The Paycheck Protection Program, under the CARES Act has provided a tremendous amount of support to businesses to keep their doors open.

This loan can be made 100% forgivable if certain criteria are met. The funds should be used for following purposes:

  • Payroll—salary, wage, vacation, parental, family, medical, or sick leave, health benefits.
  • Mortgage interest—mortgages were signed before February 15, 2020.
  • Rent—as long as the lease agreements were in effect before February 15, 2020.
  • Utilities—as long as service began before February 15, 2020.

If expenses are made in any of these following categories, they can qualify for loan forgiveness.

Key things to keep in mind:

  1. Documentation Is the key – Once you have received the loan money in your bank account, your eight-week coverage period begins. All expenses, payments made for payroll, rent or utilities, made during this time frame will be reviewed.
    Good accounting practices will help you get the right documents to your lender. When applying for loan, maintaining a detailed log of all the payments and how they were utilized will help you submit a proof of your expenses.
  2. The 75/25 rule – As per the latest guidelines of the Small Business Administration (SBA), the amount received under PPP loan program should be primarily used for payroll expenses. Your forgivable amount should scale in proportion to the amount you spend on payroll. This amount should not include payments to independent contractors.
  3. Maintain payroll – In order to show the proof of payment towards the payroll, you must maintain the number of employees on your payroll. If the employee count goes down or their salary is less than 75% of what they were initially making, your loan forgiveness amount will also come down proportionately.

PPP loan forgivable checklist

You must apply through your lender for forgiveness of the loan. Maintain all documents substantiating the usage on permitted costs during an 8-week period after the loan origination date.

To verify loan usage, here is the checklist of documents that can be requested:

Documentation verifying

  • Number of full-time employees.
  • Payroll reports.
  • Quarterly Federal and State payroll tax filings reports.
  • Unemployment insurance forms for the covered period (will be reduced if you reduce full-time employee count).
  • Proof of Payments, such as cancelled checks, online payment receipts for mortgage, lease or utilities expenses.
  • Proof of Payments for health insurance benefits for 8- week period.

May also request

  • Completed financials (P&L and B/S sheet) for the covered months/quarters/6 months of 2020 and Financials for 2019.
  • 2019 Income tax returns along with prior returns.

Paycheck Protection Program Flexibility Act - Latest Updates

Another important change took place on June 5th, 2020 when President Trump signed the Paycheck Protection Program Flexibility Act. The revised guidelines under the new PPPFA provide significant ease of restrictions on how to utilize the loan amount and qualify for forgiveness.


  1. Extension on eligible forgiveness expenses – The new guidelines extend the initial period of eight weeks to use the loan money to 24 weeks from the date of origination (but not beyond Dec. 31). Business owners can now use the loan amount to pay off qualified expenses over a longer time period, and still qualify for loan forgiveness.
  2. Lower limit to spend on payroll expenses alone – Under the new Act, a business can use 60% of the loan amount on payroll expenses and the remaining 40% to pay other business expenses including rent, mortgage, interest etc. The initial SBA guidance of 75% has been reduced but not eliminated and still qualifies for forgiveness if the threshold is met.
  3. Non-forgivable loan period extended – The new act provides a ‘safe harbor’ to the loan borrower to use the non-forgivable portion of the loan amount up to 5 years. But it is limited towards the loans originating on or after PPPFA act. It still leaves room for lenders and borrowers to negotiate the maturity terms of existing loans.
  4. Deadline to apply for PPP loans pushed - As per the language of the Act, the final date to apply for PPP loan will be extended till Dec. 31, 2020. A great opportunity for businesses who haven’t applied for the loan yet.


Payroll Tax Provisions Under the Cares Act.

The CARES Act also makes a few amendments to tax policies to help businesses impacted by COVID-19. There are two, in particular, which we’d like to bring your attention –

1. Employee Retention Tax Credit –2. Delayed Payroll Tax Payments –
  • Eligibility - Your business operations were partially / fully suspended due to a COVID-19 shut-down order OR gross receipts declined more than 50% compared to the same quarter of the previous year.

  • Benefits - 50% refundable tax credit on wages up to $10,000 per employee paid or incurred between March 13th, 2020 through December 31st, 2020.

  • Benefits - The employer share of 2020 Social Security tax owed can be deferred and paid over the next two years in a 50% — 50% breakdown. However, if your business has a Paycheck Protection Loan that has been forgiven, you may not defer these taxes.

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