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Paycheck Protection Program (PPP)If you are one of the lucky few who secured a Paycheck Protection Program (PPP) loan, the next question is how to maximize loan forgiveness. As with the application process, there are a lot of uncertainties and it may take time to get answers. That said, there is some good information to shape how you maximize Paycheck Protection Program loan forgiveness. Let’s explore what we know and what to expect. 

Forgiveness Summary 

The U.S. Treasury has given these guidelines on what can be forgiven: 

The loan amounts will be forgiven as long as: 

  • The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and 
  • Employee and compensation levels are maintained. Payroll costs are capped at $100,000 on an annualized basis for each employee. 

Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. 


Clarifying Forgiveness 

There are a lot of questions around aspects of forgiveness. Here’s what we know from the PAYCHECK PROTECTION PROGRAM LOANS Frequently Asked Questions (FAQs). 


How should a borrower account for federal taxes when determining its payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan, and the amount of a loan that may be forgiven? 


Under the Act, payroll costs are calculated on a gross basis without regard to (i.e., not including subtractions or additions based on) federal taxes imposed or withheld, such as the employee’s and employer’s share of Federal Insurance Contributions Act (FICA) and income taxes required to be withheld from employees. As a result, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do not include the employer’s share of payroll tax. For example, an employee who earned $4,000 per month in gross wages, from which $500 in federal taxes was withheld, would count as $4,000 in payroll costs. The employee would receive $3,500, and $500 would be paid to the federal government. However, the employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from payroll costs under the statute. 

Translation: employee federal tax obligations can be included for forgiveness, employer federal tax obligations cannot. 


The amount of forgiveness of a PPP loan depends on the borrower’s payroll costs over an eight-week period; when does that eight-week period begin? 


The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval. 

 Translation: Your eight week clock starts ticking the day you get money in your account. 

 Another key element is maintaining staff and payroll. This is from the PAYCHECK PROTECTION PROGRAM (PPP) INFORMATION SHEET: BORROWERS: 

 You will also owe money if you do not maintain your staff and payroll. 

  • Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount. 
  • Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019. 
  • Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.  

Translation: this program is all about keeping employees on payroll and at a high level (at least 75%). 

Forgiveness Questions Yet to Answer 

There are many questions around forgiveness that remain unanswered. We expect lots of clarification in coming weeks, but here are some questions we have heard that are not clear: 

  • How do I calculate the number of employees I’m being measured against? 
  • How will forgiveness be reduced if I have fewer employees? 
  • How will forgiveness be reduced if I reduced pay below 75%? 
  • Can I pay bonuses during the eight-week period? 
  • Can I pay back pay for lost wages since February 15? 
  • Can I advance pay for after the eight-week period? 
  • Do overtime hours count? 
  • What qualifies as rent? 
  • Office space? Warehouse space? Both? 
  • What is a utility? 
  • Side note, the CARES act which defined the Paycheck Protection Program outlined the following as utilities if they started before February 15, 2020: 
    • Electricity 
    • Gas 
    • Water 
    • Transportation 
    • Telephone 
    • Internet Service 

Preparing for Forgiveness 

With so much yet to be clarified, our guidance would be simple: 

  • Maintain or restore employment levels if possible 
  • Don’t decrease pay 
  • Hold off on bonuses, back pay, advanced pay until further guidance 
  • Keep track of everything related to payroll, rent, mortgage interest, and utilities 

 On that last note, here is what we recommend for record keeping 

  • Clean payroll reports – most payroll systems will make this easy 
  • Bank records \ receipts that indicate when payments were made and cleared 
  • Invoices for non-payroll items 
  • Agreements indicating services, rent, mortgage pre-dated February 15 

Final Thoughts 

There is a lot of unknowns with maximizing the Paycheck Protection Program loan forgiveness. So don’t reach too far, but focus on what’s known. Understand that whatever isn’t forgiven is a really nice loan: 2 years, 1% interest, with the first payment deferred for 6 months. 

Keep good records and keep up to date on changes. We can help by informing you of changes, tracking forgivable spend, and producing forgiveness documentation and reports. Reach out to us here for help.