On June 17, 2020, the Small Business Association (SBA) in consultation with the Department of the Treasury, posted a revised PPP loan forgiveness application and instructions (Form 3508 - revised June 16, 2020), which implements the PPP Flexibility Act of 2020 that was signed into law on June 5, 2020. In addition, the SBA also published a new “EZ” version of the loan forgiveness application – Form 3508EZ. Links for these forms are provided below.
Do You Meet the Requirements to File Form 3508EZ?
The EZ application form requires fewer calculations and less documentation for eligible borrowers. The EZ loan forgiveness form does not include a calculation for the FTE Reduction Quotient or the 25% pay rate reduction for employees who made up to $100,000 annualized in 2019. However, Borrowers using this form must still maintain documentation that supports these assertions.
Borrowers can use the EZ form if they meet
one of the following criteria:
- The Borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees when they applied for the PPP loan and did not include any employee salaries in the computation of average monthly payroll in the PPP loan application Form 2483; OR
- The Borrower did not reduce the salaries or wages of their employees by more than 25% during the Covered Period or Alternative Payroll Covered Period as compared to January 1, 2020 through March 31, 2020 for employees who did not earn more than $100,000 at an annualized rate during 2019, AND the Borrower did not reduce the number of employees or the average paid hours between January 1, 2020 and the end of the Covered Period. (Borrowers can ignore certain headcount reductions as defined in the instructions); OR
- The Borrower did not reduce the salaries or wages of their employees by more than 25% during the Covered Period (same as bullet above), 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 the issuance of health directives (as issued by the CDC, OSHA and Health and Human Services) between March 1, 2020 and December 31, 2020 related to COVID-19.
Covered Period Can Be 8 Weeks or 24 Weeks
Both applications (Form 3508 and Form 3508EZ) give Borrowers the option of using the original 8-week covered period (if the loan was made before June 5, 2020) or an extended 24-week covered period. There is no current guidance providing an option to use a covered period that is between 8 and 24 weeks. Therefore, if the Borrower believes they will qualify for 100% forgiveness before the end of the 24-week period, it is not yet known whether they will be able to apply at that time or if they will instead need to wait the full 24 weeks.
What are the Maximum Payroll Costs For Employees and Owners?
For both applications, the maximum amount of cash compensation (wages, salary, tips, etc.) that is eligible for forgiveness for each individual employee is $15,385 ($100,000 x 8/52) for the 8-week period and $46,154 ($100,000 x 24/52) for the 24-week period.
Owner compensation (i.e., sole proprietors, general partners and owner-employees) is limited to 2019 net profit up to $15,385 ($100,000 x 8/52) for the 8-week period and $20,833 ($100,000x2.5/12) for the 24-week period. The owner compensation cap is inclusive of all payroll costs. In its related Interim Final Rule, the SBA stated that they did not want Borrowers to qualify for additional forgiveness based on owner compensation exceeding the amount they were able to borrow against their compensation, which you may recall was 2.5 months of compensation, capped at $100,000 per annum.
The 60% Rule for Payroll Costs
At least 60% of the PPP loan proceeds shall be used for payroll costs. This rule applies to both the 8-week and 24-week covered periods. The 60% requirement for payroll costs is not an all or nothing rule. The Borrower’s eligible nonpayroll costs cannot exceed 40% of total costs eligible for forgiveness, which includes payroll and nonpayroll costs.
Haven’t Applied for a PPP Loan Yet?
Time is of the essence. The last day to file for a PPP Loan is June 30, 2020. See the revised PPP Loan Application
link here.
We will continue to monitor ongoing updates to the PPP Program. To better understand how the changes impact your unique situation, please contact your Rudler, PSC advisor at 859-331-1717.
Disclaimer: Please note this is based on the information that is currently available and is subject to change.
