Now that many of you have either already or are waiting on your Paycheck Protection Program (PPP) loan disbursements, we though that it would be helpful to provide you with guidance on the how and how much of that loan can be forgiven.

EDITOR’s NOTE from May 12, 2020: Several updates and information can be seen in the following links:

Can my PPP loan be forgiven in whole or in part?

Yes. The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest. That is, the borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgivable purposes described below and employee and compensation levels are maintained. The actual amount of loan forgiveness will depend, in part, on the total amount of payroll costs, payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, and utility payments under service agreements dated before February 15, 2020, over the eight-week period following the date of the loan. However, not more than 25 percent of the loan forgiveness amount may be attributable to nonpayroll costs. (Source: Interim Final Rule from SBA on April 2)

Disclaimer: The below information concerning covered costs is our interpretation of the CARES Act bill passed on March 27th, 2020 and is subject to change pending further guidance from the SBA/Treasury.

What if I did not maintain employee and/or compensation levels after receiving the PPP loan?

You are exempt from reducing your eligible costs when determining your loan forgiveness amount if:
1) On April 26, 2020, you had a reduction in Full-Time Equivalent (FTE) Employees and/or compensation to one or more individual employees as compared to February 15, 2020.
2) Not later than June 30, 2020, you eliminated the reduction in FTEs and/or compensation to such employees.

What if I did not restore my employee/compensation levels by June 30, 2020?

If you had a reduction in number of Full-Time Equivalent (FTE) Employees:

  1. Calculate your average number of FTEs from February 15 – June 30, 2019
  2. Calculate your average number of FTEs from January 1 – February 29, 2020
  3. Calculate your average number of FTEs for the 8 weeks following PPP loan receipt.
  4. Divide the result of #3 by the lesser of #s 1 and 2, and then subtract 1.
  5. Multiply your eligible costs by the result of #4.
  6. In determining your loan forgiveness amount, reduce your eligible costs by the result of #5.

If you had a reduction in compensation to individual employees (excluding any employee who had annualized compensation exceeding $100,000 at any time during 2019),  reduce your eligible costs by the aggregate reduction of individual employee compensation in excess of 25% compared to the first quarter of 2020.

Payroll costs include:

  • Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee; individual employee wages are capped at $15,384.62 for loan forgiveness which is 8 weeks of $100k annual salary);
  • Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
  • State and local taxes assessed on compensation; and
  • For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis.

Aside from wages in excess of $100,000 (noted above), payroll costs EXCLUDE:

  • Any compensation of an employee whose principal place of residence is outside the U.S.
  • Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act
  • Qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act

Definition of non-payroll costs capped at 25% of the loan amount:

  • The term “covered mortgage obligation” means any indebtedness or debt instrument incurred in the ordinary course of business that
    • Is a liability of the borrower
    • Is a mortgage on real or personal property; and
    • Was incurred before February 15, 2020
  • The term “covered rent obligation” means rent obligated under a leasing agreement in force before February 15, 2020
  • The term “covered utility payment” means payment for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020

Full-time Equivalent (FTE) Employees per SBA standards:

  • Employees who work 30 hours per week or more
  • The aggregate of employees who work less than 30 hours per week, where the hours worked of such employees add up to at least 30 hours per week. For example, two employees, each of whom works 15 hours per week, are the equivalent of one FTE.
  • Temporary employees, independent contractors, and leased employees are NOT FTEs.

As always, if you have a question about the Paycheck Protection Program, please email our task force at

All of our prior tax resources on the CARES Act, the Families First Act, Alabama-specific plans, deadline changes, etc. can be found on our COVID-19 Resources Page.