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PPP Updates and Loan Forgiveness Calculator

New PPP rules, applications and guidance are almost a daily occurrence and last week was no exception.

The June 22 Interim Final Rule officially updates the language of the Final Rules to include the changes enacted by the PPP Flexibility Act of 2020. This includes the 24-week extension, the 60% rule, the extended loan payment deferral period, the extension of the “employee rehire amnesty” period, the expanded employee reduction exceptions to forgiveness reductions, and the new EZ Forgiveness Application.

In addition, the SBA confirmed some items and provided new information:

  1. Borrowers can file for forgiveness during the 24-week period immediately after the PPP monies are spent in their entirety.
  2. Forgiveness for owners (including S or C Corporation shareholders) will be limited to 15.385% for the 8-week period or 20.833% for the 24-week period of their 2019 compensation with other limitations.
  3. State required closings, and the inability to rehire or find qualified replacement employees will be interpreted in a borrower-friendly manner.

You have the option to file for forgiveness as soon as PPP monies are spent but it may be expensive.

With the addition of the 24 week period, W&D clients are now asking how long they have to wait to file for loan forgiveness.  What can a borrower who needs more than 8 – but less than 24 – weeks to spend a sufficient amount to have complete forgiveness do? Should they wait for the 24 weeks to end before they file for forgiveness or can they file sooner?

Borrowers who received their loan prior to June 5th can elect to stay with the 8-week covered period as opposed to being forced to go the full 24 weeks. Those borrowers could choose to submit their loan forgiveness application on the time line they originally anticipated.

For borrowers under the new 24- week covered period, the New Interim Final Rule reads as follows:

  1. When must a borrower apply for loan forgiveness or start making payments on a loan?

A borrower may submit a loan forgiveness application any time on or before the maturity date of the loan – including before the end of the covered period – if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness.

Accordingly, once a borrower has spent all PPP loan proceeds, they will be able to submit an application for forgiveness at any point.

There’s A Catch

For employees who earn $100,000 or less a year, if a borrower reduces wages by more than 25 percent, they must account for the excess salary forgiveness reduction for the full 8-week or 24-week covered period (whichever selected.)

Additionally, if a borrower does not apply for forgiveness within 10 months after the last day of the covered period then the loan will no longer be deferred and the borrower must begin making payments.

Why the Option to File for Forgiveness Early is Important

The ability to file early will give business owners clarity regarding how much they may owe and facilitate future planning.

A forgiveness decision will also allow borrowers to get the PPP loans off their books which may be necessary before securing other forms of debt.

Maintaining Employee Headcount

There also appears to be no “strings attached” after a borrower applies for loan forgiveness that would require the borrower to maintain employee headcount level throughout the entire 24 week period.

If the borrower maintained the same number employees and the same pay rate for those employees through the date it files the forgiveness application (or restored employee headcount levels or pay rates using the FTE Reduction Safe Harbor on such date) there would be no reduction in the amount of loan forgiveness.

Owner employee’s and self-employed payroll compensation

On June 11th, independent contractors received the good news that the amount of automatic forgiveness they would be eligible for would be calculated via the exact same way that their original loan amount was calculated. This essentially meant that any independent contractor who did not pay wages to another employee, would have their loan automatically forgiven if they use the 24-week period.

The revised Forgiveness Application and the June 22nd Interim Final Rule, addresses owner-employees.  Compensation is capped at either:

  • Eight weeks’ worth (8/52) of 2019 net profit (up to $15,385) for an eight-week covered period or 
  • 5 months’ worth (2.5/12) of 2019 net profit (up to $20,833) for a 24-week covered period.
  • Excludes any qualified sick leave equivalent amount claimed under the Families First Coronavirus Response ACT (FFCRA).

General Partners

  • The maximum partner compensation is capped at the 2019 Schedule K-1 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties), all multiplied by 0.9235.

Health care expenses are NOT INCLUDED for:

  • Self-employed, independent contractors or sole-proprietors
  • General partners, or
  • Owner-employees of an S-corporation

Retirement contributions are also NOT INCLUDED in forgiveness for:

  • Self-employed, independent contractors or sole-proprietors
  • General partners

Retirement costs for S-Corporation owner-employees ARE eligible for forgiveness (health care costs are not.)

C-Corporation owner-employees may include employer retirement (some limits may apply) and health insurance contributions made on their behalf.

The SBA’s goal is to prevent borrowers from double dipping on forgiveness. The SBA does not want to allow forgiveness for expenses that were not already included in the borrower’s payroll calculation on which their loan amount is based.

There is no mention of limiting retirement plan contributions attributable to the shareholder employee of a company to 20.833% of 2019 contributions for such shareholder, which is provided for in the EZ forgiveness application. Hopefully, this limitation is an error that will be deleted from the EZ application.

New employee reduction exceptions created by the Flexibility Act

The original CARES Act allowed borrowers to avoid reductions in forgiveness for a reduced number of employees compared to the “pre-COVID-19” period in the form of four exemptions:

  • the employee rejected a rehire offer;
  • the employee was fired for cause during the covered period;
  • the employee requested a reduction in hours; and
  • the employee voluntarily resigned.

The Flexibility Act and recent guidance added the following additional exemptions:

  • There was an inability to rehire individuals who were employees of the eligible recipient on February 15th,
  • There was an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020, or,
  • There was an inability to return to the same level of business activity as before February 15th (due to direct or indirect compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 21, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.)

The SBA has recognized that many state and local authorities are imposing restrictions based on guidance from these agencies, so the SBA is willing to allow borrowers suffering from those indirect impacts to still claim the exemption.

Be on the lookout for additional exemptions added in the future. These have been described as “get out of jail free cards” for borrowers who would otherwise be subject to forgiveness reductions for have suffered reductions in employees.

Updated AICPA Loan Forgiveness Calculator

The AICPA has updated its PPP loan forgiveness calculator as of guidance released June 25th.  The current version of the calculator may be downloaded HERE.  

This is a powerful tool for helping borrowers plan for forgiveness, organize documentation and prepare the loan forgiveness application.    Be sure to check the above link regularly for revisions to the calculator based on future guidance released.

We Are Here to Help

Please visit the Warady & Davis LLP COVID-19 Resource Center for a wealth of information on stimulus assistance, new legislation and much more.  This information is updated regularly.  This is a rapidly evolving situation so please do not hesitate to reach out to us with any questions or concerns at 847-267-9600 or info@waradydavis.com.


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