Navigating the Paycheck Protection Program
Business owners aiming to specifically maximize PPP Loan Forgiveness. In order to maximize their chances of full forgiveness, they must know the rules. We have collected the following information to help support business owners. If you need any assistance, please also schedule time with our accounting PROs and we’d be happy to assist.
For more information on COVID19 financial guidance and business resources, watch our latest video.
Spend your PPP Funds wisely – at least 60% on payroll expenses.
Payroll expenses must make up at least 60% of your PPP spending to maximize loan forgiveness. Payroll costs are not limited to wages; it also includes payments for leave (vacation, parental, family, medical, and sick leave), employer contributions to group health care benefits (including insurance premiums) for employees, employer contributions to a defined benefit or defined contribution qualified retirement plans for employees, and employer-paid state and local taxes assessed on compensation. Note that you can’t use PPP funds for federal payroll taxes. Employee bonuses also qualify, but business owners should be cautious to not provide bonuses if they wouldn’t have in the past
Non-payroll expenses you can use PPP funds on.
You can use up to 40% of your PPP loan on interest on mortgages, rent, and utilities. The guidance on allowable “utilities” expenses includes what’s necessary to keep the business operational, such as gas and electric, water, transportation, phone, and internet access. Keep in mind that all these agreements—for office space or utility service—must have been in place before February 15, 2020.
Maximize PPP Loan Forgiveness by Taking Care of Employees
Avoid drastic pay cuts.
If salaries and wages decrease, PPP Loan Forgiveness will be reduced. For employees earning less than $100,000 annually, loan forgiveness is reduced for any amount of employee salary cut more than 25%.
Maintain or rehire employees.
If your full-time headcount declines, PPP Loan forgiveness will be reduced. However, loan forgiveness will not be reduced if an employee declines the offer to be rehired. The employer must make a good-faith, written offer and keep said documentation. Your staffing level during the forgiveness period following the loan will be compared to one of two prior periods (you can choose which): February 15–June 30, 2019, or January 1–February 29, 2020. December 31, 2020, is the deadline to rehire or replace employees let go between February 15 and April 26, 2020. The percentage of your loan forgiveness may decline by the same amount as any staff reduction.
Stay within your maximum payroll expense per employee.
The most employee payroll expense you can count toward forgiveness is $100,000 annually per employee. That equates to: $8,333 monthly or $1,923 weekly. However, owner compensation is limited to a portion of the owner’s 2019 compensation, or $100,000—whichever is less. If you use an eight-week forgiveness period, your limit can be up to $15,385. With a 24-week forgiveness period, your limit can be as much as $20,833.
PPP payroll also excludes:
- employees living outside the United States,
- the employer portion of Social Security payroll taxes,
- wages where the company receives a Families First Coronavirus Response Act payroll tax credit, and
- independent contractors who’ve worked for your business.
Quality Business Decisions Also Helps Maximize PPP Loan Forgiveness
Maintain and retain your records.
Save all documentation that proves fund utilization. Examples of documents include invoices, canceled checks, payment receipts, payroll reports, and transcripts of accounts. For more information on record keeping, check out this recent video from our PROs.
Make the right decision for your business.
The long-term stability of your business should be your guiding light and might require you to repay some or all of the PPP at its 1% rate. And for loans taken prior to June 5, you have up to two years to repay any portion not forgiven. For those taken on or after that date, you have even longer—up to five years. Additional factors you should keep in mind include:
- Loan payments will be deferred for six months.
- No collateral or personal guarantees are required.
- Neither the government nor lenders will charge small businesses any fees.
Quick PRO-Accounting Tip to Maximize PPP Loan Forgiveness
What is the best way to track PPP dollars on payroll expenses?
Establish separate ledger accounts for expenses to track what you are using PPP dollars for the allowable payroll, mortgage interest, rent, benefits, and utilities. Allowable payroll costs include the full amount of retirement benefits, healthcare benefits paid by the employer, and employer state and local (but not federal) payroll taxes.
Additional Documentation to Help You Maximize PPP Loan Forgiveness
The loan forgiveness form and instructions include several measures to reduce compliance burdens and simplify the process for borrowers.
- Paycheck Protection Program Loan Forgiveness Application (06-16-2020) (Spanish version)
- Paycheck Protection Program EZ Loan Forgiveness Application (06-16-2020)