Finances and Taxes

8 Common Questions About PPP Loan Forgiveness, Answered

Gusto Editors  
PPP Loan Forgiveness FAQ_ How to Qualify, Apply, and More - Gusto

Update as of May 20, 1:00pm PT: This article has been updated to reflect the SBA and Treasury’s latest guidance on PPP loan forgiveness.

Beyond the ease of qualifying and low interest rates, perhaps the most attractive feature of Paycheck Protection Program (PPP) loans is that they are eligible for “forgiveness.” This means that the lender can release the borrower from the obligation of repaying the balance. In other words, borrowers can get up to 2.5 times their monthly payroll costs without paying a cent.

(If you’re not yet up to speed on what PPP loans are, read one of our many articles on the program to get caught up.)

However, “free” money is seldom unconditional. You’ll need to apply for forgiveness after the eight-week loan term is up and meet certain requirements to qualify.

For more information about how to apply for PPP loan forgiveness and answers to frequently asked questions, read on.

How do I qualify for PPP loan forgiveness?

Once you’ve applied for and received a PPP loan, you must spend the loan on approved expenses in order for it to be eligible for forgiveness. Luckily, the loans are intended to help with payments many business owners are struggling with right now, including: 

  • Payroll costs (more on what this means in the next section)
  • Interest for mortgages and certain debt*
  • Business rent obligations (real or personal property)*
  • Business utility payments  (including electricity, gas, water, transportation, telephone, or internet access)
  • Health care benefits
  • Additional wages to account for the reduction in tips for tipped employees

*Mortgages and lease agreements must have been signed before February 15, 2020. Interest on debt must also have been incurred prior to February 15, 2020.

Non-payroll costs must be incurred and paid during the covered period. Or, if the costs were incurred during the covered period but are due after the covered period ends, they will still be forgivable if they’re paid on or before the billing date.

If you use any part of your PPP loan for expenses not on this list, that amount cannot be forgiven. Also note that only 25% of your loan funds can be used for the non-payroll costs mentioned above if you want the full loan amount to be forgiven.

Finally, in order to qualify for full loan forgiveness, you must maintain your employee headcount and their compensation levels. If you’ve made any staffing or wage reductions between February 15, 2020 and the end of the eight-week period following disbursement of your loan, you have until June 30, 2020 to rehire employees and restore salary levels. Otherwise, your forgiveness amount will be reduced. 

There are many nuances to how to calculate your eligible headcount and appropriately restore your staff and wages. We cover them in detail in our PPP spending guide.

What costs are included under forgivable payroll costs?

New guidance defines payroll costs as being:

  • incurred on the day an employee’s pay is earned, and
  • paid on the day the employer distributes paychecks or makes an ACH transaction.

The guidance further clarifies that payroll costs that were incurred but not paid by the last day of the eight-week period are still eligible for forgiveness if they are paid by the next regular payday.

Forgivable payroll costs include:

  • Salary, wages, commissions, or tips—capped at an annual sum of $100,000 (prorated to the eight-week period) for each employee  
    • For a sole proprietor or independent contractor applying themselves (not an employer trying to recoup their payments to an independent contractor), payroll costs can include wages, commissions, income, or net earnings from self-employment, once again, capped at $100,000 per year for each individual.
    • For tipped employees, you can pay wages to cover what they would normally have earned in tips and have them forgiven.
  • Paid time off and leave, including costs for paid vacation and parental, family, medical, or sick leave
  • Employee benefits, including group health insurance premiums and payment of any retirement benefit
    • This includes: 
      • Health insurance plans
      • Dental and vision plans
      • Pension plans
      • Health FSAs
      • HRAs (but NOT QSEHRA)
    • This does not include:
      • HSAs 
      • Group term life plans (as long as there are no ancillary benefits for medical care)
      • Long-term and short-term disability plans (again, as long as there are no ancillary benefits for medical care)
      • Commuter benefits
  • State and local taxes
    • Note: you may not be able to get forgiveness for the employer’s share of FICA, RRTA, or federal income taxes reported on Form 941.

What info do I need to include in my application for loan forgiveness?

In your application for loan forgiveness, you must document the following: 

  • A record of the number of full-time employees and pay rates your business maintains during the eight-week forgiveness period, via the following documentation:
    • payroll reports or bank statements
    • payroll tax filings with the IRS 
    • state income, payroll, and unemployment insurance filings 
  • Proof of payment, including cancelled checks, receipts, and other documentation that verifies payments for mortgage, lease, and utility payments
  • For business mortgage payments, copies of the amortization schedule or copies of your lender account statements
  • For rent payments, copies of your lease agreement
  • A certification that all the information you provide is accurate and that your loan was used to retain employees, or make rent, mortgage, or utility payments

You should check with your lender to determine if any additional information is required.

What do I need to do to get my loan forgiven?

Step 1: Keep track of your spending during your eight-week loan term.

During your eight-week forgiveness window—which either begins the day your loan is disbursed or on the date of your first payroll after disbursement (if you qualify for this option)—track everything you spend your PPP funds on.

Make sure the items map back to the list of forgivable expenses, and track how much you’re spending on non-payroll costs to get an idea of how much of your loan will be eligible for forgiveness (try to keep it under 25% of the full amount you spend).

If you’re a Gusto customer, use the PPP forgiveness reporting tool in your dashboard to see how much of your loan amount is going towards qualifying payroll expenses.

Step 2: Prepare your payroll report.

At the end of the eight-week period, use your federal and state payroll tax filings, payroll history, and bank statements to prepare a report of all your eligible payroll expenses, including employer contributions to health plan premiums and unemployment insurance. Your financial advisor or payroll provider can help you prepare this report.

Step 3: Gather documentation for non-payroll expenses.

Collect proof of payment for your qualifying non-payroll expenses, like rent, mortgage interest, utility payments, owner compensation, and so on. 

Step 4: Keep documentation for employees that are excepted from the FTE requirement.

Employees who refuse an offer of rehire, employees who are terminated for cause, and employees who voluntarily resign or voluntarily reduce hours do not count against the employer when calculating headcount, salary, or wage reductions.

In order for this to apply though, you must have written documentation of these rehire offers or that proves the other criteria above. You only need this if you also do not replace the headcount or hours for these individuals during the eight-week forgiveness period.

Step 5: Submit your forgiveness application to your lender.

Check with your lender to see if they require anything else in order to get your loan forgiven. Once you’ve fulfilled all their requirements, submit your forgiveness application to your lender with the proper documentation after your eight-week forgiveness period ends.

What would reduce the amount of my loan that’s forgiven?

If your business reduced salary or wages (compared to the first quarter of 2020) or the number of employees (compared to a lookback period) between February 15, 2020 and April 26, 2020, the amount forgiven may be reduced.

But if you are able to restore your headcount and wages to your first quarter and lookback averages by June 30, 2020, reductions of your forgiveness amount can be waived. More on that below. 

Additionally, if you don’t spend at least 75% of your total PPP loan on payroll costs, the amount that can be forgiven will be reduced. Check out our breakdown on calculating loan forgiveness reductions to figure out your new forgivable loan amount.

If you’re unable to uphold the loan forgiveness requirements, don’t worry—your loan payments will still be deferred up to six months.

What if I’ve already had to lay off employees—can I still get loan forgiveness?

Again, if you’ve let go of employees or reduced their wages between February 15, 2020 and April 26, 2020, you have until June 30, 2020 to rehire employees and reverse any pay cuts to prevent your loan forgiveness amount from being reduced. In order to have rehired employees count for your forgiveness application, you must run a payroll that includes any rehired employee before generating your payroll report.

You don’t have to rehire the same employees to meet your forgivable headcount. If an employee is terminated for a legal cause, if they voluntarily resign or reduce their hours, or if a laid off employee refuses your rehire offer, these won’t count against your forgivable FTE count. Just make sure you have records to support each of these instances.

When will I find out if my loan was forgiven?

All lenders have 60 days from that date that you apply for forgiveness to decide whether or not you qualify. If any portion of your loan is not forgiven, those amounts must be repaid within two years. As a bonus, any forgiven loans will be excluded from gross income for tax purposes.

If my loan isn’t forgiven, how do I pay it back?

In cases where your PPP loan isn’t forgiven, make arrangements directly with your lender to repay the loan. The standard terms are 1% interest and payback period of two years.


If you still have questions about PPP loans, check out our PPP FAQ or the latest Treasury guidance.

Our COVID-19 Small Business Resource Hub has legislation updates, advice, and support.

Updated: May 27, 2020

Comments

  • judie ngov

    Do I have to hire back the same employees for can it be the same headcount. What if previous employee found another job?

    Reply
  • Maryam N Hoffmann

    Hello, I am wondering about loan forgiveness with PPP as an independent contractor with only a personal checking account. What kind of documents would I have to provide to get loan forgiveness? I use my personal checking account for all incoming funds I receive as an IC. But I also have other deposits … from friends for shared expenses etc.

    Reply
    • Gusto Editors

      Hi Maryam! It can depend on your lender, and some may ask for records of your income and expenses, a bank statement to show you were operating on February 15, 2020, among other documents. You can learn more about your requirements as an independent contractor applying for the PPP here: https://gusto.com/blog/business-finance/contractor-self-employed-ppp

      Reply
  • Barbara Butler

    Is it ok to pay your employees more than what they were before receiving the PPP loan? Our crew is now working on a Public Works site and as such their wages are higher (required by my contract with the City) for this project. Will that be a problem?

    Reply
    • Gusto Editors

      Hi Barbara — so far, the guidance has been that in order to qualify for full loan forgiveness, you must maintain your employee headcount and their compensation levels. If you’ve made any staffing or wage reductions between February 15, 2020 and the end of the eight-week period following disbursement of your loan, you have until June 30, 2020 to rehire employees and restore salary levels. Currently, there is no clarification on salary increases.

      Reply
  • daniel l sussman

    How about if your previous employee is getting more from unemployment and refuses to come back.

    Reply
    • Gusto Editors

      Hi Daniel — so far, the guidance specifies that in order to get full loan forgiveness, you must maintain your employee headcount and their compensation levels. We are currently awaiting clarification from the SBA to see if business owners can hire a backfill in order to maintain employee headcount and qualify for full loan forgiveness.

      Reply
    • Gusto Editors

      Hi Daniel — following up on our previous response, the U.S. Treasury just released new guidance clarifying that if you offer to re-hire an employee at the same rate of pay, with the same hours, and they decline to return, you can exclude them from your forgiveness reduction calculation. You can see the full answer under question 40: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

      Reply
  • dakota mcelley

    We had an employee leave for another company two weeks after we applied for the PPP loan. We have received the loan and are now one employee less than what was on our application. We will not be asking the previous employee to return since he left on his own terms for another job. Will not be asking the previous employee to return and will be hiring a new/different employee. Will that keeps us within the forgiveness guidelines?

    Reply
    • Gusto Editors

      Hi Dakota — as of right now, the guidance specifies that in order to get full loan forgiveness, you must maintain your employee headcount and their compensation levels. We are currently awaiting clarification from the SBA to see if business owners can hire a backfill in order to maintain employee headcount and qualify for full loan forgiveness.

      Reply
    • Gusto Editors

      Hi Dakota — following up on our previous response, the U.S. Treasury just released new guidance clarifying that if you offer to re-hire an employee at the same rate of pay, with the same hours, and they decline to return, you can exclude them from your forgiveness reduction calculation. You can see the full answer under question 40: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

      Reply
  • frederick a roberts

    if headcount drops one (made mistake on original appl should have stated 2 not three) but monies remain the same does it reduce forgivable amount?

    Reply
    • Gusto Editors

      Hi Frederick, current guidance requires that in order to qualify for full loan forgiveness, you must maintain your employee headcount and compensation levels.

      Reply
  • HECTOR J LUEVANO

    I have a coffee shop
    Bussiness is really slow, so instead of 5 I’m working with 2 employees. Do I need to bring the other 3 even there is no job to do. I will non comply the 75% required. What should I do?

    Reply
  • Paul

    For sole proprietors who don’t file quarterly 941’s and simply file a Schedule C on their 1040, what sort of documentation will be required to prove net profits or earnings for the wage portion that is to be forgiven as part of the PPP loan proceeds?

    Reply
  • doug evans

    if my loan is not funded until May 15, 2020, do I still have 8 weeks of payroll to count for forgiveness purposes starting on May 15, 2020, or only those payroll expenses incurred until Jun 30, 2020 which would be less than 8 weeks (8 weeks from today, 5/5/20. is Jun 30, 2020)

    Reply
    • Gusto Editors

      Hi Doug — the eight-week forgiveness window begins after you receive your first loan disbursement.

      Reply
  • scott

    If all my workers have been on 1099s and are signed to year contracts can they be used for the PPP

    Reply
    • Gusto Editors

      Hi Scott, contractors should not be included as part of your payroll costs under the PPP, but they are eligible to apply individually.

      Reply
  • Adam Maxfield

    What is the source of the 90-day period for applying you indicate in the article? I have reviewed the bill and interim final rulings but have not found that wording anywhere.

    Reply
    • Gusto Editors

      Hi Adam — thank you for the catch! Borrowers should check with their lenders for timing requirements. We’ve updated our article to reflect this.

      Reply
  • Mike

    If we start up work during the 8 week period mandated to spend the loan amount, do we have to reduce the loan by the amount of income we receive?

    Reply
    • Gusto Editors

      Hi Mike — currently, there is no guidance on reducing your loan by the amount of income you receive.

      Reply
  • Mark Hester

    Have the SBA given guidance on whether payroll will be calculated on either an actual or accrual basis? Our payroll is run twice/month on 15th and last day. Unfortunately, the timing of when the loan was funded means we will have only run 3 payrolls instead of 4.

    Reply
  • Steve Midgett

    As long as we use 75% or more of our PPP loan on payroll expenses within the 8 week period after getting the loan, can we keep the other 25% for rent and utility payments to be made after the 8 weeks? Or does 100% of the loan have to be used in 8 weeks?

    Reply
    • Gusto Editors

      Hi Steve, so far, our understanding is that the loan must be spent in the 8-week forgiveness period.

      Reply
  • Lisa Anne Coleman

    How do I apply for the PPP loan forgiveness? I can not find the application anywhere. My lender “claims” that it’s on their website but it”s not there

    Reply
    • Gusto Editors

      Hi Lisa — we’re sorry you can’t find your lender’s PPP application! You can currently only apply through a lender. If you’re in search of another lender, you can take a look at our recommended ones here: https://gusto.com/covid-19/paycheck-protection-program

      Reply
  • Katy

    I am a sole prop and calculated my loan using my schedule C. I plan to take a portion as the owner compensation replacement and spend the rest on 2 months of business rent.
    If I am able to go back to work (and earn a somewhat normal income) within the 8 week period after disbursment, will that affect my ability to get forgiveness?

    Reply
    • Gusto Editors

      Hi Katy, to date, the key way to get forgiveness is to track how you spend the loan and make sure 75%+ of it is spent on payroll. The SBA has not yet provided clarification on sole props who are able to earn income—stay tuned for more updates.

      Reply
  • Johnny

    We had an employee quit and move out of state at the end of March before we got our PPP funded. We have hired a new employee to fill that position, however the Gusto PPP forgiveness report shows a reduction for the old employee who had Q1 wages but no Q2 wages. The new employee’s wages cover the old employees wages plus some. Why would I have a forgiveness reduction for that?

    Reply
    • Gusto Editors

      Hi Johnny, our team can take a look at your case and answer your questions — please call us at 720-547-1647.

      Reply
  • David joel

    You left off employer contributions to pension plans like Keoghs are also defined as part of ‘payroll’

    Reply
    • Eric Obrien

      Is this true? CPAs are saying that Employer contributions to Owner Keoghs plans are not considered in Payroll Forgiveness.

      Reply
  • Eric Obrien

    I sent an email but I know you guys are busy. Your forgiveness report is:

    1. Not counting single person S Corps as an employee, therefore, saying forgiveness is $0

    2. Including SEP/IRA employer contributions over the $100K threshold as payroll cost

    Thanks
    Eric Obrien

    Reply
    • Gusto Editors

      Hi Eric — a member of your team will be reaching out to you to follow up on your questions.

      Reply
    • Eric Obrien

      Thank you for quick reply and assistance with the PPP Forgiveness Report

      Reply
  • Christine

    Does the PPP loan cover employer’s share for FICA, RRTA, or federal income taxes? What does RRTA stand for and what is this tax?

    Reply
  • Emma

    The loan amount reported and approved only accounted for one month of salaries for my three employees was not multiplied for 2 months of pay. As a result I can only pay them part-time to cover the eight week time frame. Can I reapply for the correct amount?

    Reply
  • Joanna C

    Do I need to run payroll in a certain way to qualify for loan forgiveness? Or can I run one large payroll within the eight-week period?

    Reply
    • Gusto Editors

      Hi Joanna — currently, there are no guidelines on how to run payroll. Generally, so long as you maintain employee headcount, compensation, and use at least 75% of the PPP funds on payroll, you should be on track to qualify for forgiveness.

      Reply
  • Philippe Poux

    Many of my company’s employees make more than $100K per person. Only the part of their salaries below $100K is forgivable. When I use the proceeds of the PPP loan we received to pay for payroll, should I use for the full amount of the payroll costs or should I prorate it based on the “adjusted payroll” costs in the Gusto PPP Loan forgiveness report.

    Reply
    • Gusto Editors

      Hi Philippe! For support questions about Gusto, check out the Help tab in your Gusto account and we’ll be able to give you more guidance on your PPP loan forgiveness report.

      Reply
  • Tim

    I have a S corporation and I am its only employee. My forgivable salary will be capped at $100,000. My corporation contributes to a SEP IRA as an employee benefit for me. Will those contributions be considered a forgivable cost?

    Reply
    • Gusto Editors

      Hi Tim — you’ll want to touch base with an attorney or HR expert to receive more guidance on your specific situation!

      Reply
  • Lynette Anderson

    What if you have both savings and ongoing income that will cover all of the forgivable expenses? It would be impossible to prove that the PPP funds were used for the forgivable expenses when we have the money otherwise to pay. I personally think we should return the funds (over $1,m). Not my decision.

    Reply
    • Gusto Editors

      Hi Lynette — for specific guidance on your situation, we recommend you consult and attorney or an HR expert.

      Reply
  • Macy

    Ran the PPP Forgiveness Report for my company. Lookback period is 01/01/2020 to 02/02/2020. We started out the year with 6 employees (5 full time & 1 part time). We have maintained the same headcount throughout the stay at home mandate and have paid them accordingly. Why is there still a reduction quotient of 0.25? Am I reading this report correctly? Please advise or provide a customer service number where I can call and chat to clarify any misunderstandings.

    Reply
    • Gusto Editors

      Hello Macy, please check out the Help tab in your Gusto account or head to https://manage.gusto.com/help so our customer support team can assist!

      Reply
  • Dave Kaczynski

    On the PPP loan forgiveness report, it indicates that the maximum wages due to the $100,000 cap for Q1 “adjusted wages on the report” is 20,513. Shouldn’t this be $25,000. How was the 20,513 derived

    Reply
    • Gusto Editors

      Hi Dave — for Gusto support questions, we recommend you Cceck out the Help tab in your Gusto account or head to https://manage.gusto.com/help so our CX team can assist.

      Reply
  • Johnny

    Question on the PPP loan forgiveness report. I had a full-time employee in Q1 change to part-time for Q2. I had another employee who was part-time in Q1 move to full-time in Q2. Thus my overall payroll has stayed consistent, however I’m seeing a projected reduction for the one employee that reduced their hours. It was their request to reduced their own hours. Is there anything I can do to avoid the PPP forgiveness reduction in this scenario?

    Reply
  • Mark

    Are employer contributions to its 401(k) plan considered “payroll costs” for purposes of PPP loan forgiveness calculations, even if some of the employees who participate in the plan are also shareholders/owners of the employer?

    Reply
    • Gusto Editors

      Hi Mark, currently, employee benefits—including payment of any retirement benefit—count as a forgivable payroll cost. We recomemnd consulting a CPA or tax advisor for more specific guidance.

      Reply
  • alex gorny

    I received a PPP Loan from a lender listed in GUSTO references. Is there a specific “Loan Foregiveness Application” that must be used to apply for loan forgiveness?

    Reply
    • Gusto Editors

      Hi Alex — you’ll want to confirm with the specific lender to see what they require for the forgiveness application.

      Reply
  • Randy Stiles

    If your employer had you working for another one of his company’s and told you that you don’t get extra pay that you’re already getting paid 40 hours from the ppp can the loan still be forgiven and is he still obligated to pay for the extra duties performed for the other company.

    Reply
    • Gusto Editors

      Hi Randy — given the complexities of your individual situation, we recommend you reach out to a CPA for specific guidance.

      Reply
  • Marc Pablo

    Can Gusto please create a tool where we put in our loan funding date and it will automatically calculate our payroll costs, the we can download as a cvs file and add our own benefits expenses?

    Reply
  • Mikael

    I received my loan on May 4th, but I run my payroll at the end of the month. My 8 weeks is up before I run the last payroll on June 29th. Is there a way I can bump up my payroll to meet the deadline? I tried to do this on my homepage, but it only allowed for July or later.

    Thanks,

    Reply
  • Hyde Bark Dog Walking

    If you do not have hourly employees, is there a tool on Gusto to find the average amount an employee was paid over the course of the year in order to determine what they should be getting paid under the PPP guidelines?

    Reply
    • Gusto Editors

      Hi there — we have a Paycheck Protection Program reporting tool available in Gusto, which will help you calculate loan amounts. You can head over to our COVID-19 section to find it.

      Reply
  • Edward

    We as a company received PPP funding, for this example, lets say the funding was $100,000. We will make the 75% threshold related to payroll costs, but do not have mortgage or rent expenses. If we spend $75k and $1k in utility costs over the 8 weeks, will the remaining $24k be required to be paid back, or once the 75% threshold is met does the entire loan become forgiven?

    Reply
  • Luis Liranza

    With the newly passed changes to the PPP (e.g. extension to 24 weeks), what if we already spent the money in the 8 weeks? We followed everything carefully, so we believe that we qualify for loan forgiveness under the original plan. Unfortunately, with the continued unrest and impact to the economy, we will need to furlough employees now – after the 8 weeks. If the calculation of FTE employees is ALSO extended, we will fall below the FTE calculation. If that is the case, feels like the goal pole has been moved.

    Reply
  • Deb

    what if you did not reduce the hourly wage but you did reduce hours for an hourly employee? application asks for hourly wage, not earnings!

    Reply
    • Gusto Editors

      Hi Deb, we recommend reaching out to your lender regarding any questions regarding the specifics of your application. Please note, however, that in order to qualify for full loan forgiveness, you must maintain an average number of full-time equivalent employees (FTEs) and their wages. If you reduce your employees’ wages more than 25% or reduce the amount of FTEs, then you may not qualify for total loan forgiveness. This includes decreasing an employee’s number of hours. You have until December 31, 2020 to rehire employees or restore salary levels and potentially qualify for safe harbors that may allow you to still get full forgiveness. Please see our PPP spending guide for more information: https://gusto.com/blog/business-finance/ppp-loan-forgiveness-spending-guide

      Reply
  • Sidney

    Hi, can you point me to the guidance that says QSEHRA disbursements do not qualify for PPP forgiveness? Thank you so much!

    Reply
    • Gusto Editors

      The Treasury Paycheck Protection Program Guidelines state that PPP loans can be used to cover payroll costs, which include money spent on group health care benefits: https://home.treasury.gov/system/files/136/PPP–Fact-Sheet.pdf Under the CARES Act, qualifying healthcare benefits are equal to the amounts paid or incurred by eligible employers to provide and maintain a “group health plan” as defined by the Internal Revenue Code. However, IRS Notice 2017-67 found that a QSEHRA is not a group health plan under the Internal Revenue Code: https://www.irs.gov/pub/irs-drop/n-17-67.pdf As a result, QSEHRA disbursements do not qualify for PPP loan forgiveness.

      Reply

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