PPP Loans: What to Know to File for Forgiveness

by Roseann Freitas | Mar 10, 2021 10:07:53 AM

Businesses leaning on financial help during the pandemic are dealing with a pair of deadlines. The window to apply for a PPP2 loan closes at the end of the month. Plus, for many businesses, the 10-month cutoff for forgiveness from PPP1 loans is quickly approaching.

Sooner than later, businesses need to know how to file for forgiveness. Valerie Kabota, an outreach and marketing specialist with the SBA Hawaii District Office, broke down the process for filing.

PPP Loan Forgiveness Process

Once all PPP funds have been used either in the 8-week or 24-week period, depending on when the business received the loan:

  1. Read the instructions and gather payroll documents, non-payroll expenses, and employee information for the time period.
  2. Submit information on one of the following forms: 3508EZ, 3508, or lender's application equivalent.
  3. Review and submit the appropriate to the SBA within 60 days.
  4. Receive one of the following determinations from the SBA within 90 days: fully-forgiven, partially-forgiven, or not-forgiven.
  5. Inform the business of the status, and if partially or not forgiven is determined, then the company will have a loan at a 1% rate and either a two or five-year loan to pay with a six-month delay. If the PPP funds were received before June 5, then a two-year loan, and after June 5, a five-year loan.

Learn more about PPP Loan form 3508EZ or 3508

Allowable Expenses for PPP Funds

The 60% payroll and 40% non-payroll split are the same for PPP1 and PPP2. However, the allowable expense list expanded for round two.

PPP1 loans:

  • Mortgage interest
  • Rent
  • Lease fees
  • Utilities, including water/sewer, telephone, internet, gas, and transportation used by the business.

PPP2 loans:

  • Items in PPP1 loan
  • PPE equipment
  • Property damage
  • Cloud computing
  • Supplies
  • Other costs required by a government entity to comply with COVID restrictions

Required Documentation

Remember to keep the following items on-hand for the next six years:

  • Payroll, related taxes, and benefits paid by the employer
  • Receipts for allowable non-payroll costs paid during the covered period
  • Written job offers and refusals for the Safe Harbor exemption
  • Government/agency orders inhibiting or prohibiting business during COVID for each company location

Tax Impact

Keep in mind that each state determines if PPP loans are included in income and if expenses are deductible. For federal taxes, though, take notes of these considerations:

  • Forgiven PPP1 and PPP2 loans are excluded from gross income.
  • Expenses from either loan are deductible.
  • EIDL advance funds are not subtracted from PPP forgiveness.

Navigating PPP1 and PPP2 loan forgiveness and tax implications are complex. Connecting with a trusted professional accountant can assist in smooth sailing for PPP loan forgiveness.

 

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