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Forgiveness of Paycheck

Protection Program (PPP) Loans

 May 20, 2020

Many small businesses applied for and received forgivable loans through the Paycheck Protection Program (“PPP”), which was part of the federal Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The PPP offered forgivable loans to small businesses to cover payroll costs as a way to keep individuals employed and businesses in operation during the economic downturn brought on by the coronavirus.

However, PPP loans will only be forgiven if the funds are used for specific purposes. To be eligible for forgiveness, at least seventy-five percent (75%) of the loan proceeds must be used for “payroll costs,” and no more than twenty-five percent (25%) of the proceeds may be used for other, non-payroll costs, during the covered loan period. The covered loan period is generally the 8-week period beginning on the day your business received its PPP loan disbursement.

Forgivable Payroll Costs

The following payroll costs are eligible for forgiveness:

  • Salaries, wages, or similar compensation. (However, for each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000.)

  • Cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips).

  • Payments for vacation, parental, family, medical, or sick leave.

  • Allowance for dismissal or separation.

  • Group health plan payments, including premiums.

  • Retirement plan benefits/contributions.

  • State and local taxes assessed on employee compensation.

However, some expenses, although related to payroll costs in a general sense, are not eligible for PPP forgiveness. These include:

  • Compensation of an individual employee of more than $100,000 per year, prorated as necessary.

  • FICA (Federal Insurance Contribution Act) taxes.

  • Railroad retirement taxes.

  • Income taxes.

  • Compensation of individuals residing outside of the United States.

  • Qualified paid sick leave and paid family leave for which an employer is allowed a credit under sections 7001 and 7003 of the Families First Coronavirus Response Act.

It is therefore important to use PPP loan funds only for forgivable payroll costs.

Forgivable Non-Payroll Costs

PPP loans proceeds used for certain non-payroll costs are also eligible for forgiveness, as long as no more than twenty-five percent (25%) of the loan proceeds were used for these purposes:

  • Certain business mortgage interest  payments — PPP funds may be used to pay interest on any business mortgage obligation on real or personal property that existed prior to February 15, 2020; however, PPP funds may not be used to prepay mortgage obligations, and they may not be used to pay principal.

  • Business rent payments pursuant to a lease agreement in effect prior to February 15, 2020.

  • Business utility payments for services such as the distribution of electricity, gas, water, transportation, telephone, or internet access, as long as those services were in effect prior to February 15, 2020.

All forgivable costs — payroll or otherwise — must either be paid during the covered loan period or incurred during the covered period and paid before the next regular billing date.

Documentation, Documentation, Documentation

In order to receive full forgiveness, you must provide your lender with thorough, detailed documentation proving that every dollar of your PPP loan funds was spent on a forgivable cost during the covered period. Therefore, for every forgivable expense detailed above, you will need to keep detailed records. Any and all documentation you can provide your lender will be helpful. Specifically, be sure you have the following:

  • Documentation verifying the number of full-time equivalent employees on the payroll, as well as their pay rates, during the covered period, including:

    • IRS payroll tax filings; and

    • State income, payroll, and unemployment insurance filings;

  • Documentation verifying mortgage interest payments, rent payments, and utility payments;

  • A certification by a representative of the borrower that the documentation presented is true and correct and that the amount for which forgiveness was requested was, in fact, used for forgivable purposes.


In addition to the above documentation, PPP loan borrowers are required to complete a “Paycheck Protection Program Loan Forgiveness Application,” which is available on the U.S. Treasury’s website: Upon completing your PPP Loan Forgiveness Application and submitting it to your lender, your lender is required to provide a forgiveness determination within sixty (60) days.

It is anticipated that further guidance will be released by the U.S. Small Business Administration (“SBA”) regarding loan forgiveness in the coming days. Additionally, the SBA is regularly updating a FAQ document regarding PPP loans with helpful information.

In the meantime, we recommend that you keep and compile thorough documentation of every expenditure of PPP loan funds. If you have any questions regarding your PPP loan or related legal questions, the Broehl Law Office can assist you. While we have instituted health and safety measures here at the Broehl Law Office in accordance with federal and state guidance to slow the spread of the corona-virus, including cancellation of in-person appointments, we are still actively working for our clients, and we remain available to address your needs and concerns.​

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