Good News If Your PPP Loan Is for $50,000 or Less
December 14, 2020 Author: Sonny Blanchard, CPA, CFP® l Ashlar Financial
You are likely at or nearing the stage where you are thinking of applying for your Paycheck Protection Program (PPP) loan forgiveness. Here’s good news: If your PPP loan (a) considered your employees and (b) is for $50,000 or less, your loan forgiveness amount may have increased to 100 percent even though you reduced pay or headcount. And regardless of whether you obtain any additional monetary benefit from this new Small Business Administration (SBA) rule, you will find that the new has made your application for loan forgiveness truly easier—not easy, but easier.
Before the $50,000-or-less rule, you had to either suffer a reduction in loan forgiveness or meet one of the many exceptions that allowed you to
- cut annual salaries or hourly wages by more than 25 percent, and/or
- reduce the average number of employees or average hours paid.
Now, with a PPP loan of $50,000 or less, you don’t have to consider the myriad rules about employees. Regardless of what you did with your employees, you qualify for full forgiveness if
- your PPP loan is for $50,000 or less,
- you spent the PPP money on costs that are eligible for forgiveness, and at least 60 percent of the forgiveness is for qualified payroll costs (including defined payroll for owners).
Example. Henry obtained a PPP loan of $34,000 based on his 2019 Schedule C income and pay to his part-time employee. When COVID-19 hit, Henry laid off his part-time worker and has not rehired him. Using SBA Form 3508S and the 24-week covered period, Henry qualifies for 100 percent forgiveness of his $34,000 loan because he spent $20,833 (61 percent) on the deemed payroll to himself and the remainder on five months’ rent and utilities.
Planning note. Henry is not an employee of his Schedule C business. He receives no W-2 income. But the PPP rules deem Henry’s 2019 Schedule C profits as his payroll for PPP loan purposes. The rules cap the Schedule C taxpayer’s loan amount and forgiveness at a maximum of $20,833 when Schedule C income is $100,000 or more.
Form 3508S Expiration Date
On the SBA forms, you find an expiration on the upper-right corner. For example, SBA Form 3508S has an expiration date of October 31, 2020—a date that has already passed. The SBA says we should ignore that. Here’s the exact wording:
The expiration date in the upper-right corner of the posted PPP loan forgiveness application forms is displayed for purposes of SBA’s compliance with the Paperwork Reduction Act, and reflects the temporary expiration date for approved use of the forms. This date will be extended, and when approved, the same forms with the new expiration date will be posted.
The new rules for PPP loans of $50,000 or less are welcome because they simplify the loan forgiveness process. Your first big benefit is not having to spend time on the various employee headcount and pay rules and then examining all the exceptions to both the headcount and pay rules.
The second benefit is that you possibly will receive loan forgiveness for which you would not have otherwise qualified. This is not likely to be a big number, because you do have to spend 60 percent of the loan money on defined payroll (including 2019 Schedule C profits). But any added benefit in these difficult times has to be a welcome one.