Guide to PPP Loan Forgiveness

The Paycheck Protection Program (PPP) was created by the CARES Act and is implemented by the Small Business Administration with support from the Department of the Treasury. It is there for borrowers to use for specific expenses with funds to pay up to 8 weeks. It allows businesses resources for things like applicable overhead, payroll, rent, mortgage interest, utilities, and rehiring of formerly furloughed employees. The Paycheck Protection Program established by the CARES Act, 

The Paycheck Protection Program prioritizes millions of Americans employed by small businesses by authorizing up to $659 billion toward job retention and certain other expenses.Those with a Paycheck Protection Program (PPP), may be forgiven of their loan under certain circumstances.

According to the US Chamber:

Congress recently changed the rules regarding loan forgiveness. The Treasury Department and Small Business Administration are responsible for updating the application form and instructions for loan forgiveness.

Keep in mind that if you plan to try to utilize PPP forgiveness that you have to apply with the original loan lender. An important takeaway:is that while the application for loan forgiveness seems simple, there is a lot of calculations added by the Small Business Administration (SBA).

Here is a guide to Paycheck Protection Program (PPP) loan forgiveness – from start to finish in a step-by-step format.

What You Need To Apply

The first thing to do is to prepare what you need in order to start your application. Here are the things to have on-hand during the process:

  • Your Paycheck Protection Program disbursement date and amount
  • Total paid on lease or rent payments, business mortgage interest payments, and utilities paid
  • Payroll history for the 24-week forgiveness period (This includes each employee?s average wage and total pay)
  • Total amount paid to general partners, self-employed individuals, and/or owner-employees
  • Payroll history for the first quarter of 2020
  • Total amount paid for employee compensation local taxes, local and state taxes, and employee health insurance
  • Average FTE of each employee during the forgiveness period as well as average FTE of each employee during your reference period

Choose an Application

Since there are two loan forgiveness applications, you must know which one is applicable to your situation. The EZ application is the first one and the most easy to fill out. Yet, it comes with specific requirements:

  • You are a sole-proprietor with zero employees
  • You are an independent contractor or self-employed
  • You are an employer who did not reduce wages or salary for any employee by more than 25 percent during the period covered. If you qualify under this umbrella, there are two more qualification criteria to meet:
  1. You could not keep the same level of business activity during the covered period as before February 15, 2020
  2. You did not reduce the average paid hours of your employees or reduce the amount of employees and this takes place between the dates of January 1, 2020 through the end of the covered period.

If you meet these requirements then the EZ application is best and the most simple one to use. If not, you must use the regular PPP loan forgiveness application. Here is what the regular loan forgiveness application entails.

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Regular Paycheck Protection Program (PPP) Loan Forgiveness Application Overview

The first page you see will be the Loan Forgiveness Calculation Form. This is the first place to start and to make things easier, use the Schedule A Worksheet first. After that, move to the Schedule A, and finally, the application uses data from the Schedule A Worksheet and Schedule A for you to complete the calculation form.

The Small Business Administration has a document with instructions that you can use to complete these steps. As you move through the worksheets, it is handy to keep this open.

PPP Schedule A Worksheet

There are two choices in filling out this worksheet: Either obtain the same type of form from your payroll processor or complete the one found in the loan forgiveness application. It is a good idea that if you have more than three workers or employees, replicate the tables from the Schedule A worksheet in a spreadsheet. You can then transpose the information or if your lender allows, attach a spreadsheet in lieu of the provided table.

Table 1

There are specifications for including employees in this table and they are required as such:

  • Employees based in the United States
  • Those who were employed during the Alternative Payroll Covered Period or Covered Period
  • Those who were not employed in 2019 or earned less than $100,000 for all pay periods in 2019

List the employee’s name but do not include those such as independent contractors, owner-employees, partners, or those who are self-employed.

The employee identifier is the last four digits of each employee’s social security number.

Cash Compensation

This is the employee’s gross income paid during the Alternative Payroll Covered Period or the Covered Period. This is the gross pay including the following:

  • Salary
  • Wages
  • Tips
  • Commissions
  • Separation or dismissal pay
  • Paid leave that does NOT include the Families First Coronavirus Response Act, but does include circumstances like vacation time, sick leave, medical leave, and family leave

Average FTE

This is where you include the employee’s average FTE during the Alternative Payroll Covered Period or the Covered Period. There are a couple of ways you can assess these figures:

  1. Simplified Method: Assign 1.0 FTE if the employee worked 40 hours a week (or more). For employees who worked less than 40 hours per week, assign them 0.5 FTE. 
  2. Other Method: Take the employee?s average number of hours worked per week and divide that number by 40. Then round to the nearest tenth.

Salary/Hourly Wage Reduction

This is where you enter the amount in total dollars that you reduced the employee’s wages but over the 25 percent threshold. If you did reduce the salary over the percentage, you will need to calculate these numbers first. If not, you simply enter a zero in that space.

Full-Time Equivalent (FTE) Reduction Exceptions

This is self-explanatory. It is where you enter FTE Reduction Exceptions and here is a list of some of the common scenarios:

  • The employee wanted, requested, and received reduced hours
  • Employee refused a rehire request
  • The employee quit voluntarily
  • Employee refused an offer of restored hours, wages, or salary during this time period
  • Employee was let go or fired due to legally covered reasons

Note that this area is for only vacant positions. If an employee was replaced then you cannot add the Full-Time Equivalent Exceptions.

Box 1: Calculate the column for cash compensation

Box 2: Total the average of the FTE lines in the table. In the FTE Reduction Exceptions line, include your FTE number.

Box 3: Add the wage or salary reduction column.

There is another table called Table 2 which is used for employees who were:

  • Based in the United States
  • Employed during the Alternative Payroll Covered Period or the Covered Period
  • Earned during any pay periods in 2019 the sum of $100,000 or more

The instructions are the same as Box 1 and should be filled out accordingly.

FTE Reduction Safe Harbor 1 and 2

According to Forbes:

The CARES Act provided a safe harbor, whereby a borrower that cut headcount or salary throughout 2020 would not experience a reduction in the forgiveness amount provided the headcount or salary were restored prior to June 30, 2020. The new law extends this period to December 31, 2020.

How it works is that the FTE Reduction Safe Harbor will make you exempt from reducing your loan forgiveness if you don?t maintain your average FTEs. Yet, as with anything, there are conditions such as:

  • If you can show that you could not run your business between February 15, 2020 and the end of the Covered Period and this doesn’t necessarily mean you were closed. In fact, it means that if you could not run it at the same level as you did in the past and that this is because of COVID-19 and its related consequences. If you meet this criteria, you indicate it on Schedule A.

The Safe Harbor 2 is more complex. In this instance:

  • Enter the average total FTE from the dates of February 15, 2020 to April 26, 2020
  • Now include the total FTE during the February 15, 2020 pay period
  • If the number from Step 2 is greater than the number from Step 1, proceed to Step 4
  • Enter your total FTE the date the application is submitted and as of December 31, 2020
  • If Step 4 is greater than or equal to Step 2, then you?ve met the Safe Harbor requirements and will enter 1.0 on Line 13 of Schedule A. If not, you?ll need to complete Line 13 of Schedule A

PPP Schedule A

In this worksheet, it is fairly simple to add what you need.

Line 1 you take the amount of cash compensation from the PPP Schedule A Worksheet and enter it into box 1

Line 2 you enter the Average FTE, Table 1 from the same worksheet and put it in box 2

Line 3 is where the box 3 information from the PPP Schedule A Worksheet is entered

Line 4 is the total from box 4

Line 5 is box five

As you can see, the lines and boxes correspond to the PPP Schedule A Worksheet and PPA Schedule A so it’s pretty easy to keep up with. This is where it changes a bit.

Line 6 you will include what was paid for health insurance for your employees during the Alternative Payroll Covered Period. or Covered Period

Line 7 is the total contributed to retirement plans for your employees

Line 8 is for employer local and state taxes you paid

Line 9 is where you include the total that you paid to general partners, self-employed individuals, or owners/employees

Line 10 is where you calculate the totals from lines 1,4,6,7,8, and 9. This equals what is your total payroll cost.

If you don?t meet FTC Reduction Safe Harbor 1 or 2, proceed to line 11.

Enter your average FTE during your baseline period on line 11

Enter your total average FTE (add Lines 2 and 5) on line 12

Divide Line 12 by Line 11 and put that number on line 13. This is your FTE Reduction Quotient. If you met the FTE Safe Harbors or did not reduce your employee headcount or hours, enter 1.0.

Forgiveness Amount Calculation

On this form, lines 2 through 4 are the payments that you want to include into your amount of forgiveness.

Line 1 is the line 10 on the PPP Schedule A

Line 2 is Covered Period business mortgage interest paid

Line 3 is for business lease or rent during this same Covered Period

Line 4 is for utilities during the same period

Line 5 is the same as line 3 on the PPP Schedule A

Line 6 is where you add the sums of lines 1 through 4. Subtract 5 from that total and include that number on this line

Line 7 is FTE Reduction Quotient from line 13, PPP Schedule A

Line 8 is where you multiply Line 6 by Line 7.and get the FTE reduction ratio

In line 9, use the total PPP loan amount

In line 10, divide Line 1 by 0.60 and enter that number here.

Line 11 is the smallest of Lines 8, 9, and 10 that reflects the forgivable amount

The Rest Is Easier

Much of the rest of the application is simply entering information such as:

  • Business name and this should be the legal one used on the original PPP application
  • Trade name or DBA, if applicable
  • Business address
  • Your business TIN (EIN or SSN)
  • Business phone number
  • A primary contact and email address
  • PPP loan disbursement date
  • SBA PPP loan number
  • PPP loan amount
  • Lender PPP loan number
  • Number of employees at time of loan application
  • Number of employees at time of forgiveness application
  • EIDL application number and advance amount
  • Payroll schedule
  • Covered period or alternate covered period


The last page of the application has certifications that you?ll need to initial next to, indicating that each certification is true.

Some of this may seen difficult but it’s easier than you think when you have these rules to follow.

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