Treasury Releases New Guidelines for PPP Loan Forgiveness

Last week, the IRS released the application for PPP loan forgiveness, one of the central pillars of Congress’s $2 trillion stimulus package, which rolled out in late March. Though a crucial lifeline for many small businesses during the coronavirus crisis, the Paycheck Protection Program has largely been defined by poor execution and muddled rules regarding who qualifies and how the program even works. 

The headline benefit of PPP loans is that they are eligible for 100-percent forgiveness — essentially turning them into grants — so long as employers use their loan to retain employees, but the details surrounding just how that process will work has been unclear. The Treasury released new guidelines in an effort to clarify requirements, but according to an article in Inc. published Tuesday, many business owners are still in the dark.

While the forgiveness calculations are “pretty clear” for business owners who spent at least 75 percent of their loan on payroll and managed to keep or call back all of their employees, the situation is more difficult for businesses who resorted to layoffs.

Depending on how much of a loan was used toward payroll, some business owners who laid off employees may still be able to receive partial forgiveness.

If you use 60 percent of the loan for payroll, for example, and 40 percent for rent, you've violated the requirement that you use at least 75 percent of the loan for payroll. The loan application makes it clear that you can still get forgiveness for most of the loan.

Timing is also an issue of uncertainty for many business owners. Payments on PPP loans are deferred by six months, and it’s not entirely clear how loan forgiveness aligns with payroll dates.

One of the most common questions about the paycheck protection program is a relatively simple bookkeeping challenge. To get the loan forgiven, business owners have 8 weeks from the time they get the money to use 75 percent of it on payroll. If the money comes in on May 10, for example, and biweekly payroll is run May 14, can the entire payroll be counted toward forgiveness? Or just four days' worth? Treasury says business owners can choose an "alternate covered period" that lines up with their payroll dates, rather than counting a strict eight weeks from when the loan money showed up.

The Treasury’s latest guidelines for PPP loan forgiveness were released on May 22, but given the piecemeal rollout of the program and guidance over the past two months, we’re likely to see more tweaks and clarifications in the coming weeks.

Read more at inc.com.