Jun 19, 2020




The SBA has launched a fast forgiveness program portal. PPP borrowers who received $150,000 or less may now apply directly for forgiveness through the SBA. However, lenders must opt into the program to allow the SBA to provide direct forgiveness to borrowers. Check your lender to see if they're participating. There are hundreds of smaller banks on the list already. Currently, the forgiveness portal is operating in "invite-only pilot mode" but will open to the general public on Wednesday, August 4th. Qualified applicants can click this link. Borrowers with questions or concerns can contact the SBA customer service team at (877) 552-2692, Monday through Friday 8 a.m.- 8 p.m. ET.

Original Post



Here we go again!

Over the last week, the SBA has issued a series of new rules interpreting the recent PPP Flexibility Act of 2020. This culminated in a NEW loan forgiveness application (Form 3508) which can be found here.

We also now have a brand new SIMPLIFIED loan application (Form 3508EZ) which can be used in some limited situations – for example, where (1) the borrower is self-employed and had no employees when the PPP loan was made, and (2) the borrower did not reduce wages by more than 25% for ANY lower-paid employee during the covered period and did not reduce FTE headcount during the covered period. That form can be found here.

This LENGTHY blog post will walk through how to complete the revised application. But, before that, let’s go over the highlights of the recent law changes to see the things the new forgiveness application is incorporating:

1. The “covered period” for using PPP proceeds is extended from 8 weeks to 24 weeks. If your loan was made prior to June 5, you have the option of using the 8 week period, which you might do if you were able to spend it properly, don’t suffer a pro-rated reduction due to cutting salaries or company headcount, and you want to move past the PPP once and for all! The change to 24 weeks is a massive benefit which will generally ensure the ability to get full loan forgiveness. This is nearly six months. You are likely to spend so much on employee compensation (plus rent and the other allowable expenses) – more than you borrowed under PPP – that even if you have a pro-rated cut-back due to cutting salaries or headcount, your forgivable loan amount may still exceed what you borrowed.

2. The 75/25 rule has been eased to 60/40. Now, a minimum of 60% of the forgivable loan amount must be spent on payroll costs.

3. The safe harbor in the CARES Act for restoring employee wages and FTE numbers has been GREATLY relaxed. The old June 30 date for restoring these is extended to December 31 (or the date you submit your loan forgiveness application if earlier). AND, if you don’t restore salaries or FTE headcount for a good reason – (a) inability to rehire folks who were employed on February 15, (b) inability to hire similarly qualified employees for unfilled positions by December 31, or (c) inability to return to the same level of business activity as there was on February 15 due to compliance with federal health and safety guidelines. These are so subjective that they basically gut the concept of a pro-rated cutback in loan forgiveness.


This blog post is intended to be used as a guide for completing the new loan forgiveness application and related forms. We suggest that you print out the new application (and schedules) and keep that handy as you work your way through this explanation.

The Application, Schedule A, and Worksheet to Schedule A do a decent job distilling the PPP program into a logical format for requesting loan forgiveness. Between the new PPP Flexibility, the guidance that’s come out over the past week, and the new forgiveness application, MOST open questions have now been answered – thankfully. About all that’s left is for the IRS to reverse its position on the non-deductibility of expenses paid with PPP funds...


The Application looks fairly simple. It’s only one page, as are Schedule A and the Worksheet to Schedule A.

The top half of the Application asks for basic information on the borrower and the loan. You’ll indicate how often you run payroll and which Covered Period you intend to use. This is the first major change. You now have a choice of using FOUR different Covered Periods. The default option is the 24-week period commencing on the loan disbursement date. Costs PAID or INCURRED during this period are forgivable.

For example, if you delayed paying your March rent until April (after your PPP loan funded) then March rent is now forgivable. IT IS PAID DURING THE COVERED PERIOD (EVEN THOUGH INCURRED BEFORE). Also, expenses can be incurred during the 24-week period and paid by the next regular payment date, even if payment is made after the end of the covered period. THESE ARE INCURRED DURING THE COVERED PERIOD (EVEN THOUGH PAID AFTER).

If you received your PPP loan before June 5, before the Flexibility Act passed, then you can elect to use an 8-week covered period provided in the CARES Act.

Whether you use the 8 or 24 week periods, you can also choose to use what’s called an ALTERNATIVE COVERED PERIOD. Say your PPP loan funds mid-way through a payroll cycle. The good news is that we have a choice of starting our 24-week (168 days) or 8-week (56-day) period on the day the loan funds OR the first day of the first pay period following the disbursement of the loan. The latter one is called an “Alternative Payroll Covered Period” (or “ACP”) and it will allow those of us using bi-weekly payroll to neatly align our 24 (or 8) week-period to our normal pay cycle. So long as employees are paid in the final payroll we can include that compensation, even if it technically falls outside of the actual 156 or 56 day period following the date of the loan. The ACP applies only to “payroll costs” not to rent, interest, and utilities. The covered period for those remains the 56 days following the loan disbursement.

The bottom half of the Application is where the final calculations are made. A good way to conceptualize this entire process is that we are moving from SMALL TO BIG. What we mean is, look at LINE 1 of the Application: “Payroll Costs (enter the amount from PPP Schedule A, line 10.”

We don’t know this number yet. Before we start completing the Application, we have to complete Schedule A. But, as we’ll see, before we can do Schedule A, we have to do the Worksheet. Thinking Small to Big: THE WORKSHEET is where we determine EMPLOYEE COMPENSATION. SCHEDULE A is then where we determine OVERALL PAYROLL COSTS. And, the APPLICATION is where we ADD UP ALL OF THE FORGIVABLE CATEGORIES OF EXPENSES.

So, this process really begins with...


The Worksheet is where we determine the number of FTEs during the covered period AND whether we have to take a reduction in forgiveness because one or more employees making less than $100,000/yr took more than a 25% pay cut which was not cured by December 31, 2020, or the date we submit our application for loan forgiveness, if sooner.

To complete this Worksheet, Employees are separated into two tables. But, before getting to that, keep in mind that we are not supposed to include any of the following:

  • Independent contractors
  • Owner-employees (S corporation shareholder and PROBABLY C corporation shareholders)
  • Self-employed individuals (Schedule C sole proprietors), or
  • Partners

For self-employed individuals with no employees, we have a new rule for determining their maximum eligibility. Unfortunately, it is not the $46,154 ($100,000 x 24/52) that applies to rank and file employees. Instead, the maximum payroll costs that can be taken into account is 2.5/12 of the borrower’s 2019 Form Schedule C up to $100,000, or $20,833. This is a little better than the old $15,355, but not much. The reason for this rule is that it will allow the self-employed business owner with no employees to get full forgiveness. This person’s PPP loan was calculated based on 2.5 months worth of 2019 Schedule C net profit up to $100,000.

For S corp and C corp shareholders as well as partners in partnerships, this $20,833 cap shall also apply, as we'll soon see. Unfortunately, the open question of “Can a shareholder or partner get the benefit of $46,154 worth of forgiveness on his or her own compensation?” was answered in the negative.

But, getting back to the Worksheet . . . Employees who earned at or below $100,000 in 2019 are listed in Table 1, and employees who earned above $100,000 go on Table 2. The discrepancy has to do with the fact that lower-paid employees can trigger a forgiveness reduction if they suffer too big of a pay cut. Those in Table 2 can’t. They are considered to be highly paid, and there is no reduction in loan forgiveness if their compensation is reduced by more than 25%. It is, therefore, preferable to list employees in Table 2 if possible.


List your employees who earn less than or equal to $100,000/yr in Table 1. Include their name and last four digits of their SSN under the “Employee Identifier” column.

Under “Cash Compensation” put down what each employee earned during the 24-week covered period making sure not to go over $46,154. This is a huge benefit. PPP loans were made based on 2.5 months of our average monthly payroll costs in 2019. Now, we have 24 weeks (almost 6 months) to incur forgivable payroll. So, for most employers, the forgivable payroll costs will greatly exceed the actual loan proceeds. Now, even if we suffer a pro-rated cutback in our forgivable amount based on wage or FTE cuts, even after accounting for that cutback, our forgivable costs will still be more than the principal amount of the PPP loan.

Under “Average FTE” you must calculate the full-time-equivalence FOR EACH EMPLOYEE OVER ALL 24 WEEKS OF THE COVERED PERIOD, BASED ON A 40-HOUR WORK WEEK. An employee cannot have Average FTE over 1.0, and we are supposed to round to the nearest tenth.

(By the way, one downside of a 24-week covered period is that it is going to require three times the record-keeping, both for measuring every employee’s hours worked per week as well, as we’ll see, the extent of their salary reduction).

So, if the first employee in Table 1 averaged 40 hours per week during the 24-week period, we enter 1.0 for this employee in the Average FTE column. If the second averaged 45 hours, we again enter 1.0. If the third averaged 15 hours during the 24 weeks, then we enter 0.4.

There is a second, simpler, way that we can calculate our FTEs if we don’t want to bother with the math. For any employee who works 40 or more hours, we give then a “1.0” and for anyone under 40 hours, they automatically get a “0.5.” In the paragraph above, we would get 2.5 FTEs using this simplified method versus the 2.4 FTEs we get by counting the actual average weekly hours.

Also note, that the forms now say that FTE hours are based on hours that are PAID, not worked. So, a former full-timer who was furloughed and who continued to be paid in full (even though not working) will still count as a full FTE.

So far, so good. But, now comes something a LITTLE more tricky...


Remember, one of the ways that we may have a forgiveness reduction is if our under-$100,000/yr employees take a greater than 25% pay cut during the covered period. This is how we determine that.

We compare an employee’s ANNUALIZED salary or hourly wage during the 24-week covered period to his or her ANNUALIZED salary or hourly wage during the first three months of the year (Jan. 1 – Mar. 31, 2020). If the reduction in annualized salary is 25% OR LESS, then all is fine – no reduction in loan forgiveness. But, if the reduction is MORE THAN 25%, then the borrower’s loan forgiveness is reduced by 24 weeks’ worth of the excess over 25% -- unless this is cured by the Safe Harbor. An example will explain this.

Assume the employee who earned less than $100,000 in 2019 earns $18,000 during the covered period. On an annualized basis, this is $39,000 ($18,000 x 52/24). However, during the first quarter (Jan. 1 through Mar. 31, 2020), the employee received $16,000, which is $64,000 annualized. The employee suffers a 39% pay reduction. A 25% pay reduction would have been $16,000. Our employee took a $25,000 pay reduction. So there is an excess of $9,000. The borrower’s loan forgiveness will be reduced by 24/52nds worth of this “excessive” annualized pay reduction -- ($9,000 x 24/52) -- or $4,154. This is the amount to enter for this employee under the “Salary/Hourly Wage Reduction” column. If, the employee qualifies for the safe harbor (discussed below) then don’t enter $4,154. Enter $0 instead.

(For employees who are paid by the hour, there is a similar calculation, but it appears to only come into play if the employee’s per-hour wage is reduced, not if the number of hours worked are reduced. By our reading, if an employee earned $40/hr both before the lockdown AND during the covered period, there will be no reduction in loan forgiveness even though her actual number of hours worked and actual compensation were greatly reduced. Her hourly rate remained fixed. There can still be reduced forgiveness because she may be less of an FTE than she was before, but there won’t be a double reduction for this particular employee.)


The reduction won’t be required, however, if we meet the safe harbor. Here’s how this works.

1. Determine the employee’s annual salary and hourly wage as of Feb. 15, 2020.

2. Determine the average annual salary or hourly wage for the period from Feb. 15, 2020 – April 26, 2020.

3. If the second calculation is GREATER than the first, then there is no safe harbor, and your loan forgiveness will be reduced due to this employee’s pay reduction.

4. If the second is LOWER than the first, then determine the average annual salary or hourly wage for the employee as of the EARLIER OF (a) December 31, 2020, or (b) the date your forgiveness application is submitted. IF THAT IS EQUAL TO OR GREATER THAN THE FEBRUARY 15, 2020 SALARY OR HOURLY WAGE, THEN THE SAFE HARBOR APPLIES AND THERE WILL BE NO REDUCTION IN YOUR LOAN FORGIVENESS.

Therefore, even if the employee’s compensation has been going down throughout the first part of this year, so long by December 31 or the date your application is submitted, the salary or wage being earned on Feb. 15 is re-established, then the safe harbor is met and no reduction is required.


After completing Table 1 for all employees, who in 2019 earned annualized compensation under $100,000, then complete Table 2. This is for employees who earned more than $100,000 (annualized) in 2019.

HOWEVER, as previously mentioned, we do not include owners in Table 2. Schedule A has a line to include owner compensation, but the cap is $20,833.


Loan forgiveness can be reduced a SECOND (and much more meaningful) way – if the office headcount is reduced during the covered period and not restored. A reduction will occur if the AVERAGE NUMBER OF FTEs DURING THE COVERED PERIOD IS LESS THAN THE AVERAGE NUMBER OF FTEs DURING EITHER OF THE FOLLOWING PERIODS (YOUR CHOICE):

1. February 15, 2019 – June 30, 2019, or
2. January 1, 2020 – February 29, 2020

For example, if your FTEs during the covered period (Table 1 employees plus Table 2 employees) are 3.5, but the office averaged 6.0 FTEs from Feb. 15, 2019 – June 30, 2019, and 5.0 from Jan. 1, 2020 – Feb. 29, 2020, then you’re facing a large reduction in your total loan forgiveness. You’ll take a 42% hit if you elect the first measuring period, and 30% if you elect the second. If you borrow $100,000, you stand to lose $30,000 or $42,000 of your loan forgiveness. Obviously, go with the second, but both are quite bad.

How to fix it? Meet the safe harbor! To do so, you have to calculate your FTEs for TWO ADDITIONAL periods:

1. February 15, 2020 – April 26, 2020, and
2. The pay period that includes February 15, 2020

If the average FTEs for Feb. 15 – April 26 are LOWER than they were on Feb. 15 (i.e., headcount is shrinking with the onset of the virus – which is likely the case), then you will meet the safe harbor IF YOUR FTEs ON THE EARLIER OF DECEMBER 31, 2020 OR THE DATE YOUR APPLICATION IS SUBMITTED ARE GREATER THAN OR EQUAL TO YOUR FTEs ON FEBRUARY 15, 2020. So, even if by December 31 (or the date of the application, if sooner) your FTEs aren’t restored to the level they were in 2019 or the first two months of 2020, so long as you can rehire enough people to get to the Feb. 15, 2020 FTE level, you pass.

There are some additional safe harbors as well. If you make a good faith written offer of re-employment and the employee turns it down, then a reduction in headcount will not lead to reduced loan forgiveness. The same applies, if, during the covered period, an employee was fired for cause, voluntarily resigned, or voluntarily requested and received a reduction of their hours.

And, thanks to the PPP Flexibility Act, we have yet another safe harbor. If you can document that between February 15, 2020, and December 31, 2020, you weren’t able to operate at the same level of business activity as before Feb. 15, due to having to company with CDC, HHS, or OSHA safety guidelines, then a reduced FTE count won’t result in reduced loan forgiveness. To the government’s credit, it is offering several avenues to avoid a cutback in loan forgiveness.


Working our way up the chain, the purpose of SCHEDULE A is to get a sum total of the borrower’s “Payroll Costs” during its covered period and to document if there is going to be a reduction in loan forgiveness due to a drop in FTEs.


Lines 1 through 5 of Schedule A are easy to complete. Just pull the requested information from the Worksheet. Lines 1, 2, and 3 refer back to Table 1 of the Worksheet. Lines 4 and 5 refer to Table 2. (Remember, we can’t include more than $46,152 for any single employee). Also, there is no potential for a loan forgiveness reduction for a Table 2 employee (which is why these employees are segregated onto Table 2 in the first place).

LINES 6, 7 AND 8

Lines 6, 7, and 8 are new. Line 6 asks for the “Total amount paid by Borrower for employer contributions for employee health insurance.” Line 7 asks for the total amount for “employer contributions to employee retirement plans.” Line 8 asks for the total amount paid for “employer state and local taxes assessed on employee compensation” (e.g., unemployment taxes).

These amounts are IN ADDITION to the employees’ annualized compensation up to a $100,000 cap ($46,152 for the covered period). Table 1 and Table 2 employees (from the Worksheet) get this benefit, BUT OWNERS ARE TREATED DIFFERENTLY.

For Line 6 (health insurance) we do NOT include employer health insurance premiums for Schedule C sole proprietors, “owner-employees” of S corporations, or partners in partnerships. The premiums are already included in their compensation. It is unclear still whether C corporation owners are exempt from this limitation and can include their health insurance. We’ll have to see if more guidance comes out on this.

For Line 7 (retirement plan contributions), it appears that an “owner-employee” CAN include his or her plan contributions – over and above the maximum $20,833 of wages as discussed below in Line 9. This means C and S corporation shareholders and partners, but not schedule C sole proprietors.


This is where we include the payroll expense for Schedule C sole proprietors, partners, and the “owner-employees” of S and C corporations. For a Schedule C owner, it’s a simple calculation. For a Schedule C owner, the cap simply is 2.5 months times the taxpayer’s 2019 Schedule C net profit up to $100,000, or a max of $20,833.

For partners and S and C corporation owner-employees it’s a bit different. The maximum includible amount for 2020 is capped at 2.5 months of an annualized salary of $100,000, or $20,833. If you are using the 8-week covered period, then it is a $15,385 cap. But, then this is further limited to 2.5 months of 2019 compensation for that partner or shareholder. The purpose of this is to prevent an individual who earned less than $100,000 in 2019 from raising his or her pay during the covered period to get more loan forgiveness than what they were able to borrow initially under the PPP program. If your pay was over $100,000 in 2019, this is a non-issue.


This is where we add up the Payroll Costs, Lines 1, 4, 6, 7, 8, and 9.


Between Lines 10 and 11 is where we can check a box for satisfying one of the FTE safe harbors discussed above. If you meet one of them, then you skip Lines 11 and 12 and ENTER 1.0 ON LINE 13. This is your “FTE REDUCTION QUOTIENT” and you WANT this to be 1.0.

LINES 11, 12 AND 13

If you don’t meet any of the safe harbors, then you have to complete Lines 11 and 12 to calculate your FTE Reduction Quotient on Line 13. Line 11 is your Average FTEs during your chosen reference period (February 15 – June 30, 2019 or January 1 – February 29, 2020). Line 12 is your Average FTEs during the covered period (all your employees listed on Table 1 PLUS Table 2 from the Worksheet, but not owners). Line 13 is Line 12 divided by Line 11.

So, if Line 11 is 5.0 and Line 12 is 3.5, then Line 13 will be 0.70, and we’re looking at a big (30%) reduction in the amount of loan forgiveness.


We’re in the home stretch! The Application is where we:

1. Sum up our Payroll Costs plus the other forgivable expenses;
2. Account for reductions due Salary/Hour Wage Reductions and FTEs that weren’t cured by safe harbors; and finally
3. Determining the Forgiveness Amount


Line 1 asks us for the Payroll Costs. This is where this whole process started, and the figure we use here comes from Line 10 of Schedule A.

Line 2 is for “Business Mortgage Interest Payments.” Include in this your business debts generally, not simply “a mortgage.” And, what’s includible here is INTEREST paid during the covered period on a debt obligation that was incurred before February 15, 2020.

Line 3 is for “Business Rent or Lease Payments.” Rent or lease payments for the office AND equipment qualify. The lease has to pre-date February 15, 2020.

Line 4 is for “Business Utility Payments.” These include electricity, gas, water, transportation, telephone, and internet where service began before February 15, 2020.

BE EXPANSIVE WITH WHAT YOU INCLUDE ON LINES 2-4, AND TAKE ADVANTAGE OF THE “PAID OR INCURRED” RULE. It looks like mortgage interest, rent, and utilities that are paid in arrears can be included. For example, if your covered period starts April 15, and you pay your March rent on April 16, then your March rent is forgivable. Similarly, if a utility expense was incurred during the covered period, but payment isn’t made until it is due (AFTER THE COVERED PERIOD), then it too will be forgivable.


It is interesting to see how these two loan forgiveness reductions inter-relate.

Line 5 is where we enter the total amount of Salary/Hourly Wage Reduction for all Table 1 employees who took large pay reductions which weren’t cleared up by the safe harbor. This figure is pulled from Box 3 of Table 1.

Line 6 is simply our total forgivable expenses (Lines 1-4) minus the Salary/Hourly Wage Reduction (Line 5).

Line 7 is where we bring over the FTE Reduction Quotient from Line 13 of Schedule A. Hopefully it will be 1.0. But, if not, then we bring over the smaller decimal.


Our final loan forgiveness amount is going to be THE LESSER of three things:

1. Line 8 – What we get when we multiply our net forgivable expenses (net of the Salary/Hourly Wage Reduction) by our FTE Reduction Quotient;

2. Line 9 – the PPP Loan Amount; or

3. Line 10 – a calculation that guarantees that at least 60% of the forgiven amount is attributable to Payroll Costs and no more than 40% is for mortgage interest, rent, and utilities.

Let’s use one final example to wrap things up. Assume the following:

The Borrower obtains a $120,000 PPP loan
Payroll Costs during the covered period are $140,000
Mortgage interest, rent, and utilities are $50,000
The Borrower satisfied the Salary/Hourly Wage Reduction Safe Harbor, but not the FTE Safe Harbor, and has an FTE Reduction Quotient of 0.90.

For Line 8 we enter: $171,000 [($140,000 + $50,000) x 0.90]

For Line 9 we enter: $120,000

For Line 10 we enter: $233,333 (Payroll Costs of $140,000 / 0.60). This calculation ensures that Payroll Costs won’t be less than 60% of the total forgiven amount.

Thanks to the 24-week covered period, the Borrower was able to spend substantially on payroll costs, so much that the FTE cutback and the new 60/40 rule had no impact on the loan forgiveness. Since Line 9 gives us our lowest number, $120,000, the borrower enters that on Line 11 and has gets forgiveness for the entire PPP loan. And, with that, we finally reach the end of our journey.


With the slew of information that came out this past week, we expect this to be about 98% of what we’re going to know about PPP loans and the forgiveness process. There is likely to be some additional guidance, but we don’t expect it to change much.

One thing we very much want is for the IRS to reverse its position on the non-deductibility of expenses paid with PPP proceeds. Conceptually, this position is unfair, even if it is rooted in the tax law principle that gifted money should not then be usable for tax-deductible expenses. This is the first time in history that the government has shut down the economy in response to a virus, cutting off or dramatically scaling back business’s revenues. PPP loans replaced some of the business income that should have been flowing in. If we didn’t have the lockdowns and the business income WAS flowing in, then that COULD have been spent on tax-deductible overhead expenses. The PPP funds are replacing lost income. They aren't a gift. The IRS position remains a sticking point. There has been enough blowback from the business community that we do expect this to get fixed either by a law change, executive order, or future IRS guidance.

Collier & Associates, Inc. will update our blog as the CARES Act progresses. We take pride in continuing to keep our subscribers and website visitors updated on current events during this extraordinary time.

We will work diligently to answer general inquiries via our website if time permits and in a little more detail within our Newsletters. However, if your questions are detailed in nature, please request to set up a conference call for a formal legal consultation. Thank you.


Collier & Associates, Inc. provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act on this information without seeking advice from professional advisors.

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