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FAQ – Paycheck Protection Program Loans (updated 5/28/20)


Tax season (which now goes through July 15) has been interrupted by an influx of questions from clients who received funds from the PPP loan program. The good news is that in the past couple of weeks, many of our clients finally received funds from the PPP.  We have been in a whirlwind of computing the maximum loan amount, assisting with loan applications and now helping plan the 8 week period following the receipt of the loan proceeds.

We prepared this guide to answer your questions!

The Paycheck Protection Program loans are administered by the SBA through various lenders.  Once you sign documents with your lender and receive funds, you have received a loan.  If you use the proceeds for eligible payroll costs and some non-payroll authorized costs, the full principal amount of the loan and any accrued interest will be forgiven.  At the end of the 8 week period, you must submit documents to certify the amounts used to retain employees and pay other allowable expenses. 

We are watching the bill going through Congress today (5/28/20) to extend the Covered Period to 16 weeks which would be so great for many of you, but the news comes a little late since many of you are more than halfway through your 8 week period.  The Covered Period is the time frame you have to pay expenses for Loan Forgiveness.  

What is the Covered Period (8 week period) and when does it start?

The Covered Period is the 8 week period that starts the day your loan proceeds are deposited into your bank account. According to the CARES Act, you must pay the eligible covered expenses during these 8 weeks.  Covered expenses must be incurred OR paid during the 8 weeks.  Covered Expenses eligible for Loan Forgiveness are a smaller circle and include The BIG FIVE expenses which are payroll costs, employee benefits (health insurance and retirement) rent, mortgage interest, utilities.  You can use the funds for loan interest on a non-mortgage debt but this does NOT qualify for loan forgiveness.  

Rent and utilities must be either paid during the 8 week period or paid the next regular due date.  You don’t need to change your automatic payments of utilities.  You will need to provide proof that you had the utilities set up prior to 2/15/20 by sending in copies of statements for the Jan/Feb 2020 billing cycle.

This is a chart of the Covered Expenses which will get you loan forgiveness if incurred or paid during the Covered Period.  


Payroll Non-Payroll (not more than 25% of loan forgiveness)
Salary, wages, commissions and tips Interest on mortgage obligations incurred before 2/15/20
PTO and paid sick and family  leave Rent under a lease effective 2/15/20
Group Health Insurance Utilities – service began 2/15/20
State and local taxes on compensation Transportation costs can be considered utilities
Employer retirement plan contributions Phone and internet are included in utilities
For self employed individuals, Schedule C net income annualized basis using 2019 tax return


Be sure to track the date your loan funded and the date your 8 week period ends.  We can help you prepare a spreadsheet to plan out the payroll that you expect to pay during this period.  You want to do this immediately after funding so that you pay employee wages that will provide the maximum loan forgiveness.  

Previously, we recommended that you run a special payroll on the day before your 8 week period ends to be sure that employee wages are paid and incurred in order to count toward loan forgiveness.  THAT CHANGED when we received the details of the loan application.  Now we can use an Alternative Covered Payroll Period; defined as the biweekly (or more frequent) payroll schedule that begins on the first day of your pay period that immediately follows your loan disbursement date.  In summary, you won’t have to split up payroll periods or make a special payroll.

Also, if you are a semi-monthly payroll or monthly payroll you can use payroll cost that is paid after your 8 week period but incurred during the 8 weeks as long as you follow your regular schedule.  Those pay schedules will need to be allocated to the 8 weeks.  

What is included in “Payroll Costs”?

Payroll costs include the gross wages paid to employees during the 8 week period and is defined as salaries, commissions, cash tips, or other similar compensation.  Some of you have considered paying bonuses to employees to incentivize them to return to work.  Bonuses are part of an employee’s gross wages and therefore, we believe bonuses count as payroll costs if you can show you have paid bonuses in the past as part of your compensation package. In order to plan your payroll costs to obtain full loan forgiveness, you may consider paying a higher hourly rate to your employees during this time as hazard pay for continuing or coming back to work during a time when they are potentially exposed to COVID-19.

 The annual per employee salary cap is  $100,000 which equals $15,384.62 maximum gross pay for the 8 weeks.  

UPDATE – Owner compensation is limited to the 2019 W-2 prorated to an 8 week period.  If your W-2 for 2019 was $50,000 you will divide that by 52 weeks x 8 weeks and $7,692 of your payroll costs will be forgiven.  This means that you will not be able to bump up your pay to get more loan forgiveness.  (Unless Congress does extend the period to 24 weeks)

Also included in your payroll costs are group health insurance and the employer portion of retirement plan contributions.  You can also include wages paid for paid time off or sick leave.  

The Federal employer tax cost for social security and Medicare taxes are not included in the payroll costs for loan forgiveness.  You can include state unemployment insurance and other state and local taxes.  Worker’s Compensation Insurance is not a covered expense.

Many of our clients are separating out the loan proceeds  into a separate bank account and transferring funds to cover payroll through the 8 weeks to track covered expenses.  This is not a requirement for loan forgiveness but can be helpful to manage your payment of covered expenses.  Be sure to exclude your federal payroll taxes from the computation of covered payroll costs.  We highly recommend using a spreadsheet to track the covered payroll costs each pay period.   The spreadsheet can also include your plans for non-payroll covered expenses.  

You cannot reduce your employees wages during the loan forgiveness period by more than 25 percent as compared to first quarter 2020.  This is measured on an employee by employee basis.  Many have asked how to handle rehiring if not all of your employees can return to work for various reasons.  You can hire different employees than you had prior to the pandemic and you may also rehire a portion of your work force and give them more hours.  The key is that you have the same number of full-time equivalents.  

Communicate early and often with your employees so that they are clear on your plans during this time period.  You may not be able to re-hire all employees now because your business is mandated by the state to be closed.  Write out a rehire plan and communicate that with your employees.  You can pay employees to help with marketing, cleaning, repairs or other services even if you cannot re-hire all employees; communication is the key.  

How do you compute full-time equivalents (FTE)?

The term full-time equivalents is a way to quantify a part-time workforce into the number of full-time employees based on the number of hours worked.  You must compute your FTE headcount.   You can choose from two time periods, either January-February 2020 or February 15, 2019 to June 30, 2020, whichever provides a lower number of FTEs.

If all of your employees are full-time, your employee headcount is the FTE number.  If you have several part-time employees, take the total hours worked by your part time employees and divide the total hours by a 40 hour work week.  The loan forgiveness application clarifies that you can use a 40 hour work week to compute FTE.  

For example, NTY Clothing is a store with 3 full time managers and 10 other employees who work between 10-20 hours per week.  The full time employees each equate to a FTE and so they add 3 to your FTE number.  The total hours worked by the part time employees from 1/1/20 – 2/29/20 is 1,685 hours.  This period is 59 days or 8.42 weeks.  8.42 x 40 hours = 337 hours.  The full time equivalent in this situation is 5 (1,685 / 337).  New to You’s full time equivalent number is 8 (3 full time employees plus 5 FTE).   

The rule is that you must have the same FTE during your 8 week covered period as you did in the time prior to your loan in order to maximize loan forgiveness.  If your monthly average FTE number for the pre-pandemic period was 5 and your average FTE during the 8 weeks is down to 4, you will have a 20% reduction in the loan forgiveness amount.  

If you had to lay off employees during March/April 2020 you will qualify for the SAFE HARBOR rule which is that you can restore your FTE number by June 30, 2020 and you will not have a reduction in loan forgiveness.  

If you have employees who quit or you had to fire for cause, you need to document that in writing and you will be able to take that employee out of the FTE equation.  You also do not need to rehire the same employees as you had pre-pandemic.  You can give some employees more hours to get your FTE number up.  You can also pay employees who are not working in order to get loan forgiveness, but wait until we know more about the 16 week extension before you do that. If you offer an employee to come back to work but they decline the offer, you must report that to the State Unemployment Department.

What are the non-payroll costs that can count toward loan forgiveness?

You can use some of your loan proceeds to cover rent, utilities, interest on mortgages and other debts.  The maximum amount of allowable non-payroll costs is 25% of the total forgivable amount.  If your loan amount is $100,000 and you pay only $60,000 in covered payroll costs the maximum amount of non-payroll costs to include in the loan forgiveness is $20,000.  ($60,000/75%)  This means that your loan forgiveness amount is $80,000 and $20,000 will need to be repaid.  Congress is talking about changing this percentage, so stay tuned.

What are the loan terms?

At the completion of your 8 weeks period you will compute the total amount of loan forgiveness based on your covered expenses.  If there is a portion of your loan that is not forgiven, you must pay back that loan.  The loan terms include a 1% interest rate and 2 year payback period.  You also have 6 months of deferred payments.  Congress may extend the loan to 5 years.

My business has ongoing operations, how do I certify the need for the PPP loan?

As part of the loan forgiveness process, you must certify in good faith that:


  2. The funds will be used to retain workers and maintain payroll or to make mortgage, lease and utilities payments
  3. You have not received another loan under this program
  4. You will provide the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs and other covered expenses.
  5. Certify that all information you provided in your application and all supporting documentation and forms is true and accurate

The IRS has issued PPP FAQ and Question 31 and 37 to address this issue.  Write a narrative of how your business has been affected by COVID-19.  Explain how the economic uncertainty makes the loan necessary.  If you have little interruption in  operations, but you have reduced revenue or forecast reduced revenue, we recommend that you write a narrative of your situation. You may need to compute your financial statements on the accrual basis to  show when income was earned versus when payments were received.  In order to secure loan forgiveness, we recommend you document your need for the loan.

The SBA and the Department of the Treasury issued guidance and the Loan Forgiveness Application on May 15, 2020 concerning how SBA will review the required certification to help PPP borrowers evaluate the process for applying for loan forgiveness.  You will have time after your Covered Period ends to gather documents and complete the application (we recommend using our assistance to complete the documentation for loan forgiveness).  Your lender will have 60 days to approve loan forgiveness and then the SBA will have an additional 90 days to review your documents.  It could take 150 days after you submit documentation to get approved for loan forgiveness.  

How can you request loan forgiveness?

You will submit a request to the lender servicing your loan.  The request will include documents to verify the full-time equivalent employees and pay rates, as well as payments on eligible mortgage, lease and utility bills.   Lenders will have an online system (similar to your application process) to send the Loan Forgiveness Request and the documents.  We are here to assist you in gathering your documents for loan forgiveness.  You will need to keep this documentation for 6 years!  The SBA has 6 years to audit your documentation to confirm that you followed the rules of the program.  If you did not spend your loan on the Covered Expenses you could be personally liable.

Economic Injury Disaster Loans (EIDLs) and Emergency Grants.

Many of you received  an emergency grant up to $10,000 ($1,000 per employee) for the EIDL.  The emergency economic injury grant does not need to be repaid, but it does reduce the amount of loan forgiveness.  The amount of your EIDL grant is reported on the Loan Forgiveness Application.

If you have further questions, you can contact Sherwood Tax at 503-925-4558