PPP Loan Forgiveness Gets EZ (Relatively Speaking)
By Greg Yoder
Note: Unless there’s further Congressional action, the loan portion of the Paycheck Protection Program is about to close. The deadline for applications is June 30th.
The SBA — in an effort to ease the PPP-related administrative burden — has released a new PPP loan forgiveness application: Form 3508EZ. This two-page application has many fewer calculations and requires less documentation from borrowers than the original Form 3508.
In order to use the EZ, borrowers must meet one of the following three criteria (taken from the SBA instructions):
- 1. The Borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form (SBA Form 2483).
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2. The Borrower did not reduce annual salary or hourly wages of any employee making less than $100,000 per year by more than 25 percent during the Covered Period compared to the period between January 1, 2020 and March 31, 2020; AND
The Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period. -
3. The Borrower did not reduce annual salary or hourly wages of any employee making less than $100,000 per year by more than 25 percent during the Covered Period compared to the period between January 1, 2020 and March 31, 2020; AND
The Borrower was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with guidance issued by [various government agences] related to COVID-19.
“Covered Period” in the above criteria means either the original 8-week period or the recently expanded 24-week period, in either case beginning with the date the loan proceeds were disbursed.
The 60% rule (payroll cost must make up at least 60% of the forgivable costs) is still included in the application, but in a simplified form. There had previously been some concern that businesses that did not have qualifying payroll costs equaling at least 60% of their loan amount would not get any forgiveness. The SBA has clarified that this is not the case: businesses that don’t meet the 60% threshold will have their forgiveness reduced, but not eliminated.
Because of the extension of the covered period from 8 to 24 weeks, the maximum amount of compensation for an individual employee that qualifies for loan forgiveness has also increased. For non-owner employees, the maximum is now $46,154, the 24-week equivalent of a $100K annual salary. For owners, however, the maximum amount of compensation is 2.5 months’ worth of $100K of compensation, or $20,833. For non-owner employees, the costs of health insurance and some other benefits are also forgivable and are not subject to the same dollar limitations. The $20,833 for owners is inclusive of all costs, so that an owner making more than $100K per year will not get any additional forgiveness for their benefits costs.
Note that if a business chooses to stick with the original 8-week covered period, it will still have to use the original, lower compensation limit of no more than $15,385 per employee.
Links for the 3508EZ:
Application: https://www.sba.gov/document/sba-form-paycheck-protection-program-ez-loan-forgiveness-application-6-16-2020
Disclaimer: Please note this article is based on the information that is currently available and is subject to change.
