A Loan Recipient's Guide to PPP Loan Forgiveness
Paycheck Protection Program (PPP) loan recipients will be under scrutiny when applying for forgiveness, which makes conscientious recordkeeping essential. Extensive documentation is needed for loan forgiveness applications to verify that loans are being used for their primary intended purpose: to retain the workforce and maintain payroll costs.
There is no magic report — record consolidation will be required, and may involve input from multiple parties, including your payroll provider, bookkeeper, and lender. Meeting the requirements for loan forgiveness involves several components: compensation; headcount; full-time equivalency (FTE); health insurance and retirement plan contributions; and state and local taxes paid by the employer. In addition, eligible non-payroll expenses such as utilities, rent and interest on mortgage debt need to be tracked.
Before getting started, PPP loan recipients will need to decide whether they are going to use the 8- or 12-week Covered Period or an Alternative Payroll Covered Period (APCP), which starts the first pay period after the PPP loan is received. Borrowers who received their loan proceeds on or before June 5, 2020, may choose between the 8-week or 24-week Covered Period while those borrowers who received their loan proceeds on June 6, 2020 or thereafter must use the 24-week Covered Period.
Once document types are organized, be sure to retain them. PPP loan recipients should maintain this documentation for at least six years after the date their PPP loan is funded or one year after the loan balance is repaid in full in the event they receive any requests from representatives from the Small Business Administration (SBA) or the Office of the Inspector General.
The following are some additional considerations for PPP loan forgiveness documentation.
1. Complete the applicable Paycheck Protection Program Loan forgiveness form.
Recipients who are self-employed, did not reduce the number of employees, or that experienced declines in business activity and did not reduce salaries or wages by more than 25% can use the streamlined forgiveness application, SBA Form 3508-EZ. All other parties complete SBA Form 3508.
2. Collect documentation on the compensation paid to employees during Covered Period/APCP
Eligible documentation includes bank account statements or third-party payroll service provider reports that document the compensation paid to employees.
3. Gather tax forms for the Covered Period/APCP.
Tax forms include payroll (Form 941), state and local, and unemployment tax information for the periods that overlap with the Covered Period/APCP. Equivalent third-party payroll service provider reports suffice.
4. Aggregate employee health insurance & retirement plan contribution information.
Collect payment receipts, cancelled checks, or account statements that verify employee contributions to employee health insurance and retirement plans included in the PPP loan forgiveness amount calculation.
5. Submit employee federal sick leave documentation.
Substantiate any employee sick pay or FMLA leave paid to employees during the Covered Period/APCP.
6. Compile compensation information report for Covered Period/APCP.
The tracking of compensation for eligible employees (those with a primary U.S. address) will need to be subdivided into:
- Employees who make less than $100,000 in annualized salary in 2019 or who were not employed by the borrower in 2019; and
- Employees whose annualized pay rate exceeded $100,000 for any pay period in 2019.
Each employee’s name, last four digits of their Social Security Number and compensation amount will need to be recorded and substantiated via the account statements.
7. Gather FTE data for the reference period.
Recipients select the reference period that provides the best representation of pre-COVID-19 FTEs, but the reference period must be one of the following:
- Feb.15 – June 30, 2019;
- Jan 1. – Feb. 29, 2020; or
- If seasonal, a 12-week period between May 1 – Sept. 15, 2019.
Documentation will support the listing of each employee employed during the reference period.
8. Indicate and substantiate safe harbor eligibility.
Affected organizations will need documentation of any public health order (ex: HHS, CDC, OSHA) that kept operations from returning to normal levels between Feb. 15, 2020, and the end of its Covered Period/APCP.
Documentation should reflect that FTEs reduced between Feb. 15 and April 26, 2020, are restored to Feb. 15, 2020 levels no later than Dec. 31, 2020.
9. Aggregate pre-Feb. 15, 2020 utility and debt obligations.
PPP loan recipients need to establish their pre-COVID-10 pandemic bills, service obligations, and business utility costs. Eligible documentation includes February 2020 business:
- Utilities – Invoices, receipts, cancelled checks, or account statements
- Mortgage interest payments – Lender amortization schedules, receipts or cancelled checks, or lender account statements
- Rent or lease payments – Current lease agreement and receipts or cancelled checks, or lessor account statements
10. Collect Covered Period utility bills and service provider obligations data.
Documentation will be needed through one month after the end of the Covered Period/APCP that verifies interest amounts and eligible payments made.
11. Submit data on FTE reductions unrelated to pandemic.
Some employee terminations or reductions in headcount may fall outside of the scope of the COVID-19 disruption. To isolate the departures that could not be helped by the PPP loan, recipients will need documentation for employees who:
- Refused a written rehire offer,
- Were fired for cause,
- Voluntarily resigned, or
- Requested work schedule reductions.
12. Track expenses paid from PPP loan proceeds.
Gather bank statements for the Covered Period/APCP showing payments or transfers for expenses paid from the PPP loan.
13. Submit proof of 2019 from 1040 Schedule C submission.
Sole proprietors and independent contractors will need to demonstrate the From 1040 Schedule C was provided with their PPP loan application.
Assistance is Available
The amount of documentation involved with PPP loan forgiveness may be overwhelming, but we are here to help. Below is an additional resource to help with the process.
PPP Loan Forgiveness Guide: A spreadsheet tool for compiling headcount and for tracking PPP expenses and loan forgiveness calculations. (Note: We are constantly updating this resource based upon the latest information and guidelines. Please make sure you are using the most recent version.)
PPP Loan Forgiveness Documentation Checklist: An overview of the information you need to support your PPP loan application.
You may also contact a member of our team for additional questions.
Copyright © 2020, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.
CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).