5 Key Steps to Calculating Paycheck Protection Program Loan Forgiveness

by | May 4, 2021 | COVID-19, Paycheck Protection Program

Organizations who received a Paycheck Protection Program (PPP) loans should look to maximize their loan forgiveness.  The following outlines five key steps for PPP Loan forgiveness; look over these steps now to prepare for maximum loan forgiveness 

Step 1Track total eligible costs incurred and paid during the 8-week period following the loan funding.   

  • Payroll costs 
    • Compensation to employees including salary, wages, commissions or similar compensation. 
    • Cash tips or the equivalent 
    • Payment for leave 
    • Allowance for separation or dismissal 
    • Payments for employee benefits 
    • Group health care coverage 
    • Insurance premiums 
    • Retirement contributions 
    • Payment of state and local taxes assessed on the compensation of employees. 
  • Mortgage interest on real or personal property for mortgages in effect prior to 2/15/2020 
  •  Rent under a leasing agreement for agreements in effect prior to 2/15/2020  
  • Utilities 
    • Includes payment for electricity, gas, water, transportation, telephone, or internet access. 
    • Service must have been established prior to 2/15/2020 
  • Any EIDL to be refinanced (at the discretion of the borrower) 

Step 2:  Calculate payroll costs for forgiveness floor. 

  • 75% of eligible costs are to be used on payroll  
  • If less than 75%, the forgiveness is reduced by the amount under 75%  

Step 3Calculate any % decrease in FTEs from 8-week covered period.  

  • For example: A 15% drop in FTEs results in a 15% decrease in the amount of the loan forgiveness.  

Step 4Calculate any reduction in payroll > 25% of prior quarter.  

  • For any employee who did not receive, during any single pay period during 2019, wages/salary at an annualized rate of pay more than $100K and also employees whose primary place of residency is outside the US.  
  • Was their payroll during the cover period more than 25% less that it was the previous full quarter? Reduce forgivable amount by the reduction that exceeds 25%. 

Step 5Calculate any adjustment because FTEs and salary/wages were restored by June 30. 

  • If “restore” criteria are met, steps 3 and 4 are ignored.  

Misuse of Funds 

Use of funds for purposes other than those listed above may incur additional financial liabilities and criminal penalties including, but not necessarily limited to: 

  • The taxpayer will be required to repay misused funds. 
  • If funds are knowingly used for unauthorized purposes, the borrower could be subject to additional liability such as fraud charges.  

Additional points to consider 

  • Independent Contractors are NOT included when tracking payroll cost!  
  • Check with your payroll provider; many have developed PPP-compliant reports to track both payroll and benefits  
  • Strong accounting processes and accurate coding of expenses is paramount.   
  • A separate PPP bank account may assist in tracking costs. 
  • Retaining documentation to support all payments made with PPP funds. 
  • Setting up separate account codes within your general ledger to track expenses paid with PPP funds. 

Helping You with PPP Loan Forgiveness  

McConnell & Jones’ Business Solutions Team offers high-level outsourced accounting and bookkeeping services to businesses and nonprofits throughout the country.  Our services are designed to assist with all back-office reporting needs including reporting and documentation related to PPP Loan Forgiveness.  Our team is managed remotely, and our engagements are completed virtual through cloud-based tools and fully encrypted software which protects your information and promotes transparency.   

 Some of the tasks we can assist with include:  

  • Financial Monitoring and Measurement 
  • Account Reconciliation 
  • Process Development / Improvement 
  • Bookkeeping 
  • Internal Management Reports 
  • Financial Modeling 
  • Cash Flow Analysis 
  • Budgeting / Forecasting 
  • Financial Statement Preparation 

Learn More About Client Accounting Services at McConnell & Jones 

Review our PPP Loan Forgiveness Calculators  

Contact Our Team

Thomas Jones Jr.


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