PPP Loan Forgiveness

Butcher, Baker, Candlestick Maker

Businesses that received PPP loans will have to comply with SBA guidelines and then IRS regulations to receive forgiveness and henceforward prepare books for 2020 taxes.

  • Once the PPP funds are received, an 8-week time clock begins. Actions to properly account for that money need to be put into place
  • A separate account is advised, but can be worked around if specific bookkeeping practices are instituted
  • To receive full forgiveness, at least 75% of the loan must be used on payroll
  • Employer FICA matches will not be considered, nor will payroll processing fees
  • Owners seeking forgiveness of their own “salaries” and who generally take “distributions” from their companies will have to take actual W-2 generating pay during the 8-week forgiveness period
  • No employee will have more than a pro-rated amount of $100,000 annual salary considered for forgiveness; SBA application caps at $15,385 per individual
  • Existing employees must be paid at least 75% of what they were paid in the reference period
  • FTE or full-time equivalency calculations may reduce loan forgiveness unless the FTE Reduction Safe Harbor applies
  • Owners can use the remaining amount, if any, on rent or mortgage interest and on utilities (those had to be in effect before February 15, 2020)
  • There is an alternative 56-day covered period; for administrative purposes, the borrower may use the first day of their first pay period following their PPP disbursement date, if their regular payroll is biweekly or more frequent

Once the 56-day countdown clock reaches zero, the PPP borrower must complete the Loan Forgiveness Application (see attachment).  If the SBA forgives the loan, financial statements will have to reflect the proper handling of the forgiveness and the regulations the IRS issued.

  • The forgiven amount will be based on the above-mentioned expenses that at that point, can no longer be expenses on the P&L, but properly journaled onto the Balance Sheet
  • Accurate bookkeeping will be crucial. Debt forgiveness is generally taxable, and since the CARES Act states that the PPP loan is not taxable income, the IRS issued a notice stating that the expenses tied to it are not tax deductible

Killingsworth Spencer advises PPP borrowers seeking loan forgiveness to meet with their bankers now and get approval that their intended expenses meet the bank’s requirements.

Killingsworth Spencer in Roswell is fully versed on the PPP loans and its applications.  We have bookkeeping, payroll, and tax experts on staff.  If you need assistance, please click on the link below to send us an email or give us a call at 770-552-8286.