
The instructions provide clarified limits for forgivable owner compensation based on the type of owner. The limits for owner-employees, self-employed individuals, and general partners is as follows:
- For Borrowers using a 24-week Covered Period: The amount is capped at $20,833 ($100,000 annual salary prorated for two and a half months) for each individual, or the 2.5-month equivalent of their applicable compensation in 2019, whichever is lower.
- For Borrowers using an 8-week Covered Period: The amount is capped at $15,385 ($100,000 annual salary prorated for eight weeks) for each individual, or the eight-week equivalent of their applicable compensation in 2019, whichever is lower.
Owner Benefits Clarification
The instructions clarify what types of owner benefits are eligible for forgiveness. Employer health insurance contributions made on behalf of a self-employed individual, general partners, or owner-employees of an S-corporation are not eligible for forgiveness because such payments should already be included in their compensation. Likewise, employer retirement contributions made on behalf of a self-employed individual or general partners, are also not eligible for forgiveness for the same reason. Employer retirement contributions on behalf of owner-employees are capped at 2.5 months’ worth of the 2019 contribution amount.
Cash Compensation Limit Update
The new instructions provide updated cash compensation limits to consider the new 24-week Covered Period. The total amount of cash compensation eligible for forgiveness for each employee cannot exceed an annual salary of $100,000, as prorated for the Covered Period (or Alternative Payroll Covered Period). For an 8-week Covered Period, that total is unchanged and remains $15,385. For a 24-week Covered Period, the limit is increased to $46,154. (It should be noted that in most circumstances, most employees will not reach this maximum, as the maximum loan amount was calculated on only two and a half months of payroll.)
Although these new documents provide some much needed answers, we expect even more supportive guidance from the SBA. Stay tuned for further updates.
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