Thanks to recently released guidance after the PPP Flexibility Act was passed, PPP loans are now eligible to be forgiven based on the amount of eligible costs paid or incurred during the 24-week period following PPP loan disbursement (the Covered Period). Alternatively, borrowers who received PPP funding prior to June 5, 2020 may elect to use an 8-week period to determine loan forgiveness; however, we recommend that most borrowers use the 24-week period in order to maximize loan forgiveness. Eligible costs are broken down into two categories: payroll costs and nonpayroll costs. At least 60% of the loan proceeds must be spent on payroll costs in order to have the entire loan forgiven. If the borrower spends less than 60% on payroll costs they will still be eligible for partial loan forgiveness.

  • Eligible Payroll Costs:
    • Cash Compensation – Gross salaries and wages paid to nonowner employees, capped at $46,154 ($15,385 if electing to use the 8-week period).
    • Employee Benefits – Employer’s health insurance and retirement plan contributions (excluding employee contributions), and employer state and local taxes assessed on employee compensation (e.g. state unemployment taxes).
    • Owner Compensation – Amounts paid to self-employed individuals, general partners, or owner-employees, capped at the lesser of 1) the 2.5-month equivalent of their applicable 2019 compensation (8-week equivalent if electing to use the 8-week period) or 2) $20,833 ($15,385 if electing to use the 8-week period).
  • Eligible Nonpayroll Costs:
    • Mortgage interest payments (not principal) for mortgage obligations on real or personal property incurred before February 15, 2020.
    • Rent or lease payments for lease agreements for real or personal property in force before February 15, 2020.
    • Utility payments for the distribution of electricity, gas, water, telephone, transportation, or internet access for services which began before February 15, 2020.

In determining their loan forgiveness, borrowers may have to reduce their loan forgiveness amount if they reduced individual employee’s salary/hourly wages by more than 25% during the Covered Period, or if they had a reduction in Full-Time Equivalent Employees (FTE) during the Covered Period. If a borrower had a salary/hourly wage reduction and/or FTE reduction between February 15, 2020 and April 26, 2020, and restores the reduction by December 31, 2020, they are exempt from having to reduce their loan forgiveness amount. Additionally, borrowers with an FTE reduction are exempt from reducing their loan forgiveness amount for such an FTE reduction if, during the Covered Period, the borrower was unable to operate at the same level of business activity as before February 15, 2020 due to compliance with safety requirements established between March 1, 2020 and December 31, 2020 related to COVID-19. Borrowers will also not be penalized for FTE reductions related to employees who were laid off and declined rehire offers, were fired for cause, voluntarily resigned, or voluntarily reduced their hours.

If you are interested in learning more about the PPP program, we suggest that you visit our COVID-19 Tax Resources Page for summaries, videos, seminar recordings, slides, and even other blog posts.  If you think you need help with the PPP program or your loan forgiveness application, please contact your JMF tax accountant or email

Relevant Links:

Updated PPP Loan Forgiveness Application – revised as of June 16 as noted above
PPP Loan Forgiveness Application EZ Form
US Chamber Guide to PPP Loan Forgiveness