The topic of Paycheck Protection Program (PPP) loan forgiveness has been a popular one over the past couple of months as businesses prepare to apply for forgiveness. After much anticipation, the SBA recently released two new forgiveness applications. One is a general application, the other is a simpler version known as “Form 3508EZ”. We dive into the details and differences of the two forms below.
Can I Use the EZ Form?
Businesses can use the simpler, EZ form if they meet one of the following criteria:
- You are self-employed and have no employees; or
- You had employees, but did not reduce their salaries or wages during the covered period by more than 25% AND did not reduce the number of hours worked by employees (essentially meeting what’s come to be known as the FTE employee rule); or
- You had employees, but did not reduce their salaries or wages during the covered period by more than 25%, AND due to complying with essentially shelter-in-place laws during the covered period, you were unable to operate during the covered period at the same level of business that existed before February 15, 2020.
What Do I Need to Consider Before Applying?
It is important to note that the actual applications and the instructions are separate documents on the US Treasury website. The original application was a single document that included application and instructions combined. There is certainly value in the newly minted applications especially if you can use the EZ app. With being said, there are still plenty of questions that remain. Here are additional application points to consider:
- If the business meets any of the three requirements listed above, they can use the EZ form.
- For S-Corporations wondering where they fit, if the owner is the only employee, then by definition they still would have employees and thus qualify under #2 or #3 above, and need to fill out the sections of the EZ App listing the owner as the only employee.
- Decide if you are going to apply under the 8-week covered period or the 24-week period (not to exceed December 31, 2020). Only borrowers that receive loans before June 5 can choose between the 8 or 24-week period.
- Personal compensation is limited before the owner can add to it other employee payroll costs, rent, lease payments, utilities and mortgage interest. Personal compensation is the maximum of the following:
- $15,385 if you choose the 8-week period.
- $20,833 if you choose the 24-week period.
- Payroll costs for S-Corp owners do not include health insurance premiums for themselves, but only the premiums for their employees can be included in the definition of payroll costs. This may be confusing because when you applied for the PPP loan, S-Corp owner/employees were allowed to include this in their calculations for loan, but not on the forgiveness app.
The purpose of the new applications was to simplify the process. Did it go far enough? Many business owners would emphatically say “no”. However, it appears to be a step in the right direction. Frankly, it might be the only direction we get.
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