As of June 16, 2020 there are now two different applications that can be filled out when it is time for you to apply for forgiveness on your Paycheck Protection Program Loan. One being the Form 3508EZ. This is a much shorter and simpler form most likely for someone who is self-employed.
The most common form that will be used by most employers is not the most simple form to fill out. The form has been named SBA FORM 3508. This blog will cover each section and will walk you through the exact way to fill it out to better ensure that you get your loan forgiven. Attached below is a downloadable PDF of the form that will help you follow along as we go through each section.
Page 1: PPP Loan Forgiveness Calculation Form
Business Lagal Name (“Borrower) DBA or Tradename, if Applicable: Enter the same business name that you used on your PPP application. This name should be identical to the name you use on your tax returns.
Business Address/Business TIN (EIN,SSN)/ Business Phone/ Primary Contact/E-mail Address: Use the same information as on your PPP application unless any information has changed.
SBA PPP Loan Number: You will enter the loan umber assigned to you by the SBA at the time of loan approval and you may request it from your lender if necessary.
Lender PPP Loan Number: The number that the lender has assigned to your loan within their systems. You can find this on your signed loan documents. If you are unable to, your lender will be able to provide it.
PPP Loan Amount: This will be the full loan amount that you received. You can confirm this amount by using your bank records, PPP loan agreement, or in a confirmation email. Your lender should not have charged fees or taken any amount away.
PPP Loan Disbursement Date: The day that the funds arrived into your bank account. If funds were sent in stages, enter the first date.
Employees at Time of Loan Application/Employees at Time of Forgiveness Application: Enter the number of actual employees, not Full-Time Equivalents (FTE).
Payroll Schedule: Select the frequency of payroll being paid to employees. If this has changed since 2019, select the frequency you were using during the 8-week forgiveness period.
Covered Period: Calculate the period starting from your disbursement date to 24 weeks (168 days) after. Of you received your loan prior to June 5th, 2020 you can use an 8 week (56-day) period. The cover period may not go beyond December 31st,2020.
Alternative Payroll Covered Period: This applies to you if you run payroll on a biweekly or more frequent basis. You can start your covered period for payroll on the day of your first pay period. However, if you decide to use this pay period then you must use it for all parts of the application that calls for it (NO PICKING AND CHOOSING). The Alternative Payroll Covered Period can’t go past December 31, 2020.
If Borrower (together with affiliates, if applicable) received PPP loans in excess of $2 million: Check if applicable.
Forgiveness Amount Calculation: You can skip this page for. You will need to complete Schedule A first to get the figures you need, which we will find by starting on the Schedule A Worksheet First.
Page 4: PPP Schedule A Worksheet
List every employee on your payroll during the Covered Period (or alternative period). DO NOT include anyone who does not live in the United States, any independent contractors, yourself, or your partners.
Also DO NOT include anyone who received an annualized pay rate of more than $1000,000 in 2019. Those employees are to be listed in Table 2.
Employees Full Name: Full Name
Employee Identifier: The last 4 digits of Socical Security Number (SSN)
Cash Compensation: The employee’s compensation over your Covered Period, which includes:
- Gross salary, wages, tips & commissions
- Paid leave (vacation, family, medical or sick leave, not including leave covered by Families First Coronavirus Response Act)
- Allowances for dismissal or separation paid or incurred during the Covered Period or the Alternative Payroll Covered Period
**Each Individual’s compensation cannot exceed an annualized salary of $100,000.**
Average FTE: Calculate the average number of hours paid per week, divide by 40, and round to the nearest tenth. Max value of 1.0. For simplicity, you can choose to use 1.0 for anyone who works 40 hours or more and 0.5 for anyone else.
Table 1: Salary & Hourly Wage Reduction
This is where you will calculate if you have met the forgiveness requirements for maintaining pay. For each employee complete the following steps:
Compare the employees pay during the covered period (or alt. period) to the pay between January 1 to March 31. If pay decreased by less than 25%, enter 0. Otherwise, proceed to step two.
The employee meets the Safe Harbor requirements if these two conditions apply:
- The average annual salary or hourly wage on June 30 is equal to or greater than the average annual salary or hourly wage on February 15
- The average annual salary or hourly wage between February 15 and April 26 was lower than it was on February 15
If those conditions apply, the employee has met the Safe Harbor requirements. Enter 0. Otherwise move on to step three.
Determine the difference in salary/wage by subtracting the pay the employee’s pay during the covered/alternative period from 75% of the pay between January 1 to March 31.
- For Hourly Workers: Multiply the calculated difference by the average number of hours worked per week between January 1 and March 31. Multiply by 24 to get the full 24-week equivalent (multiply by 8 if you are using an 8 week covered period). Enter this amount.
- For Salaried Employees: Enter the 24-week equivalent of the difference in salary by multiplying by 24/52 (8/52 if you are using an 8-week covered period).
Full Time Equivalent Reduction Exceptions: If you had any employees you could not hire back, their FTE can be included here. They can be included if the position was not filled by a new employee and they meet one of the following conditions:
- The employee rejected your good faith, written offer to rehire them at the same pay rate/hours as before
- They were fired for cause.
- They voluntarily resigned
- they voluntarily requested and received a reduction of their hours.
Table 2 & FTE Reduction Safe Harbor
Table 2: Follow the same process as Tabe 1, but only considering employees who were paid an annualized rate of more than $100,000 for any pay period in 2019.
FTE Reduction Safe Harbor: This is where you calculate if you’ve met the forgiveness requirements for maintaining pay. Calculate the following FTEs. The required calculations will be completed later on.
- Total average FTE between February 15 and April 26. Record on Step 1
- Total FTE in your pay period that includes February 15. Record on step 2
- Total FTE on June 30. Record on Step 4
Now that this is complete move on to Schedule A.
Page 3: Schedule A
Self employed individuals without payroll may skip lines 1 through 8.
Line 1: From the worksheet, BOX 1.
Line 2: From the work sheet, BOX 2.
Line 3: From the worksheet, BOX 3. (If all your employees were paid at least 75% of their original pay (between 01/01/20 – 03/31/20, check the box and enter 0).
Line 4: From the worksheet, BOX 4.
Line 5: From the worksheet, BOX 5.
Line 6-8: Enter the employer-paid expenses for employee health insurance, retirement plans and state and local taxes on payroll.
Line 9: Enter the compensation paid to yourself and yourpartner(s). For self-employed individuals, this is where you can enter your owner compensation replacement. Partnerships(or in general, if any other individuals were compensated as an owner), include a separate table that lists how the compensation was paid out (names and amounts).
Line 10: Sum lines 1,4,6,7,8, and 9.
FTE Reduction Safe Harbor 1: Between February 15 and the end of your Covered Period, you were unable to operate at the same level of business activity as before February 15 because you were in compliance with health guidelines or requirements set out by government health agencies (the Secretary of Health and Human Servies, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration).
FTE Reduction Safe Harbor 2: Refer back to the FTE Reduction Safe Harbor section on the Schedule A Worksheet. If Step 2 is less than Step 1, complete lines 11, 12, and 13. Otherwise, if Step 4 is greater than Step 2, check the box and enter 1.0 on line 13. Otherwise, complete lines 11, 12, and 13.
Line 11: Average FTE for one of the following periods
- February 15, 2019 to June 30, 2019
- January 1, 2020 to February 29,2020
Seasonal employers can use either period, or any consecutive twelve-week period between May 1, 2019 and September 15, 2019.
Line 12: From the worksheet, the sum of BOX 2 AND BOX 5.
Line 13: If you did not satisfy the FTE reduction exemptions, divide line 12 by line 11 and enter the result. If the result is greater than 1.0, enter 1.0
Finishing Page 3: PPP Loan Forgiveness Calculation Form
Line 1: Payroll Costs
From Schedule A, line 10.
Line 2: Business Mortgage Interest Payments
Enter the sum of interest payments on any business mortgages that were in effect before February 15, 2020. Prepayments are not allowed. You do not need to report any expenses you don’t want to claim for forgiveness.
Line 3: Business Rent or Lease Payments
Enter the sum of business rent or lease payments, where the rent/lease agreement was in effect before February 15, 2020. You do not need to report any expenses you don’t want to claim for forgiveness.
Line 4: Business Utility Payments
Enter the sum of business utility payments, where the utility agreement was in effect before February 15 2020.You do not need to report any expenses you don’t want to claim for forgiveness.
Line 5: Total Salary/Hourly Wage Reduction
From Schedule A, line 3.
Line 6: Add the amounts on lines 1, 2, 3, and 4, then subtract the amount entered in line 5
This is the preliminary amount of eligible forgivable expenses, accounting for any reduction due to not meeting the 75% pay requirement, but not yet accounting for the FTE requirement.
Line 7: FTE Reduction Quotient
From Schedule A, line 13.
Line 8: Modified Total
Multiply line 6 by line 7.
This is the final amount of eligible forgivable expenses, accounting for any reductions due to not meeting the FTE or pay requirement.
Line 9: PPP Loan Amount
The same value you listed previously.
Line 10: Payroll Cost 60% Requirement
Divide line 1 by 0.60 to determine the maximum forgivable amount possible.
Line 11: Forgiveness Amount
Enter the smallest of lines 8, 9, and 10.
Congratulations, you have completed all the required calculations! Please make the required representations and certifications and SIGN.
Information in this blog is to be used for informational purposes only and does not constitute legal, business or tax advice.