SBA FAQs Regarding PPP Loan Forgiveness

Written by: Kimberly A. Kramer


On August 4, 2020, the SBA published much awaited guidance regarding loan forgiveness.  The following are key points to consider as borrowers complete and file applications for forgiveness:


1.     Only borrowers who received loans prior to June 5, 2020 may elect to use an 8-week covered period.  All other borrowers must use a 24-week covered period.

2.     If a borrower runs payroll bi-weekly or more frequently, eligible payroll costs may be calculated using the first day of the first pay period following disbursement of the PPP loan (“Alternative Payroll Covered Period”). 

3.     All non-payroll costs must be calculated based on the 8 or 24-week period beginning on the date the loan was disbursed even if the borrower is using the Alternative Payroll Covered Period.

4.     Payroll costs include all forms of cash compensation paid to employees including tips, commissions, bonuses, and hazard pay subject to the $100,000 annualized limit. 

5.     Group health benefits accelerated from periods outside of the covered period are not eligible for forgiveness.

6.     If a borrower timely submits its loan forgiveness application (on or before the date falling ten (10) months of the completion of the applicable covered period), no payments on the loan must be made until the forgiveness amount is remitted to the lender by the SBA.


1.     Owner-employees and self-employed individuals’ payroll compensation eligible for forgiveness is capped at $20,833 across all businesses in which he or she has an ownership stake assuming a 24 week covered period ($15,385 if the borrower is using an 8-week covered period). 

2.     C-CorporationsThe cash compensation of an owner-employee of a C-corporation eligible for forgiveness is capped at 2.5/12 of his or her 2019 cash compensation.  State and local taxes paid by the borrower and employer contributions to retirement plans capped at 2.5/12 of the 2019 employer retirement contribution are eligible for forgiveness. 

3.     S-CorporationsThe cash compensation of an S-corporation owner-employee is eligible for forgiveness capped at 2.5/12 of his or her 2019 employee cash compensation.  State and local taxes and employer retirement contributions capped at an amount equal to 2.5/12 of the 2019 employer retirement contribution are eligible for forgiveness.  Employer contributions for health insurance are not eligible for additional forgiveness for S-corporation employees with at least a 2% stake in the businesses, including for employees who are family members of an at least 2% owner. 

4.     Self-Employed Schedule C FilersThe compensation of self-employed individuals eligible for forgiveness is limited to 2.5/12 of 2019 net profit as reported on IRS Form 1040, Schedule C, Line 31.  Payments for health insurance, retirement, or state or local taxes are not eligible for loan forgiveness. 

5.     General PartnersThe compensation of general partners eligible for forgiveness is limited to 2.5/12 of 2019 net earnings from self-employment subject to self-employment tax computed based on 2019 IRS Form 1065 Schedule K-1, Box 14a (reduced by box 12, Section 179 expense deduction) multiplied by 0.9235.  The multiplication by 0.9235 removes the “employer” share of self-employment tax.  Payments for health insurance, retirement, or state or local taxes are not eligible for forgiveness. 


1.     Interest payments on unsecured credit are not eligible for loan forgiveness, but are a permitted use of PPP funds.

2.     Interest payments made under a lease or mortgage loan renewed or refinanced after February 15, 2020 are eligible for forgiveness.

3.     A transportation utility refers to transportation utility fees assessed by state and local governments.  These payments are eligible for forgiveness.


1.     Include all employees, including those who made more than $100,000 in 2019, in calculating Full-Time Reduction Exception in Table 1 of the PPP Schedule A Worksheet.

2.     Calculate the loan forgiveness reduction based on pay reductions as follows:

          a.      Salaried Employees:

                    i.  Multiply the employee’s annual salary prior to the reduction by 0.75 (the “Wage Reduction Threshold”). 

                    ii.  If the Wage Reduction Threshold is equal to or less than the reduced salary, there will be no corresponding forgiveness reduction. 

                    iii.  If the reduced salary is less than this amount, calculate the difference between the Wage Reduction Threshold and the reduced annual salary (the “Excess Salary Reduction”).

                    iv.  Multiply the Excess Salary Reduction by 8 or 24 (depending on borrower’s covered period) and divide this amount by 52 to determine the reduction in loan forgiveness attributable to that employee’s reduction in salary. 

          b.     Hourly Employees:

                    i.  Determine the hourly wage reduction in excess of 25% (the “Excess Wage Reduction”). 

                    ii.  Calculate the average number of hours per week the employee worked during the period from January 1, 2020 and March 31. 2020 (the “Average Weekly Hours”). 

                    iii.  Multiply the Excess Wage Reduction by the Average Weekly Hours to determine the weekly salary reduction.

                    iv.  Multiply the weekly salary reduction by 8 or 24 (depending on the borrower’s covered period).  This is the amount by which the loan funds eligible for forgiveness will be reduced based on this employee’s wage reduction.

          c.      If the borrower applies for forgiveness prior to the end of the 24-week covered period, it must account for any salary/wage reductions during the full 24-week period. 

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