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What You Need to Qualify for Loan Forgiveness under the Paycheck Protection Program

There are still a fair amount of unknowns and ambiguities surrounding the Paycheck Protection Program (PPP), and exactly what business owners should do and expect. The bottom line on the PPP is that it’s a loan from the Small Business Administration (SBA) designed to induce employers to keep employees on the payroll. It covers a 24 week period, specific types of primarily employee and overhead related expenses, and the loan will then be forgiven assuming the money was used for those purposes. In a recent interview we did with Jeff Bowley, an accountant with Joseph Bowley & Company, we delved a bit deeper into the PPP and loan forgiveness to get those lingering questions answered.

You can see our video interview in full here, but we’ve also recapped the salient points for you below. There have been a few changes to the PPP rules since our interview, which we’ve included in the recap below. You can see an article detailing the rest of the changes on Fox News here.

First, what exactly are the eligible expenses?

The most important thing to remember is that payroll costs need to make up 60% of loan costs (as of the most recent changes) in order for the loan to be eligible for forgiveness. That includes the following items.

· Salary
· Wages
· Commission
· Vacation / sick pay
· Employer retirement contributions
· State / local taxes incurred by the employer on wages

Other eligible payments include:
· Group health benefits paid to employees
· Payments on interest or mortgage obligations
· Rent
· Utilities

You might be wondering what time periods the PPP covers and looks at to justify claimed expenses. Any expenses like rent or utilities need a contract that’s been in place since February 15, 2020. That’s just to ensure business owners don’t go out and sign new contracts just to get them in under the loan. For employee payments, the SBA will be looking at either the period following February 15, 2020, or at the equivalent period last year.

As for who it covers – it includes all those on your payroll, except 1099 contractors, who are specifically excluded from the eligible payroll expenses. Self-employed people and those in the ‘gig’ economy are eligible to apply on their own. Any self-employed people who are currently being covered under the PPP should make sure they’re taking the required 60% salary draw to be eligible for loan forgiveness.

Another big takeaway is to keep extremely good documentation of all your expenses. There is no formal guidance as yet for how the application for loan forgiveness will work, but it’s going to involve very good details on your outflows. Make sure any expenses are well-documented, to assist either yourself or your accountants in preparing paperwork for the SBA.
The PPP loan also won’t be calculated as taxable income, but there is a caveat. As of now, the IRS has ruled that PPP-claimed expenses will not be eligible as deductible items on taxes. So that will come out of P&L on the backend.

Planning Capital Management Corp is a Registered Investment Advisor with the SEC, and we are held to a fiduciary standard with all of our clients. We offer full financial planning in conjunction with investment advice and portfolio management. Should you have any questions or concerns about current market conditions, or just general financial planning questions, you can reach us at: (215) 709-5100 or info@planningcapital.com.