Paycheck Protection Program Frequently Asked Questions (FAQs) on PPP Loan Forgiveness (As of October 13, 2020)

Summary

Paycheck Protection Program Frequently Asked Questions (FAQs) on PPP Loan Forgiveness, as of October 13, 2020, from the Small Business Administration in consultation with the Department of the Treasury, addressing forgiveness under section 1106 of the CARES Act. One answer states that sole proprietors, independent contractors and self-employed individuals with no employees at the time of the loan application automatically qualify to use Loan Forgiveness Application Form 3508EZ or lender equivalent. Another states that borrowers may apply any time before the maturity date of the loan, but if a borrower does not apply within 10 months after the last day of the loan forgiveness covered period, loan payments are no longer deferred.

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Issuer: Congressional materials
Document type: 2020 10 13 Department Of The Treasury Sba Ppp Loan Forgiveness Faqs Home Treasury Gov Syst
Date: 2020-10-13
Case: 2020 10 13 Department Of The Treasury Sba Ppp Loan Forgiveness Faqs Home Treasury Gov System Files 1 951F364E6F

Cite this document

“Paycheck Protection Program Frequently Asked Questions (FAQs) on PPP Loan Forgiveness (As of October 13, 2020).” Original at home.treasury.gov, dated 2020-10-13. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/2020-10-13-2020-10-13-department-of-the-treasury-sba-ppp-loan-forgiveness-faqs-home-treasury-gov-system-files-1-951f364e6f/, SHA-256 d2fc873fb7a9eacac9d70a37795845c6dbff9b62d59e5841b21c72627663ceb2.

Full text

As of October 13, 2020

PAYCHECK PROTECTION PROGRAM
Frequently Asked Questions (FAQs) on PPP Loan Forgiveness

The Small Business Administration (SBA), in consultation with the Department of the Treasury,
is providing this guidance to address borrower and lender questions concerning forgiveness of
Paycheck Protection Program (PPP) loans, as provided for under section 1106 of the Coronavirus
Aid, Relief, and Economic Security Act (CARES Act), as amended by the Paycheck Protection
Program Flexibility Act (Flexibility Act).

Borrowers and lenders may rely on the guidance provided in this document as SBA’s
interpretation, in consultation with the Department of the Treasury, of the CARES Act, the
Flexibility Act, and the Paycheck Protection Program Interim Final Rules (“PPP Interim Final
Rules”) (link).

General Loan Forgiveness FAQs

1. Question: Which loan forgiveness application should sole proprietors, independent
contractors, or self-employed individuals with no employees complete?

Answer: Sole proprietors, independent contractors, and self-employed individuals who
had no employees at the time of the PPP loan application and did not include any
employee salaries in the computation of average monthly payroll in the Borrower
Application Form automatically qualify to use the Loan Forgiveness Application Form
3508EZ or lender equivalent and should complete that application.

2. Question: Can PPP lenders use scanned copies of documents, E-signatures, or E-
consents for loan forgiveness applications and loan forgiveness documentation?

Answer: Yes. All PPP lenders may accept scanned copies of signed loan forgiveness
applications and documents containing the information and certifications required by
SBA Form 3508, 3508EZ, or lender equivalent. Lenders may accept any form of E-
consent or E-signature that complies with the requirements of the Electronic Signatures in
Global and National Commerce Act (P.L. 106-229).

If electronic signatures are not feasible, then when obtaining a wet ink signature without
in-person contact, lenders should take appropriate steps to ensure the proper party has
executed the document.

This guidance does not supersede signature requirements imposed by other applicable
law, including by the lender’s primary federal regulator.

3. Question: If a borrower submits a timely loan forgiveness application, does the
borrower have to make any payments on its loan prior to SBA remitting the forgiveness
amount, if any?

Answer: As long as a borrower submits its loan forgiveness application within ten
months of the completion of the Covered Period (as defined below), the borrower is not

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As of October 13, 2020

required to make any payments until the forgiveness amount is remitted to the lender by
SBA. If the loan is fully forgiven, the borrower is not responsible for any payments. If
only a portion of the loan is forgiven, or if the forgiveness application is denied, any
remaining balance due on the loan must be repaid by the borrower on or before the
maturity date of the loan. Interest accrues during the time between the disbursement of
the loan and SBA remittance of the forgiveness amount. The borrower is responsible for
paying the accrued interest on any amount of the loan that is not forgiven. The lender is
responsible for notifying the borrower of remittance by SBA of the loan forgiveness
amount (or that SBA determined that no amount of the loan is eligible for forgiveness)
and the date on which the borrower’s first payment is due, if applicable.

4. Question: The PPP loan forgiveness application forms (3508, 3508EZ, and 3508S)
display an expiration date of 10/31/2020 in the upper-right corner. Is October 31, 2020
the deadline for borrowers to apply for forgiveness?

Answer: No. Borrowers may submit a loan forgiveness application any time before the
maturity date of the loan, which is either two or five years from loan origination.

However, if a borrower does not apply for loan forgiveness within 10 months after the
last day of the borrower’s loan forgiveness covered period, loan payments are no longer
deferred and the borrower must begin making payments on the loan. For example, a
borrower whose covered period ends on October 30, 2020 has until August 30, 2021 to
apply for forgiveness before loan repayment begins.

The expiration date in the upper-right corner of the posted PPP loan forgiveness
application forms is displayed for purposes of SBA’s compliance with the Paperwork
Reduction Act, and reflects the temporary expiration date for approved use of the forms.
This date will be extended, and when approved, the same forms with the new expiration
date will be posted. 1

Loan Forgiveness Payroll Costs FAQs
1. Question: Are payroll costs that were incurred during the Covered Period 2 or the
Alternative Payroll Covered Period 3 but paid after the Covered Period or the Alternative
Payroll Covered Period eligible for loan forgiveness?

1
All questions and answers published August 4, 2020 unless specified otherwise. General Loan Forgiveness FAQ 4
published October 13, 2020.
2
The Covered Period is either (1) the 24-week (168-day) period beginning on the PPP loan disbursement date, or
(2) if the borrower received its PPP loan before June 5, 2020, the borrower may elect to use an eight-week (56-day)
Covered Period. For example, if the borrower is using a 24-week Covered Period and received its PPP loan
proceeds on Monday, April 20, the first day of the Covered Period is April 20 and the last day of the Covered Period
is Sunday, October 4. In no event may the Covered Period extend beyond December 31, 2020.
3
Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using
the 24-week (168-day) period (or for loans received before June 5, 2020 at the election of the borrower, the eight-
week (56-day) period) that begins on the first day of their first pay period following their PPP loan disbursement
date (i.e., the “Alternative Covered Period”). For example, if the borrower is using a 24-week Alternative Payroll
Covered Period and received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period

2
As of October 13, 2020

Answer: Yes, if the payroll costs are paid on or before the next regular payroll date after
the Covered Period or Alternative Payroll Covered Period.

Example: A borrower received its loan before June 5, 2020 and elects to use a 24-week
Covered Period. The borrower’s Covered Period runs from Monday, April 20 through
Sunday, October 4. The borrower has a biweekly payroll cycle, with a pay period
ending on Sunday, October 4. However, the borrower will not make the corresponding
payroll payment until the next regular payroll date of Friday, October 9. Under these
circumstances, the borrower incurred payroll costs during the Covered Period and may
seek loan forgiveness for the payroll costs paid on October 9 because the cost was
incurred during the Covered Period and payment was made on the first regular payroll
date after the Covered Period.
2. Question: Are payroll costs that were incurred before the Covered Period but paid
during the Covered Period eligible for loan forgiveness?

Answer: Yes.

3. Question: Are borrowers required to calculate payroll costs for partial pay periods?

Answer: If the borrower uses a biweekly or more frequent (e.g., weekly) payroll cycle,
the borrower may elect to calculate eligible payroll costs using the eight-week (for
borrowers that received their loans before June 5, 2020 and elect this Covered Period
length) or 24-week period that begins on the first day of the first payroll cycle following
the PPP Loan Disbursement Date (referred to as the Alternative Payroll Covered Period).
However, if a borrower pays twice a month or less frequently, it will need to calculate
payroll costs for partial pay periods. The Covered Period or Alternative Covered Period
for any borrower will end no later than December 31, 2020.

Example: A borrower uses a biweekly payroll cycle. The borrower’s 24-week Covered
Period begins on Monday, June 1 and ends on Sunday, November 15. The first day of
the borrower’s first payroll cycle that starts in the Covered Period is June 7. The
borrower may elect an Alternative Payroll Covered Period that starts on June 7 and ends
on November 21 (167 days later). Payroll costs incurred (i.e., the pay was earned on that

following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is
April 26 and the last day of the Alternative Payroll Covered Period is Saturday, October 10. In no event may the
Alternative Payroll Covered Period extend beyond December 31, 2020.

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As of October 13, 2020

day) during this Alternative Payroll Covered Period are eligible for loan forgiveness if
the last payment is made on or before the first regular payroll date after November 21.

4. Question: For purposes of calculating cash compensation, should borrowers use the
gross amount before deductions for taxes, employee benefits payments, and similar
payments, or the net amount paid to employees?

Answer: The gross amount should be used when calculating cash compensation.

5. Question: Are only salaries or wages covered by loan forgiveness, or can a borrower
pay lost tips, lost commissions, bonuses, or other forms of incentive pay and have such
costs qualify for loan forgiveness?

Answer: Payroll costs include all forms of cash compensation paid to employees,
including tips, commissions, bonuses, and hazard pay. Note that forgivable cash
compensation per employee is limited to $100,000 on an annualized basis.

6. Question: What expenses for group health care benefits will be considered payroll costs
that are eligible for loan forgiveness?

Answer: Employer expenses for employee group health care benefits that are paid or
incurred by the borrower during the Covered Period or the Alternative Payroll Covered
Period are payroll costs eligible for loan forgiveness. However, payroll costs do not
include expenses for group health care benefits paid by employees (or beneficiaries of the
plan) either pre-tax or after tax, such as the employee share of their health care premium.
Forgiveness is not provided for expenses for group health benefits accelerated from
periods outside the Covered Period or Alternative Payroll Covered Period.

If a borrower has an insured group health plan, insurance premiums paid or incurred
during the Covered Period or Alternative Payroll Covered Period qualify as “payroll
costs,” as long as the premiums are paid during the applicable period or by the next
premium due date after the end of the applicable period. As noted, only the portion of the
premiums paid by the borrower for coverage during the applicable Covered Period or
Alternative Payroll Covered Period is included, not any portion paid by employees or
beneficiaries or any portion paid for coverage for periods outside the applicable period.
Loan Forgiveness Payroll Costs FAQ 8 outlines the rules that apply to owner health
insurance.

7. Question: What contributions for retirement benefits will be considered payroll costs
that are eligible for loan forgiveness?

Answer: Generally, employer contributions for employee retirement benefits that are
paid or incurred by the borrower during the Covered Period or Alternative Payroll
Covered Period qualify as “payroll costs” eligible for loan forgiveness. The employer
contributions for retirement benefits included in the loan forgiveness amount as payroll
costs cannot include any retirement contributions deducted from employees’ pay or
otherwise paid by employees. Forgiveness is not provided for employer contributions for

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As of October 13, 2020

retirement benefits accelerated from periods outside the Covered Period or Alternative
Covered Period. Loan Forgiveness Payroll Costs FAQ 8 outlines the treatment of
retirement benefits for owners, which are different from this general approach.

8. Question: How is the amount of owner compensation that is eligible for loan
forgiveness determined?

Answer: The amount of compensation of owners who work at their business that is
eligible for forgiveness depends on the business type and whether the borrower is using
an eight-week or 24-week Covered Period. In addition to the specific caps described
below, the amount of loan forgiveness requested for owner-employees and self-employed
individuals’ payroll compensation is capped at $20,833 per individual in total across all
businesses in which he or she has an ownership stake. For borrowers that received a PPP
loan before June 5, 2020 and elect to use an eight-week Covered Period, this cap is
$15,385. If their total compensation across businesses that receive a PPP loan exceeds
the cap, owners can choose how to allocate the capped amount across different
businesses. The examples below are for a borrower using a 24-week Covered Period.

C Corporations: The employee cash compensation of a C-corporation owner-employee,
defined as an owner who is also an employee (including where the owner is the only
employee), is eligible for loan forgiveness up to the amount of 2.5/12 of his or her 2019
employee cash compensation, with cash compensation defined as it is for all other
employees. Borrowers are also eligible for loan forgiveness for payments for employer
state and local taxes paid by the borrowers and assessed on their compensation, for the
amount paid by the borrower for employer contributions for their employee health
insurance, and for employer retirement contributions to their employee retirement plans
capped at the amount of 2.5/12 of the 2019 employer retirement contribution. Payments
other than for cash compensation should be included on lines 6-8 of PPP Schedule A of
the loan forgiveness application (SBA Form 3508 or lender equivalent), for borrowers
using that form, and do not count toward the $20,833 cap per individual.

S Corporations: The employee cash compensation of an S-corporation owner-employee,
defined as an owner who is also an employee, is eligible for loan forgiveness up to the
amount of 2.5/12 of their 2019 employee cash compensation, with cash compensation
defined as it is for all other employees. Borrowers are also eligible for loan forgiveness
for payments for employer state and local taxes paid by the borrowers and assessed on
their compensation, and for employer retirement contributions to their employee
retirement plans capped at the amount of 2.5/12 of their 2019 employer retirement
contribution. Employer contributions for health insurance are not eligible for additional
forgiveness for S-corporation employees with at least a 2% stake in the business,
including for employees who are family members of an at least 2% owner under the
family attribution rules of 26 U.S.C. 318, because those contributions are included in
cash compensation. The eligible non-cash compensation payments should be included on
lines 7 and 8 of PPP Schedule A of the Loan Forgiveness Application (SBA Form 3508),
for borrowers using that form, and do not count toward the $20,833 cap per individual.

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As of October 13, 2020

Self-employed Schedule C (or Schedule F) filers: The compensation of self-employed
Schedule C (or Schedule F) individuals, including sole proprietors, self-employed
individuals, and independent contractors, that is eligible for loan forgiveness is limited to
2.5/12 of 2019 net profit as reported on IRS Form 1040 Schedule C line 31 (or 2.5/12 of
2019 net farm profit, as reported on IRS Form 1040 Schedule F line 34) (or for new
businesses, the estimated 2020 Schedule C (or Schedule F) referenced in question 10 of
“Paycheck Protection Program: How to Calculate Maximum Loan Amounts – By
Business Type” 4). Separate payments for health insurance, retirement, or state or local
taxes are not eligible for additional loan forgiveness; health insurance and retirement
expenses are paid out of their net self-employment income. If the borrower did not
submit its 2019 IRS Form 1040 Schedule C (or F) to the Lender when the borrower
initially applied for the loan, it must be included with the borrower’s forgiveness
application.

General Partners: The compensation of general partners that is eligible for loan
forgiveness is limited to 2.5/12 of their 2019 net earnings from self-employment that is
subject to self-employment tax, which is computed from 2019 IRS Form 1065 Schedule
K-1 box 14a (reduced by box 12 section 179 expense deduction, unreimbursed
partnership expenses deducted on their IRS Form 1040 Schedule SE, and depletion
claimed on oil and gas properties) multiplied by 0.9235. 5 Compensation is only eligible
for loan forgiveness if the payments to partners are made during the Covered Period or
Alternative Payroll Covered Period. Separate payments for health insurance, retirement,
or state or local taxes are not eligible for additional loan forgiveness. If the partnership
did not submit its 2019 IRS Form 1065 K-1s when initially applying for the loan, it must
be included with the partnership’s forgiveness application.

LLC owners: LLC owners must follow the instructions that apply to how their business
was organized for tax filing purposes for tax year 2019, or if a new business, the expected
tax filing situation for 2020.

Loan Forgiveness Nonpayroll Costs FAQs
1. Question: Are nonpayroll costs incurred prior to the Covered Period, but paid during
the Covered Period, eligible for loan forgiveness?

Answer: Yes, eligible business mortgage interest costs, eligible business rent or lease
costs, and eligible business utility costs incurred prior to the Covered Period and paid
during the Covered Period are eligible for loan forgiveness.

Example: A borrower’s 24-week Covered Period runs from April 20 through October 4.
On May 4, the borrower receives its electricity bill for April. The borrower pays its
April electricity bill on May 8. Although a portion of the electricity costs were incurred

4
https://www.sba.gov/sites/default/files/2020-06/How-to-Calculate-Loan-Amounts-508_1.pdf.
5
This treatment follows the computation of self-employment tax from IRS Form 1040 Schedule SE Section A line 4
and removes the “employer” share of self-employment tax, consistent with how payroll costs for employees in the
partnership are determined.

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As of October 13, 2020

before the Covered Period, these electricity costs are eligible for loan forgiveness
because they were paid during the Covered Period.

2. Question: Are nonpayroll costs incurred during the Covered Period, but paid after the
Covered Period, eligible for loan forgiveness?

Answer: Nonpayroll costs are eligible for loan forgiveness if they were incurred during
the Covered Period and paid on or before the next regular billing date, even if the billing
date is after the Covered Period.

Example: A borrower’s 24-week Covered Period runs from April 20 through October 4.
On October 6, the borrower receives its electricity bill for September. The borrower
pays its September electricity bill on October 16. These electricity costs are eligible for
loan forgiveness because they were incurred during the Covered Period and paid on or
before the next regular billing date (November 6).

3. Question: If a borrower elects to use the Alternative Payroll Covered Period for payroll
costs, does the Alternative Payroll Covered Period apply to nonpayroll costs?

Answer: No. The Alternative Payroll Covered Period applies only to payroll costs, not
to nonpayroll costs. The Covered Period always starts on the date the lender makes a
disbursement of the PPP loan. Nonpayroll costs must be paid or incurred during the
Covered Period to be eligible for loan forgiveness. For payroll costs only, the borrower
may elect to use the Alternative Payroll Covered Period to align with its biweekly or
more frequent payroll schedule.

4. Question: Is interest on unsecured credit eligible for loan forgiveness?
Answer: No. Payments of interest on business mortgages on real or personal property
(such as an auto loan) are eligible for loan forgiveness. Interest on unsecured credit is not
eligible for loan forgiveness because the loan is not secured by real or personal property.
Although interest on unsecured credit incurred before February 15, 2020 is a permissible
use of PPP loan proceeds, this expense is not eligible for forgiveness.
5. Question: Are payments made on recently renewed leases or interest payments on
refinanced mortgage loans eligible for loan forgiveness if the original lease or mortgage
existed prior to February 15, 2020?

Answer: Yes. If a lease that existed prior to February 15, 2020 expires on or after
February 15, 2020 and is renewed, the lease payments made pursuant to the renewed
lease during the Covered Period are eligible for loan forgiveness. Similarly, if a
mortgage loan on real or personal property that existed prior to February 15, 2020 is
refinanced on or after February 15, 2020, the interest payments on the refinanced
mortgage loan during the Covered Period are eligible for loan forgiveness.

Example: A borrower entered into a five-year lease for its retail space in March 2015.
The lease was renewed in March 2020. For purposes of determining forgiveness of the

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As of October 13, 2020

borrower’s PPP loan, the March 2020 renewed lease is deemed to be an extension of the
original lease, which was in force before February 15, 2020. As a result, the lease
payments made under the renewed lease during the Covered Period are eligible for loan
forgiveness.

6. Question: Covered utility payments, which are eligible for forgiveness, include a
“payment for a service for the distribution of . . . transportation” under the CARES Act.
What expenses does this category include?
Answer: A service for the distribution of transportation refers to transportation utility
fees assessed by state and local governments. Payment of these fees by the borrower is
eligible for loan forgiveness. 6

7. Question: Are electricity supply charges eligible for loan forgiveness if they are charged
separately from electricity distribution charges?

Answer: Yes. The entire electricity bill payment is eligible for loan forgiveness (even if
charges are invoiced separately), including supply charges, distribution charges, and
other charges such as gross receipts taxes.

Loan Forgiveness Reductions FAQs
1. Question: Will a borrower be subject to a reduction to its forgiveness amount due to a
reduction in FTE employees during the Covered Period if the borrower offered to rehire
one or more laid off employees but the employees declined?

Answer: In calculating its loan forgiveness amount, a borrower may exclude any
reduction in FTE employees if the borrower is able to document in good faith the
following: (1) an inability to rehire individuals who were employees of the borrower on
February 15, 2020 and (2) an inability to hire similarly qualified individuals for unfilled
positions on or before December 31, 2020. Borrowers are required to inform the
applicable state unemployment insurance office of any employee’s rejected rehire offer
within 30 days of the employee’s rejection of the offer. The documents that borrowers
should maintain to show compliance with this exemption include the written offer to
rehire an individual, a written record of the offer’s rejection, and a written record of
efforts to hire a similarly qualified individual.

2. Question: If a seasonal employer elects to use a 12-week period between May 1, 2019
and September 15, 2019 to calculate its maximum PPP loan amount, what period in 2019
should be used as the reference period for calculating any reductions in the loan
forgiveness amount?

Answer: A seasonal employer that elects to use a 12-week period between May 1, 2019
and September 15, 2019 to calculate its maximum PPP loan amount must use the same

6
For more information on transportation utility fees, see
https://www.fhwa.dot.gov/ipd/value_capture/defined/transportation_utility_fees.aspx.

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As of October 13, 2020

12-week period as the reference period for calculation of any reduction in the amount of
loan forgiveness.

3. Question: When calculating the FTE Reduction Exceptions in Table 1 of the PPP
Schedule A Worksheet on the Loan Forgiveness Application (SBA Form 3508 or lender
equivalent), do borrowers include employees who made more than $100,000 in 2019
(those listed in Table 2 of the PPP Schedule A Worksheet)?

Answer: Yes. The FTE Reduction Exceptions apply to all employees, not just those
who would be listed in Table 1 of the Loan Forgiveness Application (SBA Form 3508 or
lender equivalent). Borrowers should therefore include employees who made more than
$100,000 in the FTE Reduction Exception line in Table 1 of the PPP Schedule A
Worksheet.

4. Question: How do borrowers calculate the reduction in their loan forgiveness amount
arising from reductions in employee salary or hourly wage?

Answer: Certain pay reductions during the Covered Period or the Alternative Payroll
Covered Period may reduce the amount of loan forgiveness a borrower will receive. If
the salary or hourly wage of a covered employee 7 is reduced by more than 25% during
the Covered Period or the Alternative Payroll Covered Period, the portion in excess of
25% reduces the eligible forgiveness amount unless the borrower satisfies the
Salary/Hourly Wage Reduction Safe Harbor (as described in the Loan Forgiveness
Application (SBA Form 3508 or lender equivalent)). The examples below assume that
each employee is a “covered employee.”

Example 1: A borrower received its PPP loan before June 5, 2020 and elected to use an
eight-week covered period. Its full-time salaried employee’s pay was reduced during
the Covered Period from $52,000 per year to $36,400 per year on April 23, 2020 and
not restored by December 31, 2020. The employee continued to work on a full-time
basis with a full-time equivalency (FTE) of 1.0. The borrower should refer to the
“Salary/Hourly Wage Reduction” section under the “Instructions for PPP Schedule A
Worksheet” in the PPP Loan Forgiveness Application Instructions. In Step 1, the
borrower enters the figures in 1.a, 1.b, and 1.c, and because annual salary was reduced
by more than 25%, the borrower proceeds to Step 2. Under Step 2, because the salary
reduction was not remedied by December 31, 2020, the Salary/Hourly Wage Reduction
Safe Harbor is not met, and the borrower is required to proceed to Step 3. Under Step
3.a., $39,000 (75% of $52,000) is the minimum salary that must be maintained to avoid
a penalty. Salary was reduced to $36,400, and the excess reduction of $2,600 is entered
in Step 3.b. Because this employee is salaried, in Step 3.e., the borrower would
multiply the excess reduction of $2,600 by 8 (if it had instead selected a 24-week
Covered Period, it would multiply by 24) and divide by 52 to arrive at a loan

7
A “covered employee” is an individual who: (1) was employed by the borrower at any point during the Covered
Period or Alternative Payroll Covered Period and whose principal place of residence is in the United States; and (2)
received compensation from the borrower at an annualized rate less than or equal to $100,000 for all pay periods in
2019 or was not employed by the borrower at any point in 2019.

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As of October 13, 2020

forgiveness reduction amount of $400. The borrower would enter on the PPP Schedule
A Worksheet, Table 1, $400 as the salary/hourly wage reduction in the column above
box 3 for that employee.

Example 2: A borrower received its PPP loan before June 5, 2020 and elected to use a
24-week Covered Period. An hourly employee’s hourly wage was reduced from $20
per hour to $15 per hour during the Covered Period. The employee worked 10 hours
per week between January 1, 2020 and March 31, 2020. The borrower should refer to
the “Salary/Hourly Wage Reduction” section under the “Instructions for PPP Schedule
A Worksheet” in the PPP Loan Forgiveness Application Instructions. Because the
employee’s hourly wage was reduced by exactly 25% (from $20 per hour to $15 per
hour), the wage reduction does not reduce the eligible forgiveness amount. The amount
on line 1.c would be 0.75 or more, so the borrower would enter $0 in the Salary/Hourly
Wage Reduction column for that employee on the PPP Schedule A Worksheet, Table 1.

If the same employee’s hourly wage had been reduced to $14 per hour, the reduction
would be more than 25%, and the borrower would proceed to Step 2. If that reduction
were not remedied as of December 31, 2020, the borrower would proceed to Step 3.
This reduction in hourly wage in excess of 25% is $1 per hour. In Step 3, the borrower
would multiply $1 per hour by 10 hours per week to determine the weekly salary
reduction. The borrower would then multiply the weekly salary reduction by 24
(because the borrower is using a 24-week Covered Period). The borrower would enter
$240 in the Salary/Hourly Wage Reduction column for that employee on the PPP
Schedule A Worksheet, Table 1. If the borrower applies for forgiveness before the end
of the 24-week Covered Period, it must account for the salary reduction (the excess
reduction over 25%, or $240) for the full 24-week Covered Period.

Example 3: An employee earned a wage of $20 per hour between January 1, 2020 and
March 31, 2020 and worked 40 hours per week. During the Covered Period, the
employee’s wage was not changed, but his or her hours were reduced to 25 hours per
week. In this case, the salary/hourly wage reduction for that employee is zero, because
the hourly wage was unchanged. As a result, the borrower would enter $0 in the
Salary/Hourly Wage Reduction column for that employee on the PPP Schedule A
Worksheet, Table 1. The employee’s reduction in hours would be taken into account in
the borrower’s calculation of its FTE during the Covered Period, which is calculated
separately and may result in a reduction of the borrower’s loan forgiveness amount.

5. Question: For purposes of calculating the loan forgiveness reduction required for
salary/hourly wage reductions in excess of 25% for certain employees, are all forms of
compensation included or only salaries and wages?

Answer: For purposes of calculating reductions in the loan forgiveness amount, the
borrower should only take into account decreases in salaries or wages.

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As of October 13, 2020

Economic Injury Disaster Loan (EIDL) FAQs

1. Question: SBA will deduct the amount of any Economic Injury Disaster Loan (EIDL)
advance received by a PPP borrower from the forgiveness amount remitted to the
lender. How will a lender know the amount of the EIDL advance that will be
automatically deducted by SBA?

Answer: If a borrower received an EIDL advance, SBA is required to reduce the
borrower’s loan forgiveness amount by the amount of the EIDL advance. SBA will
deduct the amount of the EIDL advance from the forgiveness amount remitted by SBA to
the lender. The lender will be able to confirm the amount of the EIDL advance that will
be automatically deducted by SBA from the forgiveness payment by reviewing the
borrower’s EIDL advance information in the PPP Forgiveness Platform.

2. Question: How should a lender handle any remaining balance due on a PPP loan after
SBA remits the forgiveness amount to the lender?

Answer: If a PPP loan is not forgiven in full (including if there has been a reduction in
the forgiveness amount for an EIDL advance), any remaining balance due on the PPP
loan must be repaid by the borrower. The lender is responsible for notifying the borrower
of the loan forgiveness amount remitted by SBA and the date on which the borrower’s
first loan payment is due. The lender must continue to service the loan. The borrower
must repay the remaining loan balance by the maturity date of the PPP loan (either two or
five years). If a borrower is determined to have been ineligible for a PPP loan for any
reason, SBA may seek repayment of the outstanding PPP loan balance or pursue other
available remedies.
3. Question: What should a lender do if a borrower received an EIDL advance in excess of
the amount of its PPP loan?

Answer: A borrower that received an EIDL advance in excess of the amount of its PPP
loan will not receive any forgiveness on the PPP loan, because the amount of an EIDL
advance is deducted from the PPP loan forgiveness amount. The lender is responsible for
notifying the borrower of the date on which the borrower’s first loan payment is
due. The lender must continue to service the loan. The borrower must repay the
remaining loan balance by the maturity date of the PPP loan (either two or five years). If
a borrower is determined to have been ineligible for a PPP loan for any reason, SBA may
seek repayment of the outstanding PPP loan balance or pursue other available remedies. 8

8
All questions and answers published August 4, 2020 unless specified otherwise. EIDL FAQs 1 – 3 published
August 11, 2020.

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