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Posts on this page reflect tax law change alerts & updates for new provisions passed by Congress that may impact you.  We also periodically post reminders & updates that may impact our clients.  While we try to be as detailed as possible, we ask that clients contact their BenderCPA advisor with any questions before taking action based on a post to ensure your intended outcome is achieved.

ALERT- SBA Releases Guidance on PPP Loan Forgiveness

Posted by Admin Posted on May 22 2020

Nearly 6 weeks after the program began, the SBA finally issued guidance on May 15th on how businesses calculate and claim forgiveness for Payroll Protection Program (PPP) loans.  The guidance came as forms and instructions borrowers will provide to their lender to request forgiveness.  The 11 pages, which can be found on the SBA website (link: provide much-needed definitions and calculation worksheets businesses have been asking for. 

All guidance from the SBA, including a series of Interim Final Rule releases can be found at the SBA’s PPP website (link:

We’ve received a laundry list of questions from clients over the past several weeks related to the PPP.  Here are some of the bigger ones, including updates from last week’s forgiveness guidance:


Q:  I’ve read that businesses who did not return their PPP by May 18th could be in trouble if they had other funds available when they made the PPP application.  Am I going to jail?

A:  No.  In response to large companies who received PPP loans in the initial tranche, the SBA clarified that large borrowers who had access to other capital may not be able to make a representation on the application in good faith and could be subject to prosecution.  To allow these businesses to remedy their situation, the SBA created a good-faith safe harbor for those companies if they returned their PPP funds by May 18th.

Small businesses who received less than $2 million in PPP loans, however, were specifically exempted.  Any business (plus its affiliates) who receives less than $2 million is automatically deemed to have made the required certification in good faith and does not need to demonstrate that it did not have access to other funds within the company.  See SBA Q&A #46.

Q:  What is included in “qualified spending” for purposes of calculating PPP loan forgiveness?

A:  PPP borrowers have 8 weeks (56 days) from the date your PPP loan proceeds are received to make qualified payroll and non-payroll expenditures for loan forgiveness.  The 5/15 SBA guidance clarified that the date you receive your loan counts as day 1. 

For payroll-related costs, the SBA clarified that amounts paid OR incurred within the 8-week Covered Period (CP) described above are included in the forgiveness calculation.  The “or incurred” would include pay period dates that occur before the end of the 56 day period, even if those days are actually paid on a paycheck that’s processed after the end of the Covered Period.  This could allow 9-10 weeks of payroll to be in the calculation, depending on your pay cycle.

The SBA also created a second, optional method for determining payroll cost for businesses who pay bi‑weekly or more frequently.  This Alternative Payroll Covered Period (APCP) begins at the start of the first full pay period after the loan is received and continues for 8-weeks (i.e. 4 bi-weekly or 8 weekly payrolls).  This applies for payroll costs only (i.e. non-payroll costs like rent and utilities must be paid within the 56-day CP).  If the borrower elects the APCP, that method must be used for all payroll-related calculations (FTE hours, wage/salary reduction, non-cash payroll costs, etc.)

Regardless of which method is elected, “payroll costs” include gross wages paid on payroll (limited to $15,385 per employee) plus the employer’s portion of health insurance premiums, retirement plan contributions, and employer state/local payroll taxes (ex. state unemployment).  SBA has not clarified whether bonus compensation is eligible for forgiveness; however, we recommend that only business-necessary bonuses be paid to avoid potentially abusing the program.  Necessary bonuses may include:  signing bonuses, “stay” bonuses, contractually required bonuses, etc.

Non-payroll costs, which can only represent 25% of the loan forgiveness, include:

·         Business interest paid on ‘mortgage’ obligations on real or personal property incurred before 2/15/2020.  The SBA does not define what specifically constitutes a ‘mortgage obligation’, however the general definition includes a loan secured by real or personal property.  It is still unclear if the loan must have been used to acquire the underlying collateral or if any secured debt would qualify.

·         Business rent or lease payments for real or personal property paid under a lease in force before 2/15/2020.  As an update from prior guidance, the new instructions include lease payments for personal property in qualified payments (leased vehicles, leased office equipment, etc.).

·         Business utilities, including electric, gas, water, telephone, cell phone, internet service, and transportation.  SBA has not clarified what is included in a “transportation” utility.  However, previous guidance related to self-employed individuals suggests this could include fuel for business vehicles or standard mileage reimbursements.

Q:  I’m a business owner or general partner or self-employed.  How are my earnings treated for Payroll Cost purposes?

A:  Business owners who are on payroll (corporations or S-corporations) are treated like any other employee, except that their qualified wages are limited to the lesser of:  (1) CP/APCP 2020 compensation, (2) 8-weeks of average 2019 gross compensation, or (3) $15,385.  Likewise, general partners carry the same limitation, but with respect to their guaranteed payments and partnership self-employment income (K-1 Box 14).

Self-employed individuals include a “compensation replacement” amount based on 8-weeks of average 2019 Schedule C earnings (limited to $15,385).  This amount does not need to be actually paid to you as the owner, but it may be taken as draw during the CP/APCP.

Q:  I’ve had to furlough/lay-off employees or have reduced hours/wages because of the pandemic.  Will that impact my ability to claim forgiveness?

A:  Maybe.  The PPP forgiveness is potentially limited if you reduce employee wages more than 25% over pre-pandemic levels (Wage/Salary Reduction) or if your Full-Time Equivalents (FTEs) during the Covered Period or Alternative Payroll Covered Period decrease from a reference period (FTE Adjustment).  The recent guidance provided some much-needed safe harbors and clarifications for both tests.

Wage/Salary Reduction

If an employee’s pay rate is decreased more than 25% as compared to that employee’s wages during Q1 2020 (Jan 1 – Mar 31) that employee’s gross pay eligible for loan forgiveness will be limited.  This reduction is applied on an employee-by-employee basis.  However, this test does not apply to any employee who received a paycheck in 2019 that would be more than $100,000 if annualized.  For example, if an employee received a single bi-weekly paycheck in 2019 with gross wages of more than $3,846.15 ($100,000 / 52 weeks x 2 weeks), then that employee is automatically excluded from the Wage/Salary Reduction.  Common examples of when this may apply would be employees who have salaries of more than $100,000 or who receive bonuses or commission payments that increase their pay over the $100,000 annualized mark.

FTE Adjustment

When calculating FTEs, the SBA has clarified that an employee who works more than 40 hours per week on average counts as one (1) FTE.  For any employee who works less than 40 hours per week on average a business can use the “Regular Method” and calculate a fractional FTE (rounded to one decimal) or can use a “Simplified Method” and calculate any <40 hour employee as a half-FTE (0.50).  Electing the Regular or Simplified method must be done for all FTE calculations.

To avoid a reduction in loan forgiveness, the business’ FTEs during the Covered Period or Alternative Payroll Covered Period, discussed above, must be equal to or greater than the FTEs during a Reference Period.  The Reference Period is either 2/15/2019 – 6/30/2019 or 1/1/2020 – 2/29/2020.  Our expectation is that a business would run the FTEs for both reference periods and would elect the lower of the two.

Regardless of the FTEs during the CP/APCP as compared to the reference period, the SBA has provided a Safe Harbor test to avoid the FTE Adjustment all together.  To qualify for the FTE Safe Harbor, the business’ average FTEs between 2/15/2020 and 4/26/2020 must be less than the FTEs as of 2/15/2020 AND the business restores its FTE count to the same level as 2/15/2020 on or before 6/30/2020 (irrespective of the 8-week CP/APCP).

When computing all FTE tests, the SBA has provided exceptions for individual employees in certain circumstances, including:

·         Employer has made a good-faith, written offer to rehire during the CP/APCP but the employee rejected, or

·         Employee was fired for cause, voluntarily resigned, or voluntary requested & received a reduction in hours

The exceptions apply UNLESS the employee’s position was filled by a new employee during the CP/APCP.  If you have an eligible exception for the FTE calculation, it is important to document that in writing in your files to ensure proper compliance with the PPP requirements.

Q:  What records should I be keeping supporting my qualified expenses and what info will I need to provide to my bank for loan forgiveness?

A:  Page 10 of the PPP Forgiveness application includes a listing of the information that is required to be submitted to your bank for PPP forgiveness.  The list is quite extensive, but the following basic documents need to be provided:

·         Payroll reports documenting cash compensation paid to employees.

·         IRS & State tax forms that overlap the CP/APCP (Form 941, state unemployment, etc.)

·         Payment receipts, canceled checks, or account statements showing payments for employer health insurance and retirement plan contributions

·         Lender account statements from February 2020 and all months included in the Covered Period showing eligible business interest payments.

·         Copy of current lease agreement for rent or lease payments (must have been in force as of 2/15/2020 to qualify).

·         Copy of canceled checks or payment receipts for rent / lease payments.

·         Copy of invoices from February 2020 and for all payments during the Covered Period for business utilities.

While not required to be submitted to the bank, each business must also retain the detailed records used to perform Salary/Wage Reduction and FTE Adjustment calculations and documentation for any employees excluded from the FTE test due to job offerings & refusal, firings for cause, voluntary resignations, and written requests by employee to reduce hours.

All documentation related to your PPP application should be retained for a minimum of 6-years and be made available to an SBA auditor if requested.


BenderCPAs is preparing a detailed calculation worksheet for our clients to both complete the necessary FTE and wage calculations, but also to satisfy the documentation requirements above.  Our objective is to provide clients who have engaged us to assist with a PPP forgiveness calculation with a single package to provide to their bank with all required information included.

If you have additional questions about the SBA’s PPP program or if you would like to engage us to assist in your loan forgiveness calculations, please contact your BenderCPA advisor or call our office at 314-525-7125 to be connected with one of our principals.

This information is provided as a convenience to our clients and is based on existing authorities as of each post.  Our advice could change as a result of changes in the applicable laws and regulations.  We are under no obligation to update posts if such changes occur.  Any information contained herein is general in nature.  You should contact your tax advisor to confirm how this information applies to your specific situation.  This advice is not intended or written to be used for the purpose of avoiding penalties that may be imposed.