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PPP Loan Forgiveness: What We Know Now

Last updated: June 29, 2020- Commonly asked PPP loan forgiveness questions

We recently hosted a digital AMA (ask me anything) event where we fielded questions from businesses related to PPP loan forgiveness. We’ve shared below the most common questions asked by our sellers, as well as our responses, to help keep you up to speed with the latest information we have. You can also read through the entire list of questions and answers on the Square Seller Community.

Question: When will your PPP loan forgiveness application be ready for us to complete?

Answer: We’re working on an easy loan forgiveness application and will notify you by email and in the Square Dashboard when it’s ready. No action is needed from you right now for loan forgiveness. You don’t need to fill out the application on the SBA website and submit it to us, and you don’t have to send us any documents yet.

Question: I am an independent contractor who uses a single household checking account only. No payroll account or separate business account. How do I document that my PPP loan was used for ‘payroll’?

Answer: As an independent contractor, sole proprietor, or self-employed individual, if your covered period is eight weeks, you get eight weeks of your 2019 net profit (as reported on your Form 1040 Schedule C) forgiven, capped at $15,385 per individual. If your covered period is 24 weeks, you get 2.5 months of your 2019 net profit (as reported on your Form 1040 Schedule C) forgiven, capped at $20,833 per individual. This is called the Owner Compensation Replacement and was recently introduced by the SBA. To get your remaining PPP funds forgiven, you will need to spend it on business utilities, rent, and mortgage interest expenses (to the extent such expenses are deductible on your Form 1040 Schedule C). Telephone and internet bills are considered utilities costs. Other types of expenses appear to be ineligible for forgiveness at this time. Make sure to keep your documents showing your payments for these expenses during the covered period.

Question: I have a sole proprietorship and received the PPP. When I was offered the loan it gave me two amounts. One smaller and one bigger. I chose the smaller amount as it said it did not have to be repaid. Is this true?

Answer: If you chose the smaller amount, it is likely that most, if not all, of this amount will be eligible forgiveness when you apply.

For PPP forgiveness, “owner compensation replacement” counts as an eligible payroll cost, because - in effect - you are paying yourself by replacing the net profits that your business would otherwise have earned without the crisis. If you had the choice between two loan sizes and you chose the smaller one, then your loan size was equal to 8 weeks of your business’s 2019 net profits, which is the cap on owner compensation replacement. As a result, 100% of your loan proceeds will be considered a payroll cost and the entire loan amount should be eligible for forgiveness, regardless of what you spend the money on. Please note that you still need to submit a forgiveness application through Square Capital in order to get the loan forgiven, but we will know ahead of time that this was the case and set up your application appropriately. Watch out for an email and an update to your Square Dashboard for when the forgiveness application is ready.

Question: Do I have to use an official payroll system (like Quickbooks) to pay myself instead of transfers between my business and personal bank accounts (which is how I currently pay myself)?

Answer: You do not need an official payroll system to be eligible for forgiveness. If you are an independent contractor, sole proprietor, or self-employed, you do not need to show transfers between your business and personal bank accounts for your payroll costs to be eligible for forgiveness. For PPP forgiveness, “owner compensation replacement” counts as an eligible payroll cost, because - in effect - you are paying yourself by replacing the net profits that your business would otherwise have earned without the crisis.

If you choose the 8-week covered period, then your “owner compensation replacement” will equal 8 weeks worth (8/52) of your 2019 net profit, capped at $15,385. If you choose the 24-week covered period (or received your loan after June 5, 2020), then your “owner compensation replacement” will equal 2.5 months worth (2.5/12) of your 2019 net profit, capped at $20,833. You do not need to show documentation of how you spent these funds, just that you had this net profit in 2019 (e.g., with a 2019 Form 1040 Schedule C).

If your loan proceeds exceed the above amounts for “owner compensation replacement”, you will need to show documentation that the excess was spent on eligible non-payroll costs (business mortgage interest, business utilities, business rent) in order for it to be eligible for forgiveness. Such non-payroll costs must be deductible on your Form 1040 Schedule C.

Question: Where do I submit documentation for PPP forgiveness and what documents are required?

Answer: Square Capital is working on an easy way to upload documents and calculate how much of your loan is eligible for forgiveness. We will notify you as soon as it is ready through email and your Square Dashboard in the next few weeks. In the meantime, no action is needed from you right now for loan forgiveness. You don’t need to fill out the application on the SBA website and submit it to us, and you don’t have to send us any documents. You can start collecting documents you’ll need to apply for forgiveness. These documents may include:

Documents and receipts that prove how you spent the funds such as:

Payroll costs:

  • Bank account statements or third-party payroll service provider reports.
  • Tax forms such as IRS payroll tax filings and state quarterly business and employee wage reporting and unemployment insurance tax filings.
  • Payment receipts, cancelled checks, or account statements documenting employer contributions to employee health insurance and retirement plans.

Non-payroll Costs: -receipts, cancelled checks, or account statements for all categories, and additionally:

  • Business Mortgage: lender amortization schedule
  • Business rent/lease: current lease agreement
  • Business utility: invoices from February 2020 and covered period.
  • Full-time equivalent (“FTE”) Documentation showing average employees during your chosen reference period (or between January 1, 2020 and the end of your Covered Period) such as payroll tax filings (e.g. Form 941), state quarterly business and individual employee wage reporting and unemployment insurance tax filings.

Question: Is it true that the timeline has been changed from 8 weeks to 24 weeks to use the PPP money?

Answer: Yes. If you received your loan before June 5, 2020, you can now elect between a covered period of 8 weeks or 24 weeks from the day you received your funds to spend on expenses eligible for forgiveness. If you received your loan after June 5, 2020, you have 24 weeks to spend your funds on expenses eligible for forgiveness.

You also have until the earlier of December 31, 2020 or the date your loan forgiveness application is submitted to rehire staff and return wages to 75% of pre-crisis levels to maximize your forgiveness amount. You can also spend up to 40% of your loan on eligible non-payroll costs, up from 25% previously, and still have the full loan forgiven. The updates to the safe harbor deadline and the non-payroll cost percentage apply to all PPP loans, including those issued before the new rules went into effect.

Question: Why is the EIDL grant being deducted from the forgiveness amount on the PPP loan?

Answer: If you received both an EIDL advance and a PPP loan, the CARES Act specifies that the EIDL advance will be deducted from your PPP loan forgiveness amount. For example, if you receive a $5,000 EIDL advance and a $15,000 PPP loan, only $10,000 of your PPP loan is eligible for forgiveness. Your EIDL advance does not need to be repaid.

Question: I just received PUA unemployment and I also got the PPP loan. Was that ok and is my loan still forgivable?

Answer: You’re able to apply for either the PPP or unemployment, but you cannot have both. If you choose to keep your PPP loan, you must withdraw from receiving unemployment benefits.

Question: Can 100% of the loan be used to pay for payroll? What is the maximum that can be used toward payroll?

Answer: Yes, you can use 100% of your PPP loan for payroll costs and have the loan be fully forgiven. A minimum of 60% of your loan amount must go to payroll costs in order to qualify for full forgiveness.

Question: Does PPP forgiveness apply to new employees?

Answer: Yes. If you have reduced your headcount, you can either rehire the same employees or hire new employees to get back to pre-crisis staffing levels to be eligible for full forgiveness. You will need to get back to the same pre-crisis headcount levels by the earlier of December 31, 2020 or the date your loan forgiveness application is submitted to be eligible for full forgiveness.

Question: Will Square help with needed proof of PPP if we use Square for Payroll?

Answer: Yes, we plan to generate a PPP Forgiveness Report that details eligible payroll costs over the chosen loan forgiveness period. We also plan to help calculate your Full-Time Equivalency (FTE) and Salary/Hourly Wage Reductions. Note this functionality may not be immediately available when the Square forgiveness application first becomes available. This will be in addition to the tax filings we complete on your behalf and other custom reports we provide.

Question: What is the PPP lender loan number? I don’t see it anywhere and it was one of the questions on the SBA’s forgiveness form. Where can I find this information?

Answer: We will automatically include the PPP lender number in your forgiveness application when it’s available for you to fill out. We’re working on an easy loan forgiveness application and will notify you by email and in the Square Dashboard when it’s ready in the next few weeks. No action is needed from you right now for loan forgiveness. You don’t need to fill out the application on the SBA website and submit it to us, and you don’t have to send us any documents yet.


The Flexibility Act: Key changes in forgiveness

Last updated: 6/8/20- Quick recap of the Flexibility Act, and what it means for you.

On June 3, 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 new law makes a few important changes to forgiveness. We’ve highlighted a few below, but you can always check out the SBA’s PPP website for the latest updates.

  • More time to spend on eligible expenses: Businesses now have up to 24 weeks (up from the previous 8 weeks) from the day they received to spend the funds on expenses eligible for forgiveness. The final date you can spend your funds and still be eligible for forgiveness is December 31, 2020.

  • More time to rehire employees or to restore their wage levels: Your forgiveness amount may be affected if you had to cut wages by more than 25% or let go of your staff. The new rules give businesses until December 31, 2020, to rehire staff and return wages to 75% of pre-crisis levels to maximize their Forgiveness Amount, which is an extension of the original June 30 deadline.

  • More spending flexibility: Businesses can now spend up to 40% (up from 25%) on eligible non-payroll expenses (rent, utilities, or mortgage interest for your business), and have these amounts forgiven.

  • A different time horizon before payments are due: Under the new rules of the Flexibility Act, businesses aren’t required to start making payments until their forgiveness decision is determined. Additionally, businesses must begin making payments if they do not apply for forgiveness within about 16 months of receiving the funds. (Before this new Act was passed, forgiveness included a six-month repayment holiday for everyone, where payments were not due for six months.) Heads-up: This means that if you do not receive full forgiveness of your PPP loan, your payments will become due shortly after receiving your forgiveness decision, which could be earlier than 6 months, depending on when you submit your forgiveness application.

What this means for you: If you already have a PPP loan

Hopefully, these rules offer more flexibility in spending your PPP funds on what’s right for you and your business. Because you’re only able to apply for forgiveness once, and your repayment obligations begin when you receive the forgiveness decision, you may want to wait to apply until the end of the 24-week period after you received the loan or you have reached the maximum amount that can be forgiven. For example, if you plan on spending the proceeds on payroll within the year, you may want to wait to apply until your eligible payroll costs meet your loan amount.

If you received your PPP loan through Square Capital, we’re working on an application that makes it easy for you to apply for loan forgiveness. After you submit the application, we’ll modify your loan balance automatically. You’ll be notified by email and your Square Dashboard with the forgiveness application when it is ready.

In the meantime, please track your expenses carefully, paying special attention to the documents listed on page 10 of the SBA form. You don’t need to send us a completed hard copy of the SBA’s PDF form or documents right now.

What this means for you: If you haven’t applied yet

Is a PPP loan now the right fit for your business? You can still apply with a PPP lender. Legally, the last day the SBA will approve PPP applications is June 30. However, because time is needed to review applications before making a decision, most lenders will likely stop taking applications before June 30.

Applications through Square Capital must be fully submitted by the evening of June 23. Eligible customers can find the application on the Capital section of their Square Dashboard. Check out our PPP FAQ to learn what you need to apply.

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