Many of you are asking about the forgiveness application process for the Paycheck Protection Program (PPP) funds you received this year. A lot of talk has been going around about when to apply for forgiveness, whether automatic forgiveness is going to happen for PPP loans under $150,000.00, and how your tax returns will be impacted. In this post, we will discuss these questions, as well as other frequently asked questions (FAQ’s) about the PPP forgiveness application process. Some of the FAQ’s listed here come from the SBA PPP website. For more FAQ’s, please visit www.SBA.gov.
What is the deadline for applying for PPP loan forgiveness?
- The Small Business Administration (SBA) has said that borrowers can submit a PPP loan forgiveness application any time before the maturity date of the loan (2 years or 5 years, depending on when you received your loan).
- HOWEVER – Please note that if you have not received loan forgiveness within 10 months after the last day of your covered period (or December 31, 2020, whichever comes first), you will need to start making payments on your loan.
- After you apply for loan forgiveness, any loan payments are deferred until your lender receives remittance from the SBA on the amount forgiven.
Is automatic forgiveness available for my PPP loan?
- Not yet; however, much talk was happening in Congress to make PPP loans under $150,000 automatically forgiven. Although the latest round of stimulus talks has stalled, leaving uncertainty on automatic forgiveness, on October 8, the SBA announced a new, simpler forgiveness application for loans of $50,000 or less.
- While not technically automatic, this is a very simple, 1 page PPP Loan application (Form 3508S) for loans of $50,000 or less. Please click here for an online version of the application, and reach out to your CPA if you have any questions:
Who can use Form 3508EZ?
- If you can say yes to one of the three scenarios below, then you may be eligible to utilize Form 3508EZ for loans $50,000.00-$150,000:
- You are self-employed, and had NO employees at the time of your PPP application, AND you did not include any employee salaries in the computation of average monthly payroll;
- You did not reduce salaries or wages of any employee by more than 25 percent during your covered period, compared to the period between January 1, 2020 and March 31, 2020, and you did not reduce the number of employees or the average paid hours of employees between January 1, 2020, and the end of your covered period; OR
- You did not reduce employee salaries or wages more than 25 percent during your covered period, compared to the period between January 1, 2020 and March 31, 2020, and you were unable to operate during your covered period at the same level as before February 15, 2020, due to compliance with HHS, CDC, or OSHA requirements related to COVID-19.
- More information on these three scenarios is available on the instructions for Form 3508EZ, found at the following link: Form 3508EZ Instructions
Who must use the long Form 3508?
- Currently, any borrower not eligible for either of the simpler forms (3508S and 3508EZ) will need to fill out Form 3508. The SBA estimates the time to complete this long and tedious form as 180 minutes. If you have been tracking your eligible payroll costs, this should be enough time to fill out the form. Documentation will need to be provided to prove qualifying costs were paid. You may need to reach out to your payroll provider and/or your CPA if you are unable to complete the form on your own. You can find an online version of the long form 3508 here: Long Form 3508
How will I know if my loan forgiveness application is accepted or approved?
- The bank has 60 days to determine if your loan forgiveness application has been accepted. Upon acceptance you will receive an email confirmation from the bank.
- The SBA has 90 days to determine if your loan forgiveness application has been approved. Upon approval, you will receive an email confirmation from the SBA.
What happens if I report some of the PPP funds as taxable in 2020, and then receive 100% forgiveness in 2021 or later? Can I file an amended return and receive a refund?
- No guidance has been issued yet on this scenario. However, if you do report some of the funds as taxable, you will also report the same amount of PPP related expenses. So even if you receive forgiveness later, your net income amount will not change. Therefore, the need for an amended return would only be if Congress decides to allow deduction of all PPP-related expenses. Reach out to your CPA if you think this scenario will apply to you.
What happens on my taxes if I receive forgiveness before 12/31/2020?
- According to the IRS, the forgiven portion of the PPP Loan will not be taxable; however, payroll and other expenses funded by the loan will not be deductible. Therefore, you will see an adjustment on your taxable income to reflect the non-deductible costs that were covered by PPP funds.
- Currently, there are many organizations that are lobbying Congress to allow deductions for the PPP-related expenses. It is our view that Congress’ intention was to allow the PPP-related expenses on borrowers’ tax returns. It is very possible that we will see changes to this if and when congress passes the next stimulus package. We will keep you informed as the rules get resolve, by Congress or the court.
- Talk to your CPA about whether you should file an extension for 2020 taxes to give Congress time to decide on this important issue.
What if I do not receive forgiveness until 2021?
- This will be the situation that most businesses fall under. For many borrowers, it will be well into 2021 before finding out if their loans are forgiven. IRS has not released guidance on when to report the reduced expenses under this scenario. Again, talk to your CPA about whether to file an extension for 2020 taxes if you are concerned about when or if you need to adjust your return for PPP-related expenses.
What if I do not receive forgiveness of my loan?
- Loans not forgiven must be paid back. The SBA has provided that the SBA loans will be paid back over 5 years at 1%, after the 10-month deferral period