If you received a loan through the Paycheck Protection Program (PPP), you may have some questions about whether you qualify for forgiveness, if taxes are impacted and more. Below are a few common questions we’ve compiled about the program and the impacts of the loan.
What is the Paycheck Protection Program?
The original $935 billion business loan program was established in March 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The program was extended in late March but ran out of money for most borrowers in early May 2021 and officially came to an end on May 31, 2021.
If I received a loan, am I eligible for forgiveness?
Both first- and second-draw borrowers become eligible for loan forgiveness if during the 8- to 24-week period following loan disbursement the proceeds were used on eligible expenses. A borrower generally will be eligible for complete forgiveness if:
- employee headcount and compensation levels are maintained
- the loan goes toward payroll and other eligible expenses
- at least 60% of the proceeds go toward payroll
Once proceeds have been spent, borrowers can apply for forgiveness at any time up to the maturity date of the loan, but must apply within 10 months of the end of the covered period to avoid having to repay the loan.
To obtain forgiveness, borrowers should contact their lender, which should provide the appropriate documentation to fill out: SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S or an equivalent.
Do PPP loans cover paid sick leave?
PPP loans cover payroll costs, including employee vacation, parental, family, medical and sick leave. The CARES Act excludes qualified sick and family leave wages for which a credit is allowed. You can learn more about the Paid Sick Leave Refundable Credit here.
Is the PPP loan taxable?
While forgiven loans are tax-free on a federal level, borrowers may be liable for state taxes on the amount of their loan. Some states have passed laws that align state law with federal and make the forgiven loan amount non-taxable or partially non-taxable.
Borrowers should familiarize themselves with their state’s tax requirements in relation to the PPP.
If I received a loan, can I also take advantage of the Employee Retention Tax Credit?
Before December 2020, organizations that received a PPP loan were not eligible to claim the employee retention tax credit. However, the Consolidated Appropriations Act eliminated the rule that previously disqualified an employer from the employee retention tax credit if any member of the employer’s aggregated group received a PPP loan. Now, only wages forgiven under the PPP are disqualified.
Navigating new laws
Programs like the PPP offer significant opportunities to qualifying businesses, but it’s important to stay up to date on a shifting legislative landscape. Please continue to follow the Paycom blog for more updates that matter to your organization.
Disclaimer: The information provided herein does not constitute the provision of legal advice, tax advice, accounting services or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional legal, tax, accounting or other professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation and for your particular state(s) of operation.