The Small Business Administration released the Paycheck Protection Program (PPP)  Forgiveness Application last week on May 15th (a Friday after the close of business).  We provided a summary of the application HERE and hosted a webinar last week to answer your questions about the application.  You can download and view the Webinar HERE.

Last night the SBA released two new Interim Final Rules related to the PPP.  The first is related to the Forgiveness Application and answers some, but not all, questions we had related to the application.  The second is related to Lender and Borrower Responsibilities, you can find more details on that release HERE.  Below are some key points of clarification related to the Forgiveness Application IFR. 

Spoiler Alert – We still have no idea what “transportation” as a utility expense means.

EIDL Advances

Forgiveness amount is likely to be reduced by any EIDL Advance / Grant Amount.

The IFR provides an overview of the process and timing of applying for forgiveness.  This section somewhat addresses one of the great unknowns – the EIDL advance and how it impacts the amount eligible for forgiveness. 

The document states that a borrower must prepare and submit to their lender Form 3508 (the Application for forgiveness).  The Lender has 60 days from receipt to issue a decision to and request payment from the SBA for the amount determined to be eligible for forgiveness.

Generally, the SBA should remit payment to the lender (including accrued interest) no later than 90 days after the lender submitted its decision to the SBA.  Reminder that any PPP borrowers who elected to defer payroll taxes have until the 60 day deadline when the LENDER issues their decision, not the SBA.

The application has a line item for EIDL Advance amounts.  However, there is no reference to the Advance in the calculation for forgiveness.  This IFR seems to indicate the SBA will deduct that amount, if applicable.

Originally, our understanding was that this amount would only be deducted if the EIDL loan was refinanced into the PPP in the early stages of the program or used for payroll expenses.  However, the IFR clarifies that the SBA will deduct the amount from forgiveness per the CARES Act Section 1110(e)(6).  The referenced section does seem to indicate that any EIDL Grant / Advance will reduce the forgiveness amount under the PPP.

Why the SBA excludes it from the calculation is not known – this may be an item that is currently being negotiated and subject to change in the borrower’s favor.  We will monitor any changes.

Bonuses Included?

Yes!  Finally, we see the word bonuses explicitly addressed.  We have had this question no less than 100 times throughout our webinars.  I am happy to report that I was correct. 

Oh, and also that bonuses are absolutely eligible for forgiveness (limited to the $15,385 per employee over 8 weeks).

Paid / Incurred

As we covered in our recent webinar, payroll costs both paid and incurred over the 8 week covered period are eligible.  This may –  and likely will – result in more than 8 weeks of payroll being eligible for forgiveness.

  • Payroll costs are considered paid on the day that paychecks are distributed or the borrower originates an ACH credit transaction
  • Payroll costs incurred during the borrower’s last pay period of the covered period or the alternative payroll covered period are eligible for forgiveness if paid on or before the next regular payroll date.
  • Payroll costs are generally incurred on the day the
    employee’s pay is earned (i.e., on the day the employee worked).
  • For employees who are not performing work but are still on the borrower’s payroll, payroll costs are incurred based on the schedule established by the borrower (typically, each day that the employee would have performed work).

Alternative Covered Period

For administrative convenience of the borrower, a borrower with a bi-weekly (or more frequent) payroll cycle may elect to use an alternative payroll covered period that begins on the first day of the first payroll cycle in the covered period and continues for the following eight weeks.

If payroll costs are incurred during this eight-week alternative payroll covered period, but paid after the end of the alternative payroll covered period, such payroll costs will be eligible for forgiveness if they are paid no later than the first regular payroll date thereafter.

Example provided in the IFR:

A borrower has a bi-weekly payroll schedule (every other week). The borrower’s eight-week covered period begins on June 1 and ends on July 26. The first day of the borrower’s first payroll cycle that starts in the covered period is June 7. The borrower may elect an alternative payroll covered period for payroll cost purposes that starts on June 7 and ends 55 days later (for a total of 56 days) on August 1. Payroll costs paid during this alternative payroll covered period are eligible for forgiveness.

Limitations on Owner Related Comp

  • The amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation can be no more than the lesser of 8/52 of 2019 compensation (i.e., approximately 15.38 percent of 2019 compensation) or $15,385 per individual in total across all businesses.

This is the first reference I have seen to “across all businesses.”  This could be a major issue for borrowers with multiple entities who have calculated both their loan amount and forgiveness projections to include owner compensation on multiple loans.  If the amount is limited to $15,385 across multiple entities, the impact on forgiveness coupled with the exclusion of retirement and health benefits will be substantial.  Unlike bonuses, I guessed this one wrong, as their was no language to exclude this across multiple borrowing entities.

  • Owner-employees are capped by the amount of their 2019 employee cash
    compensation and employer retirement and health care contributions made on their behalf.
  • Schedule C filers are capped by the amount of their owner compensation
    replacement, calculated based on 2019 net profit.
  • General partners are capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235
  • No additional forgiveness is provided for retirement or
    health insurance contributions for self-employed individuals, including Schedule C filers and general partners, as such expenses are paid out of their net self-employment income.

This last bullet seems to indicate that S Corp owners can include retirement benefits and health insurance expense but only to the maximum amount of $15,385.

Nonpayroll Costs Eligible for Loan Forgiveness

  • Costs are eligible for forgiveness if paid during the covered period, or incurred and paid during the next regular billing cycle (even if the billing cycle is outside the covered period).
  • For utilities, this could include payments for services up to a month or more after the covered period (limited still to the 25% of total forgivable amount, of course).  

Reductions to Forgiveness for FTE Restoration

  • Full Time Equivalent restoration
    • The SBA / Treasury have previously clarified via the FAQ  #40 that Borrowers will not have a reduction in forgiveness if they make and document good faith efforts to employees to return to their jobs at their previous salary level.  What’s New?
      • This IFR adds an additional criteria regarding those employees: the borrower informed the applicable state unemployment insurance office of such employee’s rejected offer of reemployment within 30 days of the employee’s rejection of the offer.

Interesting note – the IFR specifically mentions that the Administrator considered using a 30 hour standard, but determined that 40 hours or more of work each week better reflects what constitutes full-time employment for the vast majority of American workers.   It’s both comforting and alarming (in equal amounts) to know the Administrator was as confused as we were in determining how to calculate the FTE test for forgiveness.

Reductions to Forgiveness for Salary Restoration

Salary restoration is typically the part of this Program that makes my head physically hurt and causes me to wonder if I know anything at all about the PPP or life, in general.  It’s by far the most confusing for Borrowers, Lenders, and CPAs – causing a countrywide migraine that becomes worse with each new “clarification” from the Administrator.


  • A reduction in an employee’s salary or wages in excess of 25 percent will generally result in a reduction in the loan forgiveness amount, unless an exception applies (a confusing one or two, to be sure).
  • Who is included? Each new employee in 2020 and each existing employee who was not paid more than the annualized equivalent of $100,000 in any pay period in 2019.
  • The borrower must reduce the total forgiveness amount by the total dollar amount of the salary or wage reductions that are in excess of 25 percent of base salary or wages between January 1, 2020 and March 31, 2020.  This is calculated on a per employee basis, not in the aggregate.

The IFR gives an illuminating answer to a question that reads more like a Brainteaser than a question meant to provide clarity:

How should borrowers seeking loan forgiveness account for the reduction based on a reduction in the number of employees (Section 1106(d)(2)) relative to the reduction relating to salary and wages (Section 1106(d)(3))?

To ensure that borrowers are not doubly penalized, the salary/wage reduction applies only to the portion of the decline in employee salary and wages that is not attributable to the FTE reduction.


An hourly wage employee had been working 40 hours per week during the borrower selected reference period (FTE employee of 1.0) and the borrower reduced the employee’s hours to 20 hours per week during the covered period (FTE employee of 0.5).

There was no change to the employee’s hourly wage during the covered period. Because the hourly wage did not change, the reduction in the employee’s total wages is entirely attributable to the FTE employee reduction and the borrower is not required to conduct a salary/wage reduction calculation for that employee.

The IFR addresses that there will be no reduction or penalty if an employee is fired for cause, voluntarily resigns, or voluntarily requests a schedule reduction with regard to the FTE requirement. 

There is no similar reference to relief for the salary component of the forgiveness calculation.  We have submitted a request for confirmation/clarity on this point and hope that it is addressed explicitly.

Employers may need to/ should consider the impact on forgiveness if an employee is fired  for cause, voluntarily resigns, or voluntarily requests a schedule reduction and their salary/hourly wages during the 8 week covered period are less than 75% of the first quarter of 2020.

June 30th Restoration Safe Harbor 

The borrower is exempt from any reduction in loan forgiveness amount that would otherwise be required due to reductions in salaries/wages or FTE count if they restore those levels by June 30, 2020 or earlier  (for employees who had their salary / hours reduced from February 15, 2020 through April 26, 2020).

The IFR provides information on many of the same areas we have previously covered when the application was released including documentation and other various logistical concerns regarding applying for forgiveness.

The full rule can be found HERE.

Please reach out to with questions.

We are in this together,

Brinker Simpson & Company, LLC

Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice & cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).