PPP Loan Forgiveness Q & A

If you report your business income and expenses on Schedule C of your Form 1040, your Payroll Protection Program (PPP) loan forgiveness is straightforward, as you see in the four answers below.

1. Paying Myself

Question. I know that I can achieve full forgiveness based solely on my 2019 Schedule C income in 10.8 weeks under the 24-week program. Do I have to pay myself every week for 10.8 weeks?

Answer. No. Let’s say your PPP loan is for $20,000. You could, for example, take $20,000 out of your business account in one lump sum and put that in your personal savings anytime during the 10.8-week period and then apply for forgiveness in week 11.

Because both your loan and forgiveness are based on your 2019 Schedule C net profit (yes, last year), you simply need to use the loan money for personal purposes. This is how you pay yourself and obtain loan forgiveness the easy way.

Sure, you need to use only 60 percent of the proceeds for yourself and could use 40 percent for interest, rent, and utilities. But think about it:

Pay yourself only: simple paperwork.

  • Pay interest, rent, and utilities: more rules and paperwork.

Keep it simple. Don’t make yourself suffer.

However, if you only qualified for the PPP loan based on your Schedule C income, because of the calculations of loan forgiveness, you likely will need to wait the 24 week period

2. Waiting to Spend

Question. Can I wait a number of weeks before I spend my loan proceeds?

Let’s say I receive the PPP proceeds on August 1, 2020. Can I use the 24-week period and start on August 17, for 11 weeks? Would that be okay? And would it be eligible for forgiveness?

Answer. Yes, no problem. But let’s be clear:

For PPP loans made on June 5 or later, the 24-week covered period is the rule (there’s no “can” here—no eight-week possibility).

  • There’s no requirement that a Schedule C taxpayer spread out the payments.
  • There’s no payroll or other impediment here.

3. Spending in Chunks

I am a Schedule C taxpayer with no employees. My PPP loan amount was deposited into my business checking account on May 19, 2020. I am not electing the eight-week covered period. Instead, I am choosing the 24-week covered period, which ends on November 2, 2020.

I have two questions.

Question 1. Can I write one check for every four weeks of payroll and deposit it in my personal checking account?

Answer 1. Yes—but this is not a payroll check. As a Schedule C taxpayer with no employees, you have no payroll. Your PPP loan was based on your 2019 net profit. And your forgiveness will be based on the same amount. You don’t need to spread out your payments.

Question 2. Does this check have to be cashed within that four-week period, or if it is written within that period, is that sufficient to apply for forgiveness?

Answer 2. In general, your check is a payment on the date it is written. Because you are dealing with yourself, you should ensure that the check is cashed soon after it is written.

Also, we don’t see any wisdom (in fact, just the opposite) in writing the check within the 24 weeks and then cashing it outside the 24 weeks.

4. Got the PPP Money but Had a Loss in 2019

Question. I am a Schedule C filer, ran at a loss in 2019, but withdrew $120,000 from the business as the business increased its debt position.

I used my draw amount to obtain a $120,000 PPP loan before the guidance was issued on how sole proprietors should calculate their pay. If the business now has two employees, can both of those employees be used for the forgiveness application?

Answer. Yes, you can use the two employees on the forgiveness application, and you can use 24 weeks of pay. In addition to payroll, 40 percent of the forgiveness can come from interest, rent, and utilities.

Example. Say the two-employee payroll for the 24 weeks totals $60,000 and the interest, rent, and utilities total $30,000. You would achieve $90,000 of forgiveness.

5. Good Faith at the Time

Question. What are your thoughts on the repercussions for business owners who acted in good faith based on the information available at the time and are now left to do things that may be more questionable to earn PPP loan forgiveness?

Answer. First, with good faith, there’s no fraud issue as there is no fraud intent. Second, lenders and individuals had to scramble for a good two months or more before guidance was clarified, so many of the PPP loan application forms were murky (and some still are).

Obtaining the loan based on the guidance that existed at the time of your loan application and approval is a non-issue. Further, lenders used their own formulas during the early process (and in some cases, still use them) to determine the loan amounts.

As to taking “questionable” actions to earn forgiveness, if you follow the forgiveness applications, you are doing nothing questionable. And that’s what you should do: follow the instructions in the loan forgiveness applications.

6. EIDL, EIDL Advance, and PPP

Question. I’ve heard of the Economic Injury Disaster Loan (EIDL), EIDL advance, and the PPP. What are the differences?

Answer. We’ll deal with the big picture here. It will prove helpful.

PPP. The PPP is the cash infusion program of choice. The cash infusion part comes from a bank or other SBA lender and is based on your prior payroll (2019 in most cases). It comes into your business as a forgivable loan if you spend the money on defined payroll, interest, rent, and utilities during a period of up to 24 weeks.

Example. You receive a $50,000 PPP loan and spend it within the 24 weeks on defined payroll with no reduction in your employee head count. You qualify for 100 percent forgiveness.

EIDL. Unlike the PPP loan, which comes from a bank or other approved SBA lender, the EIDL is a loan directly from the SBA; it carries a 3.75 percent interest rate, may require collateral, and must be repaid.

EIDL advance. The EIDL advance, when available, comes into play with the EIDL application. It’s an advance on the EIDL of up to $10,000. If you reject or don’t receive an EIDL and don’t have a PPP loan, the EIDL becomes a non-taxable grant and does not have to be repaid.

If you have a forgivable PPP loan, you reduce the amount of forgiveness by the amount of your EIDL advance.

Example. You have a forgivable PPP loan of $30,000 and an EIDL advance of $7,000. The lender will forgive $23,000 of your $30,000. Let’s say you pay off the remaining $7,000. In this case, you have received a net of $30,000 ($7,000 + $30,000 – $7,000).

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