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Loan Forgiveness Details

PPP - Loan Forgiveness

We’re proud to partner with NBT Bank in providing informative, timely updates on the ever-changing PPP Forgiveness regulations. Please review our webinars, EZ application update details and more to help support your business in this forgiveness process. To learn more about NBT Bank, visit: NBT Bank – Business.


Small Business Administration (SBA) Paycheck Protection Program Update on Loan Forgiveness

Last Updated: 06/16/2020 9:00 p.m.


We understand you have questions and we are here for you.

On June 5, 2020 the Paycheck Protection Program Flexibility Act, H.R. 7010 was signed into law by the President. Significant changes include the following:

  • The covered period increased to 24 weeks with the option for borrowers to elect to keep the 8-week covered period.
  • Reduced the 25% / 75% Non-Payroll Cost limitation to 40% / 60%, allowing borrowers to direct more funds to costs such as rent and utilities.
  • Modified the date from June 30th to December 31st, 2020 to hire/rehire employees to qualify for complete forgiveness.
  • Additional FTE Reduction Safe Harbor – document an inability to return to the same level of business activity as such business was operating at before February 15, 2020 during the March 1 – December 31, 2020 time period due to maintenance of standards requirements related to COVID-19 for;
    • Sanitation,
    • Social Distancing or
    • Other Workers/Customer Safety.
  • Extends the minimum loan repayment period from 2 years to 5 years for loans funded subsequent to June 4, 2020.

Internal Revenue Service issued Notice 2020-32 on April 30, 2020 and determined that the PPP loan amounts forgiven under Section 1106(i) of the CARES Act are tax exempt income under Section 265 of the Code.  However, the Covered Expenses will not be deductible to the extent such loan amounts are forgiven.  Potential Legislative changes to this ruling are being discussed to overturn the IRS position and allow taxpayers to deduct the covered expenses.

What does loan forgiveness mean?

You, the borrower, may not be responsible for full or partial repayment of the loan if you use the PPP loan proceeds for forgivable expenses. Banks will follow SBA guidance to determine the amount that is forgivable and will require an application with supporting documentation. You will be required to apply for your loan forgiveness through your bank.

What expenses are eligible for forgiveness?

Payroll Costs:

  •  Cash Compensation Payroll Costs:
    • Gross Salary, Wages, Tips, Commissions, Bonuses, and similar compensation.
    • Paid Leave; PTO, Family, Medical or Sick. (Excluding Families First Coronavirus Response Act)
    • Allowances for dismissal or separation for individuals.
    • Other items to note regarding Cash Compensation Payroll Costs:
  • Maximum of $46,154 cash compensation per employee (24 week equivalent of $100,000/year) or $15,835 (if 8 week period is elected).
  • Employees principal place of residence must be within the United States.
  • Form 1099 Independent Contractors should not be included.


  • Non-Cash Compensation Payroll Costs:
    • Health Insurance (employer contributions)
    • Retirement Plan (employer contributions)
    • State & Local taxes assessed (e.g., State Unemployment Insurance)
    • Other items to note:
  • Non-Cash Payroll Costs, above, are not included in the $46,154 cap per individual.
  • Only the employer costs should be included, do not include amounts withheld on behalf of the employee.


  • Compensation for Owners, Partners and Self-Employed:
    • Max Forgiveness lesser of; $20,833 ($15,385 if elected 8-week cover period) or Compensation Noted Below.
      • Self-Employed – Based on 2019 net profit, Form 1040, Schedule C, Line 31, multiplied by 2.5/12.
      • General Partners – 2019 net earnings from self-employment, Schedule K-1, Line 14a (Reduced by Section 179 deduction, Unreimbursed Partnership Expenses, and Depletion from Oil & Gas Properties) multiplied by 0.9235, multiplied by 2.5/12.
      • C and S-Corps – Lesser of 2020 gross wages during the covered period or 2019 payroll costs, multiplied by 2.5/12.
    • Non-Cash compensation payroll costs are not forgivable for Self-Employed Individuals and General Partners. (This is unclear for C and S-Corporations)
    • S-Corporation owner distributions are not forgivable.

Non-Payroll Costs – All items must be in effect prior to February 15th, 2020

  •  Rent/Leases for Real or Personal Property:
    • Office
    • Copiers/Printers
    • Vehicles
    • Other Common Items of Personal Property
  • Utilities:
    • Electricity
    • Gas
    • Water
    • Telephone
    • Internet
    • Transportation (Gas & Other Auto Expenses usually part of auto deductions on the tax return)
  • Debt Interest Payments:
    • Mortgage/Loan obligations on Real or Personal Property
    • Payments of Interest only, not including Principal
    • Does not include any Prepayments


What else should I know about forgiveness?

In addition to using your loan proceeds for eligible expenses, follow the guidance below to maximize your potential loan forgiveness:

  • Covered Period:
    • Start date of the Covered Period is the same day PPP loan funds were received.
    • 24 Weeks or 168 Days. For example, PPP Loan funds were received on April 20th, the Covered Period is April 20th – October 4th, with option to keep 8-week covered period, or
    • Borrowers with a bi-weekly (or more frequent) payroll schedule may elect the Alternative Payroll Covered Period (APCP).
      • APCP begins on the 1st day of the start of the next pay-period following the PPP Disbursement Date.
      • If elected to use the APCP, this only applies to Payroll Costs (Cash & Non-Cash Compensation). You cannot use the APCP for Non-Payroll Costs.


  • SBA Forgiveness Limitations:
    • Salary/Hourly Wage Reduction:
      • A reduction in an employee’s salary or wages of more than 25% will result in a reduction of loan forgiveness.
      • To evaluate this reduction, you must go employee by employee and compare the salary/hourly wage percent reduction for the following periods;
        • ‘Covered Period’ (or ‘Alternative Payroll Covered Period’, if elected), to
        • January 1 – March 31, 2020.
  • Safe Harbor – A reduction in loan forgiveness due to salary reduction is not required if you meet A and B, or C
      • A – If average annual salary/hourly wage from February 15 – April 26, 2020 was LESS than salary/hourly wage as of Feb 15, 2020, see Step B.
      • B – If average annual salary/hourly wage as of December 31, 2020 is equal or greater than February 15th, 2020, the safe harbor has been met and no Salary/Hourly Wage Reduction is required.
      • C – Any employee who earned more than $100k in 2019, no salary reduction is required.
  •  Full-Time Equivalent (FTE) Reduction Quotient:
    • Step One – Calculate the FTE Headcount during the ‘Covered Period’ or ‘Alternative Payroll Covered Period’ if elected. You may elect either the ‘Calculation’ or ‘Simplified’ Method.  Whichever method is selected, you must use this method throughout.
      • Calculation Method:
        • For each individual FTE, take the average hours worked over the 8-weeks.
        • Divide the average weekly hours by 40.
        • Round up to the nearest tenth (i.e. 30 / 40 = .75, round to .8)
        • Maximum amount for each FTE is 1.0
      • Simplified Method:
        • FTE did work at least 40-hour week on average = 1.0
        • FTE did not work at least 40-hour week on average = 0.5
    • Step Two – Select a comparison period at your election using the same calculation method.
      • February 15, 2019 – June 30, 2019
      • January 1, 2020 – February 29, 2020
      • For a Seasonal Employer Only – any 12-week period May 1, 2019 – Sept 15, 2019
    • Step Three – If Step Two is greater than Step One, you must calculate the FTE Reduction Percentage. This percent reduction will be placed on the amounts previously eligible for forgiveness.
  • Safe Harbor – A reduction in loan forgiveness due to FTE Reduction Quotient is not required if you meet A and B or C or D or E.
    • A – If FTE’s from February 15 – April 26, 2020 was LESS than FTE’s as of February 15, 2020, see Step B.
    • B – If FTE’s as of December 31st, 2020 is equal or greater than February 15th, 2020, safe harbor has been met.
    • C – No reduction in the number of FTE’s between January 1, 2020 and the end of the Covered Period.
    • D – If you can show you made a good-faith, written offer to rehire an employee during the covered period but you were rejected by the employee, then that reduction in headcount will not result in a reduction of the forgiveness. This is also true if an FTE was fired for cause, voluntarily resigned, or voluntarily required to receive a reduction in hours.
    • E – If able to document an inability to return to prior February 15, 2020 levels of business activity between March 1 – December 31, 2020 due to maintenance of standards requirements related to COVID-19 for; sanitation, Social Distancing or Other Workers/Customer Safety.
  • Payroll Cost Reduction – 60% Rule
    • 60% of the costs must be spent on Payroll or you will not be eligible to receive full loan forgiveness.
    • For Example: If your PPP Loan was for $100,000 and you had $55,000 of eligible Payroll Costs. The maximum Non-Payroll Costs you can include is now limited to $91,667 ($55,000 ÷ 0.6 = $91,667).
    • Eligible Payroll costs are before any other reductions noted below.


  • Economic Injury Disaster Loan (EIDL) Advance:
    • If you received an EIDL Advance, your PPP Loan forgiveness will be reduced by this amount.


What can you do now?

Keep track of and document both payroll costs and other eligible expenses, in the 24 weeks following loan the disbursement. It will help with the forgiveness application process as you will need to provide documentation for all costs used in the forgiveness calculation. You should review any automatic payments such as ACH and automatic debits for the account holding these loan proceeds to ensure PPP funds are being used and tracked for eligible purposes.  Following are some examples:

  • Payroll Cash Compensation Documents:
    • Bank Account Statement
    • Third-Party Payroll Service Provider reports documenting cash compensation paid to employees.
    • Form 941 & State Quarterly wage reports.
  • Payroll Non-Cash Compensation Documents:
    • Payment receipts, cancelled checks, or account statements documenting payment of employer contributions to employee health insurance and retirement plan.
  • Non-Payroll Cost Documents:
    • Interest payments: Amortization schedule and cancelled checks or account statements from February 2020 and the 24-week period.
    • Rent & lease payments: Lease agreement and receipts or cancelled checks or lessor account statements from February 2020 and the 24-week period.
    • Utility payments: Invoices from February 2020 and the 24-week period and receipts, cancelled checks, or statements.


We’re here to help

For additional resources visit the links below as well as, and for information on loan forgiveness;

Last Updated: 06/16/2020