On May 15th the SBA issued Form 3508 "Loan Forgiveness Application" as well as instructions on what constitutes forgiveness. Here are the highlights. Please consult your accountant should you need further clarification.

  1. You have 8 weeks from the day you receive the funds to spend the money in order for it to be forgiven. If you are running bi-weekly or more frequent payroll, you can start your 8 weeks on first pay date after you received money.
  2. At least 75% of the amount received must be used for payroll. 25% can be used for utilities, rent, and mortgage interest. 
  3. Utilities, rent, and mortgage interest payments must have been in service before February 15, 2020.
  4. Utilities include electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020
  5. "Payroll costs" is a formula of compensation + employer provided health insurance + employer provided retirement + employer state and local taxes.
  6. Compensation for payroll calculation includes gross wages, bonuses, commissions, vacation pay, etc. Anything that would go on a W-2 as wages.
  7. The maximum amount per person that will count towards compensation is $15,385 ($100,000 * 8/52). 
  8. For self employed individuals and partnerships - "payroll" for owners will be 8/52 of their 2019 self employment income, with a limit of $100,000. The max per self employed individual during this time is $15,385
  9. Forgiveness will be reduced if 75% is not used for payroll, if you reduce the size of your workforce in comparison to the number of employees you had from Jan 1, 2020 to Feb 29, 2020, or if compensation was reduced by more than 75% per person.. You can hire back employees up until June 30. Also if an employee leaves on their own or does not want to be rehired you can exclude them from the reduction calculation. Please see Form 3508 for detailed instructions.
  10. We do not believe you need to have a separate bank account for the loan forgiveness expenses. We believe you will need to show the bank payroll reports and receipts in order for the loan to be forgiven.
  11. IRS Notice 2020-32 states that all expenses that are forgiven are not deductible for tax purposes. 
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