Have you received a Paycheck Protection Program (PPP) loan, or are you planning to apply for one? Read on to learn more about PPP loans and how to apply for PPP loan forgiveness. 

NOTE: There is still time to apply for a PPP loan! The deadline to apply has been extended to August 8, 2020. If you still want to apply for a loan, we recommend applying through PayPal or Kabbage immediately. We have personally had the best luck for our clients with these two lenders. Many of our clients have received funds in just a few days. If you need help applying for a PPP loan, please make an appointment on our Appointment Calendar. You will need to have a completed Schedule C, even if you have not filed your 2019 taxes yet. 

Book a PPP Loan Forgiveness Consultation with BNC Tax

We will help you navigate the rules and collect the documents you will need to apply for PPP loan forgiveness.

What Is a PPP Loan?

The Paycheck Protection Program (PPP) is a business loan program that was passed into law by Congress in March as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

The PPP provides a framework for businesses to apply for low-interest loans, which are to be used specifically to continue paying employees, business rent or lease payments, mortgage interest, and business utilities during the Coronavirus pandemic. The goal is to protect workers’ income, protect business solvency, and help stabilize the economy. 

Businesses may apply for loans in the amount of approximately 2.5 times their average monthly payroll costs. Loans have an interest rate of 1%. Loans issued prior to June 5 have a maturity of 2 years. Loans issued after June 5 have a maturity of 5 years.

PPP loans are administered through The Small Business Administration (SBA). The SBA will partially or fully forgive loans if the business uses the funds for qualified expenses. Click here to read more about the PPP on the SBA’s website. 

How Can I Get My PPP Loan Forgiven?

The requirements for PPP loan forgiveness are still changing, but the current requirements are outlined in the PPP Flexibility Act. 

PPP Flexibility Act

The PPP Flexibility Act, which was signed into law on June 5, 2020, is the only legal guideline as of now. More regulations are being proposed which could come into play later this year, but for now, we must follow the PPP Flexibility Act. The requirements for loan forgiveness are outlined below. 

The Covered Period

The covered period is the period of time starting with the date you received the funds. 

Businesses that received their PPP loan before June 5 can use either an 8-week covered period or a 24-week covered period. 

Businesses that received the loan after June 5 will use a covered period of 24 weeks, or until December 31, whichever comes first. 

Businesses that received the loan after July 16 won’t get the full 24 weeks of the covered period, because December 31 is 24 weeks from July 16. 

You should spend the funds during the covered period, and apply for loan forgiveness after the covered period. December 31, 2020 is the final date to pay eligible expenses. You have up to 10 months to apply for loan forgiveness after the covered period ends. 

The 60/40 Rule 

In order to qualify for PPP loan forgiveness, you must spend 60% of the loan on payroll costs. This includes paying employees, or paying yourself if you are self employed. Payroll costs include salary, wages, vacation pay, parental/family or medical leave, sick leave, health benefits, and bonuses (with certain restrictions). 

You can spend the other 40% on business mortgage interest, business rent and lease agreements, and business utilities. Utilities include electricity, water, gas, sewage, telephone (including cell phones and landlines), Internet, and transportation costs. All mortgage, rent/lease and utility agreements must have been in place before February 15, 2020 in order to qualify as costs eligible for PPP loan forgiveness. 

Employee Headcount

In order to qualify for PPP loan forgiveness, you must maintain your employee headcount. This means you must have the same number of full time employees when averaging three periods of time throughout the year. There is a calculation to figure out if you have maintained your headcount. 

First, determine the average number of full-time equivalent employees you had for:

  • The 8-week period following your initial loan disbursement (A)
  • February 15, 2019 to June 30, 2019 (B1)
  • January 1, 2020 to February 29, 2020 (B2)

When calculating “A” you may add back as retained employees two different categories of workers, which are:

  • For people who you laid off or put on furlough, if you have made a written offer to rehire the person for the same salary/wage and number of hours as before they were laid off, and that person rejects your re-employment offer, you will be allowed to exclude this employee when calculating forgiveness.  You must have documentation of your offer and the former employee’s rejection of the offer.
  • Any worker who voluntarily resigned, voluntarily requested and received a reduction in hours, or who you fired for cause.

Take A and divide that by B1. Do the same with B2. Take the largest number you obtain. If you’re a seasonal employer, you must divide by B1.

  • If you get a number equal to or larger than 1, you successfully maintained your headcount and meet this requirement.
  • If you get a number smaller than 1, you did not maintain your headcount, and your forgivable expenses will be reduced proportionately.

You can rehire furloughed or laid off employees by Dec. 31, 2020. 

It’s important to note that your employee headcount does not need to consist of the SAME employees, it only needs to be the same NUMBER of employees.

There is an exemption regarding the rehiring of employees. If you couldn’t find qualified staff or if you can’t bring your staff back for safety reasons, you may still qualify for loan forgiveness. 

Employee Pay

You must maintain at least 75% of total salary for each employee who did not receive more than $100,000 in annualized pay in 2019. If the employee’s pay during the covered period is less than 75% of the pay they received during the most recent quarter in which they were employed, the eligible amount for forgiveness may be reduced by the difference between their current pay and 75% of the original pay.

PPP Loan Forgiveness for the Self Employed

Self-employed people are eligible for forgiveness of 100% of the loan up to $100,000 because as a self-employed person, your profits are your payroll. This means you will meet the criteria of spending at least 60% of the loan on payroll. 

Like businesses with employees, self-employed individuals also have up to 10 months to apply for loan forgiveness after the covered period.

PPP Loan Repayment 

Some businesses likely will not be able to meet all of the requirements for 100% loan forgiveness, and they will need to pay back a portion of the loan. Here is some information you will need to know about PPP loan repayment. 

  • It’s a loan at 1% interest rate for up to 5 years, depending on when you received the funds. Loans issued prior to June 5 have a maturity of 2 years. Loans issued after June 5 have a maturity of 5 years.
  • There is a possibility for partial forgiveness. For example if you retain part of your staff, you could qualify for partial forgiveness. 
  • If you need to repay a portion of your loan, you don’t need to make any payments until after your loan forgiveness application has been processed and completed. 

Potential New Regulations

Some lawmakers have suggested blanket legislation to forgive all PPP loans under $150,000. This is being seriously considered, and PayPal even has a petition for this, but has not been put into law yet.

Another round of PPP loans is also being discussed. This second round would likely be more restrictive. For example, it may only apply to businesses that have lost a certain percentage of revenue, or businesses that have been required to close because of local or state mandates. 

Where to Find the PPP Loan Forgiveness Application

The PPP loan forgiveness application form is called SBA Form 3508 or SBA Form 3508EZ, depending on your situation. 

SBA Form 3508 for PPP loan forgiveness
SBA Form 3508

PPP loan forgiveness applications need a lot of information. This blog post covers some of that information, but not every detail. It’s important to have your payroll company and your accountant involved in filling out this application. We do not recommend trying to do it by yourself.


Did you receive PPP funding? Do you need help filling out the PPP loan forgiveness application? Book an appointment with BNC Tax today.

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