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Determining Paycheck Protection Program Forgiveness Amount


 

It should be noted that the following information is subject to change. We are committed to keeping you informed of requirements as they evolve.

Below is a list of changes as a result of the PPP Flexibility Act:

  • The bill will extend the eight-week Covered Period to the lesser of 24 weeks or until the end of the year (December 31, 2020). Borrowers can also choose to keep the original Covered Period.
  • Borrowers now have until no later than December 31, 2020 to restore their workforce levels and wages to the same levels as February 15, 2020. Additionally, the new legislation expands the safe harbor for rehiring employees by allowing that the forgiveness will not be affected by a reduction in employees if the borrower is able to document an inability to rehire individuals, to hire similarly qualified employees or to return to the same level of business activity as it was operating at before February 15, 2020 due to compliance with COVID-19 requirements.
  • Businesses are now required to use at least 60% of the original loan amount on payroll costs instead of the previous threshold of 75%. This also means that borrowers may have no more than 40% (previously a 25% threshold) of forgiveness associated with eligible non-payroll expenses (i.e. rent, mortgage loan interest, and/or utilities).
  • The maturity period has been extended to 5 years for all loans on a go-forward basis. Any pre-existing loans may be amended from the current 2 year maturity to reflect new 5 year maturity if both the lender and borrower mutually agree. The interest rate remains at 1%. The deferral period of the loan has been extended from 6 months to the date at which the forgiveness amount is remitted to the lender, or 10 months after the end of the 24 week period.
  • Businesses who took a PPP loan may also delay payment on their payroll taxes, which was prohibited under the CARES act.
  • Under the CARES Act, authorized funds for the program are now set to expire on August 8, 2020.


Please note, this guidance is subject to change based on further guidance published by the Treasury and SBA. We will endeavor to update this page to reflect additional guidance, however make no commitment to do so, and recommend visiting the SBA website(Opens in a new Window) to learn of any changes that occur.

Since each individual’s facts and circumstances will vary, the answers to these questions may not be accurate for you. Therefore, you should consult with your legal, tax, and/or accounting advisors for advice for your specific situation.


The amount of the PPP loan eligible for forgiveness by the SBA will be determined based on

a) the borrower’s use of funds for eligible costs, and

b) the level of employment maintained during the Covered Period following the initial disbursement of the PPP loan. Loan funds used for any expenditures made outside of the specified costs or after the Covered Period or Alternative Payroll Covered Period will not be forgiven. It should be noted that the determination of the forgiveness amount is being approached differently than the determination of the original PPP loan amount.

The following are considerations as you prepare to request the forgiveness of amounts owed. Click on each link to learn more about each category.

  1. Time Period
  2. Expenditures
  3. Payroll Costs
  4. Payroll Cost Exclusions
  5. Non-Payroll Costs
  6. FTE Requirements
  7. FTE Safe Harbor
  8. Compensation Requirements
  9. Loan Forgiveness Limitations
  10. Sole Proprietors
  11. Sole Proprietors without Employees Guidance
  12. Documentation Requirements


Accurate and detailed recordkeeping is crucial to requesting loan forgiveness as this will provide support for and clarity into the use of funds during the 8-week or 24-week Covered Period. If the 24 week period surpasses December 31, 2020, the Covered Period must conclude by the end of the year. Having complete documentation of expenditures will expedite the forgiveness process. To see the list of documents required as well as an example of how to calculate what you may owe click here.

Rockland Trust will be providing additional information through other email communications, through the CARES Act page on our website, and through a series of webinars. 

Your relationship matters to us, and we are committed to supporting your needs. If you have any immediate questions, contact your relationship manager or our Customer Information Center at 508.732.3826.

 


Time Period

Expenditures must be made within a “Covered Period” time frame in order to be forgiven. Expenses incurred during the Covered Period are eligible for forgiveness. The Covered Period includes 8 weeks or 24 weeks from the date of the loan disbursement for borrowers to use the funds for payroll and other eligible costs. Borrowers who received PPP funds before June 5 may extend their original Covered Period to 24 weeks, or they may choose to keep their original 8-week period. You can let us know, by making that selection in the Rockland Trust Online Portal. Borrowers who received funds after June 5 have a Covered Period of 24 weeks.

An Alternative Payroll Covered Period may be selected by the Borrower to align to their normal payroll cycle. Alternative Payroll Covered Periods begin on the first day of the next payroll period following the date of the loan disbursement.


Expenditures

Up to 100% of the loan may be forgiven if the employer fulfills specific requirements of the program. The amount of the loan which can be forgiven is based on the aggregate amount spent on the following expenditures.

  1. Payroll costs
  2. Utilities
  3. Rent
  4. Mortgage interest

At a minimum, 60% of the forgiveness amount must be used for payroll costs. Therefore, no more than 40% of loan forgiveness may be associated with mortgage interest, utilities, and/or rent.


Payroll Costs

In order to achieve full loan forgiveness, payroll costs must be at least 60% of the original loan amount. Borrowers may use all the PPP loan funds on payroll costs and still achieve full forgiveness. Forgivable payroll costs include the following expenditures:

  1. Cash compensation, prior to taxes, paid to employees for wages, salary bonuses, commissions, tips and other forms of cash compensation (including housing stipends)
  2. Payments for medical, parental and family leave wages for which credit is allowed under Public Law 116-117
  3. Payments to employees for vacation time
  4. Payments for group health benefits costs and premiums
  5. Amounts paid into retirements by the borrower
  6. Payment of state and local payroll taxes by the borrower
  7. Payments of dismissal or separation allowances

Payroll Cost Exclusions

The following expenditures are not forgivable and are not to be included in loan forgiveness request amounts:

  1. Compensation paid to an employee in excess for an annual salary rate of $100,000
    • The maximum eligible payroll for an individual during a 24-week period is $46,154 and during an 8-week period is $15,385
  2. Compensation paid to non-U.S. residents must be excluded from the Payroll Costs amounts
  3. Payments to independent contractors are not includable in Payroll Costs


Non-Payroll Cost Exclusions

In order to achieve full loan forgiveness, non-payroll costs may not exceed 40% of the forgiveness amount. Forgivable non-payroll costs include the following expenditures:

  1. Utilities expenses associated with service agreements in place prior to February 15, 2020 for electricity, gas, water, transportation, fuel, and phone and internet access
  2. Rent associated with leases that took effect prior to February 15, 2020
  3. Interest expense
    • Mortgage loans existing prior to February 15, 2020
    • Debt on business personal property existing before February 15, 2020

FTE Requirements

The requirements for determination of the forgiveness amount encourage borrowers to maintain levels of employment. Forgiveness is proportionally reduced by reduction in average and full-time equivalent employees (FTE). The forgiveness amount is adjusted by the FTE reduction quotient, which is the ratio of the Covered Period FTE compared to a base reference period FTE. The reference period is the same period used in the PPP Loan Application of:

  1. February 15, 2019 and June 30, 2019; or
  2. January 1, 2020 and February 29, 2020; or
  3. In the case of a seasonal employer, any consecutive twelve-week period between May 1, 2019 and September 15, 2019

If the ratio is greater than one, the borrower has maintained headcount and me the FTE requirement. If the ratio is less than one, forgivable expenses will be reduced proportionately.


FTE Safe Harbor

TThe FTE Safe Harbor provision notes exceptions to the original requirements where forgiveness will not be affected in the following situations:

  1. If an employee is laid off during the Covered Period and is rehired no later than December 31, 2020, borrowers will not be penalized for employees they offer to rehire, but the employee declines the offer
    • The offer and decline must be documented
  2. Forgiveness will not be affected by a reduction in employees if the borrower is able to document its inability:
    • To hire similarly qualified employees or
    • To return to the same level of business activity as it was operating at before February 15, 2020, due to compliance with COVID-19 requirements

Compensation Requirements

The requirements for determination of the forgiveness amount also encourage borrowers to maintain pay levels for all employees. The amount of forgiveness is decreased based on reductions in pay rates for individual employees, other than employees making more than $100,000 annually. The threshold for reductions of compensation is 25% of the employee’s pay rate during the first quarter of 2020.

Forgiveness will be decreased to the extent of an individual employee’s compensation for the Covered Period is reduced by more than the threshold. Borrowers have until 12/31/20 to reinstate all wages to pre-pandemic levels required for full forgiveness.


Loan Forgiveness Limitations

The amount of allowable loan forgiveness is also potentially affected by changes in full time equivalent employment of the borrower and changes in pay rates for employees. These limitations are more complex than can be explained here, so over the coming weeks we will be providing additional information to you.


Sole Proprietors

Forgiveness calculated for sole proprietors includes payroll costs and non-payroll costs similar to other businesses. The primary difference is that owner compensation is determined based on the 2019 IRS Form 1040 Schedule C line 31 net profits, pro-rated for the number of weeks in the Covered Period or Alternative Payroll Covered Period, provided that the owner compensation included in the forgiveness amount cannot exceed an annualized rate of $100,000. In addition, for nonpayroll costs, borrowers must have claimed or be entitled to claim a deduction for such expenses on your 2019 Form 1040 Schedule C for them to be a permissible use during the Covered Period or Alternative Payroll Covered Period.

 


Sole Proprietors without Employees Guidance

In the case that a business has no employees other than the owner,  self-employed individuals are eligible to apply for PPP loans and for forgiveness of the loans. Loan proceeds can be used for owner compensation replacement (limited to $15,385, or 2.5 times average monthly net profits if 2019 IRS Form 1040 Schedule C line 31 net profits are less than $100,000). Nonpayroll costs for self-employed individuals are the same as for other borrowers under the PPP loan forgiveness requirements, which are interest, rent and utilities. Borrowers must have claimed or been entitled to claim such expenses on their 2019 Form 1040 Schedule C for them to be a permissible use during the Covered Period or Alternative Payroll Covered Period. In order for non-payroll costs to be forgiven, they may not exceed 40% of the total loan forgiveness.

Sole Proprietor Compensation included in Forgiveness

For owners and sole proprietors using a 24-week Covered Period, compensation is capped at $20,833 (the 2.5-month equivalent of $100,000 per year) for each individual or the 2.5-month equivalent of their applicable compensation in 2019, whichever is lower.

For owners and sole proprietors using an 8-week Covered Period, compensation is capped at $15,385 (the eight-week equivalent of $100,000 per year) for each individual or the eight-week equivalent of their applicable compensation in 2019, whichever is lower.

 


Documentation Requirements
 
Certification

Borrowers must obtain certification from an authorized representative of the borrower that the documentation provided by the organization is accurate and in good faith.

Payroll Documentation

The following documentation may be used to support the forgiveness request for payroll costs:

  • IRS payroll tax filings
  • Payroll and unemployment insurance filings for your state verifying the number of employees on payroll during the Covered Period or Alternative Payroll Covered Period
  • Documentation supporting health insurance, retirement contributions and other employee benefits included under payroll costs

Non-Payroll Documentation

Borrowers must submit documentation verifying the existence of the obligations/services prior to February 15, 2020 and eligible payments from the Covered Period including:

  • Business mortgage interest payments: Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments from the Covered Period; or lender account statements from February 2020 and the months of the Covered Period through one month after the end of the Covered Period verifying interest amounts and eligible payments.
  • Business rent or lease payments: Copy of current lease agreement and receipts or cancelled checks verifying eligible payments from the Covered Period; or lessor account statements from February 2020 and from the Covered Period through one month after the end of the Covered Period verifying eligible payments.
  • Business Utility Payments: Copy of invoices from February 2020 and those paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments for electricity, gas, water, transportation, fuel and phone and internet access.

 

FTE Documentation

Borrowers are required to submit the following documents to verify their FTE during the Covered Period (if applicable):

  • Documentation showing (if FTE calculation is applicable):
    • The average number of FTE employees on payroll per week employed by the Borrower between February 15, 2019 and June 30, 2019
    • The average number of FTE employees on payroll per week employed by the Borrower between January 1, 2020 and February 29, 2020; or
    • In the case of a seasonal employer, the average number of FTE employees on payroll per week employed by the Borrower between February 15, 2019 and June 30, 2019; between January 1, 2020 and February 29, 2020; or any consecutive twelve-week period between May 1, 2019 and September 15, 2019
  • The selected time period must be the same time period selected for purposes of completing PPP Schedule A, line 11.
  • Documents may include payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941) and state quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state. Documents submitted may cover periods longer than the specified time period.

 

Required Documentation that Borrowers are Required to Maintain for Six Years but are not Required to Submit
  • PPP Schedule A Worksheet or its equivalent and the following:
    • Documentation Supporting the listing of each individual employee in PPP Schedule A Worksheet Table 1, including the “Salary/Hourly Wage Reduction” calculation, if necessary.
    • Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 2; specifically, that each listed employee received during any single pay period in 2019 compensation at an annualized rate of more than $100,000.
    • Documentation regarding any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedule.
    • Documentation supporting the PPP Schedule A Worksheet “FTE Reduction Safe Harbor”
  • All records relating to the Borrower’s PPP loan application, including documentation
    • submitted with its PPP loan application
    • supporting the Borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan
    • necessary to support the Borrower’s loan forgiveness application, and
    • demonstrating the Borrower’s material compliance with PPP requirements
  • The Borrower must retain all such documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.

 

Remaining PPP Loan Balance

Any balance of a PPP loan not forgiven must be repaid by the borrower. Repayment of the remaining balance is over at least 5 years. The interest rate on the loan is 1% and interest accrues from the date of disbursement. Payments begin on the date at which the forgiveness amount is remitted to the lender, or no later than 10 months after the end of the borrower’s Covered Period.

Any pre-existing loans (before the implementation of the Paycheck Protection Flexibility Act) may be amended from the current 2 year maturity to reflect the new 5 year maturity if the lender and borrower mutually agree.

 

Example

The hypothetical example below is provided to illustrate some program requirements.

Assume a business has four U.S. resident employees, three of whom have an annual salary of $52,000 ($1,000 per week for each employee), and one of whom has an annual salary of $156,000 ($3,000 per week).  Assume related benefits costs included in payroll costs amount to $1,500 in aggregate per week for the employees. The business received their PPP loan on April 1, 2020. They have elected to keep their 8-week Covered Period. Their Covered Period concluded on May 27, 2020.

 

paycheck protection program calculator example

 

Assume a business has four U.S. resident employees, three of whom have an annual salary of $52,000 ($1,000 per week for each employee), and one of whom has an annual salary of $156,000 ($3,000 per week).  Assume related benefits costs included in payroll costs amount to $1,500 in aggregate per week for the employees.  The business received their PPP loan on April 3, 2020. Assume the business was unable to operate and pay employees until July 6, 2020 but continued to pay for benefits.  They have elected to extend their Covered Period up to 24 weeks, which now ends on September 18, 2020.

paycheck protection program calculator second example


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