Clarifications on the PPP Loan Forgiveness Application

Please note that this blog is based on laws effective on May 18, 2020 and may not contain later amendments. Please contact Cray Kaiser for most recent information.

This past weekend the Small Business Administration (SBA) released the loan forgiveness application for borrowers who received funds under a Payroll Protection Program (PPP) loan. We are still anticipating formal guidance to be issued in the next few days from the SBA, but the application form itself provides some answers to questions we have been tackling in recent days.

Payroll Costs and Applicable Period

Eligible payroll costs include gross compensation (not including employer payroll taxes) such as the cash compensation paid to employees during either the covered period or an alternative payroll covered period. As a reminder, the covered period starts on the date in which PPP loan funds were first deposited into your bank account and runs for the following consecutive 8-week period (or 56 days). Please note gross compensation cannot exceed $15,385 per individual during the 8-week period. 

The borrower can also choose to elect an alternative payroll covered period. This period would begin on the first day of their first payroll period after the PPP loan disbursement date and would run for the consecutive 8-week period (or 56 days) from the first payroll period.

Once you select either the covered period or alternative payroll covered period you must use it consistently throughout the form. You cannot switch or revert to another period in the computations.

Payroll costs paid and incurred are generally eligible for forgiveness during the 8-week covered period or alternative payroll covered period. To be considered paid, use the date that the paychecks are distributed or the date you originate an ACH credit transaction.

Payroll is considered incurred on the day in which the employee’s pay is earned. You can include eligible payroll costs incurred but not paid through the last pay period of the covered period or alternative payroll covered period if it is paid before the next regular payroll date.

With the allowance of an alternative payroll covered period, employers no longer need to worry about a supplemental or interim payroll to maximize the payroll costs. The flexibility with the payroll costs is a welcome relief to employers.

Finally, please note that employer payments for health insurance and retirement are also included as payroll costs. These amounts are in addition to the gross compensation stated above.

Nonpayroll Costs and Applicable Period

Eligible nonpayroll costs include mortgage interest and rent payments for real or personal property if these obligations were incurred prior to February 15, 2020. Real property is defined as land or buildings and personal property is defined as any other owned property. In addition, utility payments for electricity, gas, water, transportation, telephone, or internet access are eligible if the service began prior to February 15, 2020. These costs must be paid during the covered period or incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period.

Loan Forgiveness Reductions

The PPP loan forgiveness is dependent upon meeting certain thresholds as summarized below. Any deviation from these thresholds may result in a portion of the loan not being forgiven.

  • Nonpayroll costs cannot exceed 25% of the loan amount. Payroll costs need to be at least 75% of loan amount.
  • Full time equivalents (FTE’s) must be maintained and various computations are used to measure this. FTE’s are based upon a 40-hour work week. There are some safe harbors that will allow you to meet this requirement even though you have reductions throughout the covered period or the alternative payroll period such as rehiring by June 30, 2020. There is also an exemption to protect borrowers in the case of employees who are provided a written offer to rehire but decline.
  • Salary/hourly pay must be maintained throughout the covered period or alternative payroll period and must be consistent with the salaries and wages incurred during the period of January 1, 2020 – March 31, 2020. Once again, a June 30, 2020 safe harbor is available if you restore reduced wages by that date.

How and When to Apply for Loan Forgiveness?

You will need to apply no later than October 31, 2020 by completing Form 3508 and submitting the application to the lender servicing your PPP loan. At this point it appears all borrowers will utilize Form 3508 regardless of the size of the loan. However, borrowers receiving greater than $2 million in PPP loan funds will need to check a box on page 1 of the application. The application form includes a loan forgiveness calculation along with supporting schedules and certifications.

Documentation that May be Required

Please refer to the application form for a detailed list of documentation that you will need to submit with the loan application. Your lender may request further documentation, so it’s a good idea to reach out to your lender as you assemble the documentation for your loan forgiveness application.

Other documentation will need to be maintained and available such as employee compensation, salary/wage reduction calculations, FTE safe harbors and employee job offers and refusals. The borrower is required to retain all such documentation for six years after the loan is forgiven or repaid in full as questions or clarifications can be requested by the SBA at any time.

We also suggest documenting the economic uncertainty that you faced that led you to apply for the PPP loan. Although there is a safe harbor available for those entities who received loan funds of less than $2 million, we still believe it is a good practice to have this documentation available. Any entity who received loan funds more than $2 million will want to take care in documenting the economic uncertainty and provide projections and budgets as necessary to further substantiate their claim.

Because the loan forgiveness is a detailed calculation, we created a few workbooks to assist you in this process. Now that the application for loan forgiveness has been published, we will be making further enhancements to our PPP loan forgiveness workbooks including adding a worksheet to help you calculate the salary/hourly wage reduction. As soon as these updated workbooks are available, we will post them on our website. In the meantime, click here to download the current workbooks. Please contact Cray Kaiser at 630-953-4900 if you need further information or assistance in navigating the loan forgiveness application.


These are certainly trying times and we want to reiterate that Cray Kaiser is here for you. As things continue to evolve in light of the COVID-19 pandemic, we at CK are taking additional precautions for the benefit of our team members and our clients.

Effective immediately:

  • No clients or guests will be allowed in our suite.
  • All in-person meetings are cancelled. Instead, we will be utilizing phone calls and/or email to communicate with our clients.
  • Our team members are being encouraged to work remotely. All staff are equipped with the appropriate technology and resources to continue to securely and confidentially serve you from home.
  • We will no longer have in-person drop offs of accounting/tax data. Instead, please drop off any packages outside the office door of our suite in the box provided.
  • All paper files, tax returns etc. will no longer be mailed by our office to you. We will be holding these items in our office to send to you at a later date.


We want to remind our clients of our portal access and your ability to safely and securely share your information with our team. We ask that you email to request your portal access. This will eliminate the need for you to drop off your tax information at our office.


Thank you for your patience and understanding during this challenging time. We wish you, your family, and your business health and safety. We will continue to support you as best as we can while keeping each other’s health a priority. If any changes occur during the course of the next few days, we will update our website.

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