Review PPP loan forgiveness application requirements
About PPP loans
The Paycheck Protection Program (PPP) is administered by the federal Small Business Administration (SBA) and provides COVID-19 relief funding to small businesses as well as individuals who are self-employed or are independent contractors if they meet program size standards.
PPP loans are eligible for full or partial forgiveness if the money was used for qualifying costs including payroll, rent, mortgage interest, utilities, worker protection, supplier costs, operations costs and property damage costs.
On June 3, 2020, Congress passed the PPP Flexibility Act of 2020 (the “Flexibility Act”), which offers businesses more flexibility in qualifying for forgiveness of their PPP loans. Your PPP forgiveness amount depends on how much of the loan was spent on four categories of eligible expenses: payroll costs, business rent, business utilities, and business mortgage interest. This law makes a few important changes to loan forgiveness. You can check the Small Business Administration's PPP website for the latest updates.
Before you begin
You can apply for PPP loan forgiveness on or before the maturity date of the loan, which is 2 or 5 years from the date your loan was originated. You’ll receive an email and Square Dashboard notification with your forgiveness application when it’s ready.
If you received a first and second draw PPP loan, you need to apply for forgiveness for each loan individually. You can check to see if your loan forgiveness applications are ready in Square Dashboard.
It can take up to 60 days for Square to review your complete application and decide your forgiveness amount. We will then submit the forgiveness amount and your application to the SBA for final review. It could take up to 90 days for the SBA to make their final decision. We'll keep you updated by email throughout the entire process. You won't be responsible for repaying your loan while the loan forgiveness decision is pending.
You can edit your application before submitting it for Square Capital’s review. Once your application is submitted, you may be able to edit your application by contacting our support team. Once your application has been reviewed by Square Capital, you won't be able to edit it.
You can cancel your application any time before it’s been reviewed by Square Capital by contacting support. However, you can no longer cancel your application once it has been reviewed by Square Capital.
You aren’t required to start making loan repayments until your forgiveness decision is determined. If you don’t apply for forgiveness, your business will need to start repaying its loan about 16 months after receiving the funds.
If your loan is only partially forgiven, repayment of the remaining balance will begin as early as 15 days after you receive your final forgiveness decision from the SBA. We’ll let you know by email and in Square Dashboard if you have a remaining balance and loan repayment schedule. Generally, repayment of a Round 2 PPP loan begins about 16 months after you received your loan funds.
PPP loans that are not forgiven will have a 1% fixed annual interest rate over the term of the loan, which is either 2 years (any PPP loan made prior to June 5, 2020) or 5 years (any PPP loan made on or after June 5, 2020). Interest will start accruing the day the loan is originated. Repayment will be made with monthly payments, which will be automatically debited from your Square linked account. Repayment is deferred to the date of your loan forgiveness decision. Businesses who choose not to apply for forgiveness must begin making payments within about 16 months of receiving the PPP loan funds.
Determine your loan type
PPP loans are determined by the year they were issued:
If you received a PPP loan in 2020, you have a Round 1 PPP loan.
If you received a PPP loan in 2021, you have a Round 2 PPP loan.
If you received two PPP loans, your first loan is referred to as a “first draw” PPP loan, and second loan is referred to as a “second draw” PPP loan.
For second draw PPP loans, you may need to provide documentation showing that your business had a 25% or greater decrease in revenue between 2019 and 2020, or any quarter of 2019 compared to the same quarter of 2020.
Determine your forgiveness application form
This form is for businesses with loans up to $150,000. This application has fewer calculations and doesn’t require borrowers to submit documents with their forgiveness application. If you’re eligible to use this form, you won’t need to submit documents showing your eligibility for forgiveness with your forgiveness application.
To qualify to use Form 3508EZ, you must answer certain eligibility questions, like whether you decreased your employee headcount or hours during your covered period, whether you decreased employee wages by more than 25% during your covered period, or whether your business was unable to operate at pre-COVID levels due to COVID-related restrictions. If you’re eligible to use this form, you’ll need to provide documentation evidencing that your loan was spent on expenses eligible for forgiveness. However, you won’t need to perform employee headcount or wage reduction calculations that can reduce your eligible forgiveness amount.
Review qualifying forgiveness determinations
For the application you’ll be asked to report payroll and non-payroll costs paid or incurred by your business during your covered period. Based on that information, we’ll let you know if you’re eligible for partial or full forgiveness. If you don’t qualify for full forgiveness yet, you may want to wait until you’ve accumulated more eligible expenses during your covered period in order to maximize your forgiveness amount.
Both Square Capital and the SBA will conduct a review of your qualifying payroll and non-payroll costs. These qualifying costs may get adjusted based on the review of documents you provided in your forgiveness application, if any. Consequently, it is possible that Square Capital or the SBA is only able to verify a subset of the qualifying costs you indicated having been paid or incurred in your application. To minimize the chance that your forgiveness amount gets reduced, make sure to report the exact costs paid or incurred by following directions outlined in your application. Also be sure to provide the required documents confirming these costs. You will be updated throughout the review process and made aware of your verified forgiveness amount.
If you applied for your PPP loan with a Form 940, 941, 944, or W-2, you may be eligible for full forgiveness if:
- Entire loan is used for qualifying costs:
- At least 60% is used for payroll
- And the rest is used for business rent, business utilities, mortgage interest on a business property, operations costs, property damage, supplier costs, or worker protection.
- You either don’t lay off employees or rehire them by the end of your covered period.
- For your employees who make less than $100,000 a year, you either don’t cut their wages by more than 25% or you restore their original wages by the end of your covered period.
- For loans under $50,000, you may still qualify for full forgiveness even if you have reduced your number of employees or decreased salaries and wages.
- For second PPP loans, you can demonstrate that your business had a 25% or greater decrease in revenue between 2019 and 2020, or a quarter of 2019 compared to a quarter of 2020.
You may be eligible for partial forgiveness if:
- Your loan is over $50,000 and you lay off employees, and don’t rehire them by the end of your covered period. If so, your forgiveness amount will be reduced by the percentage decrease in your number of employees. For example, if you lay off 20% of your employees, your forgiveness amount will be reduced by 20%.
- Your loan is over $50,000 and your total compensation for employees who make less than $100,000 a year decreases by 25% or more for each employee, the forgiveness amount the wage decrease exceeding 25%.
If you applied for your PPP loan with a Form 1040 Schedule C, your loan may be fully forgivable if you select a 24-week covered period on your forgiveness application.
If you lay off employees, the forgiveness amount will be reduced by the percentage decrease in your number of employees. If your total payroll expenses on workers making less than $100,000 annually decreases by more than 25%, the loan forgiveness amount will be reduced by the wage decrease exceeding 25%. If you laid off some employees or reduced employees’ wages, you can still be forgiven for the full amount of your payroll cost if you rehire your employees or restore their original wages by the end of your covered period. For loans under $50,000, you may still qualify for full forgiveness even if you have reduced your number of employees or decreased salaries and wages. For second draw loans, regardless of the size of your loan, you will be required to provide evidence that your business revenue decreased by at least 25% between 2019 and 2020.
Review required application documentation
If you’re eligible to use Form 3508S (meaning your PPP loan is $150,000 or less), you won’t need to submit documents showing your forgiveness eligibility with your application. You’re required to maintain documentation showing you used loan funds for eligible purposes for up to four years after you submit your forgiveness application.
If you aren’t eligible to use Form 3508S (meaning your PPP loan is greater than $150,000), you’ll apply for forgiveness using Form 3508EZ or Form 3508. Form 3508 EZ and Form 3508 will require you to submit documentation to verify how you used the PPP loan.
Documentation needed to verify certain business costs is listed below.
- Bank account statements or third-party payroll service provider reports.
- Payroll tax forms such as IRS payroll tax filings, state quarterly business and employee wage reporting, and unemployment insurance tax filings.
- Payroll reports, payment receipts, cancelled checks, or account statements documenting employer contributions to employee health and retirement plans.
- Receipts, canceled checks, or account statements.
- Business mortgage interest: Lender amortization schedule or lender account statements from February 2020 and each month in the covered period.
- Business rent/ lease: Current lease agreement or lessor account statements from February 2020 and each month in the covered period.
- Business utility: Invoices from February 2020 and each month of your covered period.
- Covered operations expenditures: Copy of invoices, orders, or purchase orders paid during the covered period, plus receipts, canceled checks, or account statements verifying those eligible payments.
- Covered property damage costs: Copy of invoices, orders, or purchase orders paid during the covered period, plus receipts, canceled checks, or account statements verifying those eligible payments. You’ll also need documentation that the costs related to property damage, vandalism, and/or looting due to public disturbances in 2020 were not covered by insurance or other compensation.
- Covered supplier costs: Copy of contracts, orders, or purchase orders in effect at any time before the covered period (except for perishable goods). Copy of invoices, orders, or purchase orders paid during the covered period, plus receipts, canceled checks, or account statements verifying those eligible payments.
- Covered worker protection expenditures: Copy of invoices, orders, or purchase orders paid during the covered period, plus receipts, canceled checks, or account statements verifying those eligible payments. You’ll also need documentation that the expenditures were used to comply with applicable COVID-19 guidance during the covered period.
Documentation is required showing that your business had a 25% or greater decrease in revenue between 2019 and 2020, or any quarter of 2019 compared to the same quarter of 2020. In order for us to verify this information, you will have to submit supporting documentation:
- Annual statements: 2019 Form 944 and 2020 Form 944; or 2019 Schedule C and 2020 Schedule C (Form 1040).
- Quarterly statements: Form 941s from 2019 and 2020 (preferred), quarterly financial statements or bank statements.
Adjust requested forgiveness amount
You must adjust your requested loan forgiveness amount if you had reductions in either full-time equivalent employees, or employee salary and wages, and:
Your PPP loan was above $50,000; or
Your loan is over $150,000, but you don’t qualify to use Form 3508EZ; or
Your PPP loan was $50,000 or less, but with your affiliates you received first or second PPP loans totalling $2 million or more
You’re not subject to any reductions if you or an authorized representative can attest:
If you restored salary/hourly wage levels by the end of your covered period, you may be eligible for elimination of the salary/hourly wage reduction amount. See the safe harbor calculation under step 2 below; or
You didn't reduce annual salaries or hourly wages of any employee by more than 25% during the covered period compared to the most recent full quarter before the covered period; and either
You did not reduce annual salaries or hourly wages of any employee by more than 25% during the covered period compared to the most recent full quarter before the covered period; and either
You were unable to operate during the covered period at the same level of business activity as before February 15, 2020, due to compliance with pandemic-related guidance issued March 1 to December 31, 2020 (or March 1, 2020 and the last day of the covered period for PPP loans made on or after December 27, 2020), by the Health and Human Services (HHS), the Centers for Disease Control and Prevention (CDC), or the Occupational Safety and Health Administration (OSHA).
If you don't satisfy these requirements, and are potentially subject to forgiveness reductions, you must follow the SBA Form 3508 instructions to calculate your requested loan forgiveness amount.
If you are completing the form 3508S, you will not be required to submit any related documentation with your forgiveness, but the SBA may request information and documents to review those calculations during an audit.
Calculate wage reductions
Your loan forgiveness amount may be reduced, depending on whether the salary or hourly wages of certain employees during your selected covered period were less than 75% of what they were the most recent full quarter before your selected covered period. If you restored wage levels, you may be eligible for elimination of the reduction amount.
Follow these steps for each employee separately and add the information to the PPP Forgiveness Form 3508 Schedule A worksheet.
Divide the employee’s average annual salary/hourly wage during your covered period by what it was during the most recent full quarter before your covered period. If the number is .75 or more, then no reduction is applied. If the number is less than .75, continue to step 2.
If the employee’s average annual salary/hourly wage was reduced by more than 25%, you can see if the requirements are met for the safe harbor. If so, no reduction is applied.
Safe harbor is met if the average annual salary/hourly wage from February 15 to April 26, 2020 was greater than or equal to what it was on February 15, 2020 or the average annual salary/hourly wage as of December 31, 2020 (for loans made before December 27, 2020) or the last day of your covered period (for loans made after December 27, 2020) is greater than or equal to what it was on February 15, 2020.
Safe harbor isn’t met if the average annual salary/hourly wage from February 15 to April 26, 2020 was less than what it was on February 15, 2020 or the average annual salary/hourly wage as of December 31, 2020 (for loans made before December 27, 2020) or the last day of your covered period (for loans made after December 27, 2020) is less than what it was on February 15, 2020.
If safe harbor is not met, continue to step 3.
If the salary was reduced by more than 25% and safe harbor was not met, you need to calculate the wage reduction amount.
- Multiply the employee’s average annual salary/hourly wage during the most recent full quarter before your covered period by 0.75.
- Take that total and subtract the employee’s average salary/hourly wage from your selected covered period.
- For hourly employees, multiply that total by the average number of hours worked by the employee during the most recent full quarter before your covered period. Then multiply that number by the number of weeks in your covered period.
- For salaried employees, multiply the amount in part 2 of step 3 by the number of covered period weeks and then divide that number by 52.
Calculate full time equivalency (FTE)
If you fall into any of the three following categories, you do not need to reduce your forgiveness amount by the FTE reduction:
- No reduction in employees or average paid hours: If you have not reduced the number of employees or the average paid hours of your employees between January 1, 2020 and the end of your covered period.
- FTE reduction safe harbor 1: If you were unable to operate between February 15, 2020, and the end of your covered period at the same level of business activity as before February 15, 2020 due to compliance with pandemic-related guidance issued March 1 to December 31, 2020 for loans issued in 2020 or March 1, 2020 to the end of your covered period for PPP loans issued in 2021, by the Health and Human Services (HHS), the Centers for Disease Control and Prevention (CDC), or the Occupational Safety and Health Administration (OSHA).
- FTE reduction safe harbor 2: If you satisfy FTE reduction safe harbor 2 (see below).
For safe harbor type 2, follow these steps:
- Calculate your average FTE between February 15, 2020 and April 26, 2020.
- Calculate your FTE for the pay period that included February 15, 2020.
- If your FTE for the pay period including February 15, 2020 was greater than your average FTE between February 15 to April 26, 2020 keep going. If not, you’re ineligible for this FTE reduction safe harbor.
- Calculate your total FTE as of December 31, 2020 (if you received your loan during 2020) or as of the end of your covered period (if you received your loan in 2021)
- If your FTE in step 4 is greater than or equal to step 2, you qualify for the FTE reduction safe harbor 2, and you do not need to reduce your forgiveness amount by the FTE reduction quotient. If your FTE in step 4 is less than step 2, you do not qualify for the FTE reduction safe harbor 2, and you must reduce your forgiveness amount by the FTE reduction quotient.
You do not need to include an individual in your FTE reduction calculation if:
- They were an employee on February 15, 2020, whose employment was subsequently terminated;
- You made a good-faith, written offer to rehire the individual; and
- You were unable to hire similarly qualified employees for unfilled positions before (a) December 31, 2020 if you received your PPP loans in 2020, or (b) the last day of your covered period, if you received your loan in 2021;
- Any employees for which you made a good-faith, written offer to restore any reduction in hours, at the same salary or wages, during your covered period and the employee rejected the offer;
- Any employees who during your covered period:
- Were fired for cause;
- Voluntarily resigned; or
- Voluntarily requested and received a reduction of their hours.
In all of these cases, only exclude these employees from the FTE reduction calculation if the position was not filled by a new employee.
FTE is a representation of the average hours worked per week by each employee. Make sure you use the same method for all employees.
The simple method: Enter 1.0 for full-time employees and 0.5 for part-time employees.
- 40+ hours/week 1.0 FTE
- Less than 40 hours/week 0.5 FTE
The rounded method: Divide the average number of hours worked per week by 40 and round to the nearest 10th. The maximum for an individual is 1.0 FTE.
- 40+ hours/week 1.0 FTE
- 30 hours/week 0.8 FTE
- 15 hours/week 0.4 FTE
Your loan forgiveness amount may be reduced if your FTE was reduced during your covered period as compared to your chosen reference period.
Choose a reference period:
- February 15, 2019 to June 30, 2019
- January 1, 2020 to February 29, 2020; or
- If you are a seasonal employer, any consecutive 12-week period between : February 15, 2019 and February 15, 2020
- Using the simple or rounded method, add up your average FTE during your reference period.
- Using the simple or rounded method, add your average FTE during your covered period.
- Divide your average FTE during your covered period by your average FTE during your reference period. This value (should be less than 1) is your FTE reduction quotient.
- You must multiply the amount you are applying for forgiveness by your FTE reduction quotient, unless you fall into one of the FTE reduction safe harbors listed above.