How to Achieve Maximum PPP Loan Forgiveness

How to Achieve Maximum PPP Loan Forgiveness

If you received a Paycheck Protection Program (PPP) loan, you have probably already started thinking about the next step – determining how much of the loan will be forgiven. Qualifying for maximum loan forgiveness is the goal. The following describes what expenses are covered and how forgiveness is calculated.

1. Covered Expenses. Loan recipients are eligible for forgiveness in an amount equal to the sum of costs incurred during the covered period for payroll, payment of interest on mortgage obligations, rent, and utility payments. You have 8 weeks starting on the initial loan funding date to spend the proceeds on the following:

  • Payroll Costs: This includes salaries, wages, commissions, and other cash compensation paid to employees up to $100,000 of annualized pay per employee or $15,385 per individual ($100,000 x 8/52). Payroll costs also include healthcare expenses, retirement contributions, and state taxes imposed such as, unemployment insurance premiums. Active partners/LLC members may be included subject to the $100,000 limitation ($15,385 each).
  • Mortgage Interest: Only for interest, not principal, for obligations in place before February 15, 2020.
  • Rent Payments: Only for leases in place before February 15, 2020. SBA will be issuing further guidance if it also includes equipment rentals.
  • Utility Payments: Only for service agreements in place before February 15, 2020. This includes electricity, gas, water, telephone, internet, and transportation. The SBA will be issuing further guidance as to what is included in transportation.

2. Calculating Forgiveness and Reductions. PPP loan forgiveness can be reduced by various amounts, depending on how you spend the loan. There are three main ways to reduce the amount of your loan’s forgiveness:

  • 75% Payroll use requirement: At least 75% of the forgiven amount must fall into this category or nothing will be forgiven. In other words, you need to make sure that 75% of your loan is solely for payroll cost as described earlier.
  • 75% Employee Retention Requirement: The amount of forgiveness can be reduced if FTE (Full Time Employee or Equivalent) levels during the 8 week covered period are lower than Historic FTE (the average monthly FTE level for either February 15 through June 30, 2019; or January 1 through February 29, 2020). If during the covered period, FTE headcount declines, the amount forgiven will be reduced by the percent reduction in FTE headcount.
  • 75% Salary Retention Requirement: The amount of forgiveness can be reduced if the salary or wages of an employee is less than 75%, compared to the most recent full quarter prior to the covered period.
  • For purposes of calculating forgiveness, both Full-Time employees and Full-Equivalent employees are used for these calculations, A Full-time Employee must be employed on average at least 30 hours per week.

3. Eliminating a Reduction. If your FTE headcount or wages decreased during the covered period resulting in a reduction to your loan forgiveness, you do have the opportunity to “fix” the event. If, by June 30, 2020, you increase your FTE headcount to pre February 15, 2020 levels, the reduction in forgiveness is excused and eliminated. If, again by June 30, 2020, you have restored salary and wage levels for those who suffered a more than 25% decrease during the covered period to at least the level existing on February 15, 2020, the reduction will be eliminated as well.

4. Applying for Forgiveness. Applications for forgiveness must be submitted to your lender and need to include documentation verifying FTE headcount and pay rates during the covered period, as well as all other payments on covered expenses. Your lender is required to provide a determination on your request for forgiveness within 60 days of receiving your application.

Tips and Tricks
• Best practice is to hold all loan proceeds in a single account and run all qualified expenses through that account.
• Compute the average full-time employee count during the base period as defined above.
• While you can’t reduce employees or payroll more than 25%, you can increase compensation for key employees. For example, hazard pay or overtime pay.
• You can frontload expenses if you use cash-basis accounting for your business and tax reporting. Be conservative and limit the frontloading to 2020 expenses that would otherwise normally be incurred as close as possible to the 8-week period.
• As the 8 week period to spend the funds draws near, evaluate your remaining funds and consider whether a special payroll should be issued to capture 8 full weeks of payroll and to maximize the usage of the PPP funds.
• If some portion of your loan is not forgiven, you can immediately pay back that portion of the loan at the end of the 8 week period without interest. You can also keep the loan outstanding for two years from the date of your loan forgiveness application and pay the 1% interest rate, which qualifies as a tax-deductible business expense.


If you have questions about your PPP loan or calculating your anticipated loan forgiveness amount, please contact RJI CPAs today.

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