Client Alerts Paycheck Protection Program: Additional Money, Loan Forgiveness and Other Guidance

04.23.20 | By: Frank L. Washelesky

The Senate has approved the Paycheck Protection Program and Health Care Enhancement Act which provides an additional $310 billion of funding for the Paycheck Protection Program loan program along with $60 billion for additional disaster relief loans and grants.  The House is expected to approve the Act and the President is expected to sign into law today.

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The Senate has approved the Paycheck Protection Program and Health Care Enhancement Act which provides an additional $310 billion of funding for the Paycheck Protection Program loan program along with $60 billion for additional disaster relief loans and grants.  The House is expected to approve the Act and the President is expected to sign into law today.

For the many businesses that applied to these programs, but were not funded out of the initial money, we strongly urge you to follow up with your bank now to ensure that the application is complete and will be processed as soon as possible.


For businesses that have received Paycheck Protection Program (PPP) loans, it is now important to understand the requirements for forgiveness.  Unfortunately, there is little if any guidance available at this time and the rules are complex. The summary below is our interpretation of the rules at this time.  This interpretation does not account for all of the nuances in the requirements, but is meant to provide an overview of the rules and best practices for record keeping.

General Rules
The eight-week period for determining forgivable expenses begins on the date that the loan is funded.

Qualified payroll costs must be 75% of the total forgivable expenses. In other words, other qualified expenses will be limited to one-third of your qualified payroll costs in determining the amount that can be forgiven.

The amount of the loan that is forgiven is not Federal taxable income.  However, it is unclear if the forgiven costs will be deductible or how the various states will treat these items.

Qualified Payroll Costs
The major payroll costs that qualify for forgiveness include:

  • Cash compensation to employees (salaries, wages, commissions, tips, vacation pay, family leave and sick time) paid during the eight-week period are deductible up to $15,385 per person;
  • The employer portion of group health care benefits; and
  • Payment of any retirement benefits.

There remains a question as to whether the payroll costs must be incurred during the eight-week period, paid during the eight-week period, or both.

There is also a question as to whether the forgiveness will be based on gross payroll (subject to the limitation described above) or net payroll after taxes.  We believe that gross payroll is appropriate, but further guidance is expected which may change this analysis.

Other Qualified Costs
Other costs that qualify for forgiveness include:

  • Payment on any rent obligation under a lease agreement in force before February 15, 2020;
  • Payments of interest on any mortgage obligation incurred before February 15, 2020; and
  • Utility payments for electricity, gas, water, transportation, telephone or Internet access for which service began before February 15, 2020.

Lease payments seem to include both real property rentals and personal property rentals (i.e., copiers and office equipment, vehicles, etc.).  However, we do not believe capital leases will qualify.

Home office expenses do not qualify. It is unclear whether the reimbursement of a remote employee’s telephone or Internet expenses will qualify at this time. 

It is also unclear as to what transportation payments would be allowable.

Reduction of the Loan Forgiveness Amount
Even if the loan proceeds are used for forgivable expenses, the total amount forgiven will be reduced if your full-time equivalent (FTE) employee headcount is reduced.

A fraction must be calculated as follows:

Numerator:     Average number of FTEs per month employed during the eight-week period.

Denominator:     The lesser of the average number of FTEs per month employed (i) during the period beginning on February 15, 2019 and ending on June 30, 2019, or (ii) the period beginning on January 1, 2020 and ending on February 29, 2020.

If this fraction is less than one, forgivable expenses will be reduced proportionately. 

This reduction can be avoided if the FTEs as of June 30, 2020 are restored to the level of FTEs as of February 15, 2020.

There is an additional reduction if retained employees making less than $100,000 see a drop in pay of 25% or more. This calculation is done on an employee-by-employee basis.  There is also a mechanism to avoid this reduction by restoring the impacted employees to their previous wage levels by June 30, 2020.

Record Keeping and Reporting
We highly recommend that the loan funds only be utilized for covered expenses during the forgiveness period. To prove that the funds were used appropriately and ease the reporting and support of the forgiveness amount later, we recommend that a separate bank account be used if possible.  As eligible expenses are paid, funds can be moved from the separate account to the operating account.

To prepare for the necessary reporting, a borrower should track the following:

  • Detail the number of FTEs during the appropriate periods discussed above; and
  • Document all eligible payroll costs and other qualified costs. This documentation may include payroll records, proof of payments made and supporting invoices or leases.


The CARES Act also provides for the deferral of the 6.2% employer portion of social security taxes that would otherwise be due during the period beginning on March 27, 2020 and ending on December 31, 2020. Initially, it was believed that this deferral was not allowed for employers that received a PPP loan.  However, in a recent notice, the Treasury has made it clear that an employer can defer these taxes until the PPP loan is partially or completely forgiven.  This could allow an employer to defer four months or more of these taxes from March 27 through the eight-week period and then through the time it takes for the bank to calculate and verify the forgiveness amount.

One-half of the amount deferred is due December 31, 2021 and the remainder is due December 31, 2022.

Related Read: Update: Paycheck Protection Program Rules Clarified

Your ORBA advisor is available to assist you through this complex process. If you have questions regarding this Client Alert or if we can be of assistance in helping you through the application or forgiveness process, please contact Frank Washelesky at [email protected] or your ORBA advisor.

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