The last 2 days we have discussed how the PPP Loan Forgiveness application works focused on the calculations that could reduce the loan forgiveness amount. Recall that Test #1 is the Salary reduction test and Test #2 is the FTE reduction test. The Salary reduction test is a per employee calculation and data needs to be gathered for multiple time periods.
Without going into too much detail, I will go through how these calculations lead you to your ultimate PPP loan forgiveness amount. The two tests allow you to complete the Worksheet for Schedule A (page 9 of the application.) You use this worksheet to complete Schedule A (page 6 of the application.) I won't go into all the details on Schedule A, but once you finish Schedule A you will have your total payroll costs and your total salary wage reduction and FTE reduction quotient that were calculated during Test #1 and Test #2. Recall that payroll costs include salaries, wages, commissions, bonus, employer paid group health insurance and group retirement plans, and employer paid state unemployment insurance (SUI.) Now you are ready to complete the main calculation form (page 3 of the application.) This is where you add in all nonpayroll costs - rents, mortgage interest payments, and utility payments. See our EDGe blog for more information on the details of nonpayroll costs. There are 3 potential forgiveness amounts - the lowest of these 3 will be your forgiveness amount: 1) PPP Loan Amount 2) Total Payroll and nonpayroll costs during the covered period (or alternative covered period) adjusted for the 2 tests (Salary reduction and FTE reduction.) 3) Total Payroll Costs / .75 (this is to make sure that at least 75% of loan forgiveness was used for payroll costs.) Let's go through an example: You received a $45,000 PPP loan Your total payroll costs for the 8 week period were $50,000 Your total nonpayroll costs for the 8 week period were $5,000 Test #1 (Salary reduction) totalled a $5,000 reduction for all employees Test #2 (FTE reduction) gave you a .67 quotient (you had 3 FTE before the 8 week period and 2 during the 8 week period.) Your potential forgiveness amounts are: 1) $45,000 PPP Loan Amount 2) $33,500 ($55,000 - $5,000 (Salary test) * .67 (FTE test)) 3) $66,667 ($50,000 / .75) Take the lowest of the 3 amounts so your forgiveness amount will be $33,500. This means you will have a $11,500 2 year 1% loan with payments deferred for 6 months. You can choose to pay back the remaining amount to your bank anytime (no prepayment penalty.) Note that interest does continue to accrue. That was fun! You know an application is complex when it takes 3 emails to discuss the form. There are many parts of the form I did not go into detail on to spare your sanity. There are still many open questions that the SBA will be issuing guidance on soon (hopefully.) Rest assured, the EDGe team is reviewing this application and guidance closely and we will continue to provide updates and clarifications. There are many more details on how this application works (assuming it doesn't change) that I will cover in future emails. The EDGe team of experts now offers PPP loan forgiveness tracking for your business. If you need to talk through specific options for your business, Molly, Paula, and I are here to help. Schedule a 30 minute consultation via Zoom where we will discuss your specific business situation for only $49. If you have any questions, feel free to reach out to any of us. And keep checking our emails, blog, and social media for updates.
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