Calculating PPP Loan Forgiveness

May 22, 2020

The SBA has released its application form and instructions for Paycheck Protection Program borrowers who wish to see their loans forgiven. The agency released the form in consultation with the U.S. Department of the Treasury.

The application includes a worksheet that details how to calculate the amount of the loan that can be forgiven and provides a summary of costs eligible for forgiveness. It also includes options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles, as well as a new exemption for borrowers whose good-faith, written offers to rehire workers were declined. The SBA also provided a list of documents borrowers must submit with their forgiveness applications.

While 75% of PPP funds must be used for payroll expenses and the remainder may be spent on overhead costs such as mortgage interest, rent and utility costs, there are tax implications to consider. The IRS recently issued a notice reminding taxpayers business expenses are not deductible if they are paid with PPP Loan money that is forgiven, as this would represent a double tax benefit.

A comprehensive list of program rules and tools for both borrowers and lenders may be found on the U.S. Treasury website.

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