PPP funds used to pay qualified expenses within the 8-week period beginning on the date the first loan proceeds are received are eligible for loan forgiveness.
Here is a breakdown of the items covered in loan forgiveness:
- Only 25% of the amount forgiven can relate to non-payroll costs.
- Qualified expenses used in calculating loan forgiveness amount include:
- Payroll costs.
- Interest payments on mortgage obligations incurred prior to 2/15/20.
- Rent payments (for real property or equipment leases) on leases dated prior to 2/15/20.
- Utility payments under service agreements dated prior to 2/15/20.
It is important to note that additional guidance is needed to clarify whether the expenses must be both paid and incurred, during the covered period to be treated as a qualified expense.
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.
There are two provisions which may limit the amount of loan that can be forgiven:
- Reduction in the number of Full Time Employees (FTE) during the covered period.
- Reduction in employee salary/wage during the covered period.
There are corrective actions that may be taken in either situation to maximize the amount of loan forgiveness.
Contact Our Team:
Thomas Jones, CPA
Tax and Small Business