For over a year I’ve been answering the question, “when should we apply for PPP Loan Forgiveness?” And for over a year I’ve been responding, “not yet; there’s still so much that’s up in the air” — as AICPA (thankfully) recommended we wait for legislation from Congress as well as guidance from both the SBA and IRS.

Well, on June 24th, they gave us the green light in the AICPA Town Hall Series. Lisa Simpson said that if you have worked out the interplay between PPP and the Employee Retention Credit (ERC), then you should go ahead and apply.

This means that if you are a sole proprietor or partnership and have no employees, you are ready to apply (since ERC is only an issue if you have W-2 employees or are a W-2 employee of your own company). See my recent blog post for easy instructions.

It also means that if you do have employees (or are an employee yourself), but you know that your company does not qualify for ERC, you are ready to apply. You’re in the right place — see below for instructions.

(Of course, this means that if you qualify for ERC and haven’t worked out the interplay yet, you should consider holding off for now — consider using my recommended approach to moving forward with PPP Forgiveness without jeopardizing ERC, highlighted in a recent blog post.)

So… now what?

For borrowers of $150k or less who had no wage or FTE reductions, or who qualify for a safe harbor/exemption:

• Because your loan was for $150k or lower, you qualify to file the easiest PPP Forgiveness form: 3508S. Please make sure your lender allows you to use this approach.
• For reference, here is the forgiveness application form – but most lenders will have you actually apply through their own loan portal, which will walk you through the process. Just be clear that you are a self-employed individual with no employees, that your loan was $150k or less, and so you qualify for Form 3508S.
• If your loan is for $50k or less, you do not have to worry about any wage or FTE reductions — you qualify for an automatic exemption.
• Please read through this Form 3508S Step-by-Step guide before beginning the process at your lender’s portal, as the questions you will be asked mirror the actual application.
• Some important tips when going through the process:
  • Have your original PPP loan application and loan documents handy so you can make sure the info on your forgiveness application matches it exactly (legal name, DBA, address, NAICS code, EIN/SSN, loan number, number of employees at time of loan application).
  • Reminder: number of employees at time of loan application and forgiveness application are both simple head-counts, not FTEs or full- vs. part-time or anything else.
  • Covered Period is the date you received the funds through 24 weeks later, unless you determined a shorter period would be advantageous.
  • Amount of Loan Spent on Payroll Costs should not be any higher than the minimum needed for forgiveness.
  • Requested Loan Forgiveness Amount should be the exact full total of your PPP Loan.
  • There is nowhere on the application to note the amount spent on non-payroll costs; this understandably confuses many people. Just make sure the “Amount of Loan Spent on Payroll Costs” is at least 60% of the loan, and the “Requested Loan Forgiveness Amount” is the full amount, and they will assume that the difference was spent on non-payroll costs. Keep backup documentation in case of audit.
  • There is no SBA requirement for backup documentation of payroll or non-payroll costs for loans $150k or less. Most lender portals will have a screen with the ability to upload documents, but this is supposed to be optional. Some lenders may insist on it, however.

In order to qualify to fill out this simpler form (rather than the full Form 3508), you must not have reduced any employee’s wages by more than 75% or significantly cut their hours. (Unless, as I mentioned above, your loan is for $50k or less.) If there is any concern that you might not have fulfilled these “wage reduction” or “FTE (full-time equivalent)” tests, or that you do not meet a safe harbor or exemption for them, we strongly suggest working with a trusted advisor to prepare your PPP Forgiveness application, as it gets extremely complicated. Our approach, to be safe, has been to download the free Form 3508 PPP Forgiveness Calculator from the AICPA, regardless of which form you qualify to submit, so as to run all the numbers for the wage reduction test, and fill out the information to see if you are exempt from the FTE test or not. (If you are not exempt, the AICPA also offers a free FTE calculator.) We then suggest you retain these files as backup in case of audit, even if you end up passing all the tests and qualifying to submit a simpler form than the full 3508.