How to Calculate Your Partial PPP Loan Forgiveness Amount
If you received a PPP loan, you probably have questions about forgiveness. And even though they made the process easier, what if you used the funds differently than the guidelines specify? Do you qualify? And how do you calculate PPP loan forgiveness in that case?
To answer these questions, we reached out to the SBA. Here’s what you need to know.
How Loan Forgiveness for PPP Works
First, a refresher course: The Paycheck Protection Program (PPP) is all about providing funding to keep your employees on staff during Covid. Along with payroll costs, you can use the money on other approved expenses, like rent, mortgage interest, or utility payments.
According to the guidelines, you should use the majority of your funds on payroll and payroll-related expenses. That originally meant that you had to spend at least 75% of the loan on payroll and the rest on approved expenses, but thanks to the Flexibility Act, that shifted to 60-40.
To be eligible for forgiveness in full, you have to:
- Use at least 60% on payroll expenses
- Spend the rest on approved expenses
- Keep your employee amount and their compensation rates the same
- Spend the funds within your covered period (8 or 24 weeks)
Simple, right?
But what if you didn’t use the full 60% on payroll? Maybe you lost some employees permanently. Or you needed to pay for unexpected repairs. What happens then? Can a PPP loan be partially forgiven?
Let’s take a look.
How to Calculate PPP Loan Forgiveness If You Spent Less Than 60% on Payroll
The borrower will receive partial loan forgiveness, based on the requirement that 60 percent of the forgiveness amount must be attributable to payroll costs.
Here’s the good news: You can still have part of your PPP loan forgiven, even if you didn’t spend the full 60% on payroll. It just involves a little math.
To calculate the amount you qualify for, you need to know two things: the total PPP loan amount and how much of that loan you spent on payroll. You’ll use these to calculate your PPP loan forgiveness, according to guidelines from the SBA. Here’s how.
- Figure out how much of your total loan amount you spent on payroll. If it’s less than 60 percent, go to the next step.
- Determine what that new amount is 60% of to get your new max forgiveness number.
Because the forgiveness rules determine that 60% of the loan has to be spent on payroll, you’re recalculating your loan amount so whatever you did spend on payroll is 60% of the amount that can be forgiven.
Let’s look at an example:
- You had a loan of $100,000 and you only spent $54,000 on payroll, so not the full 60%.
- You need to know the number that $54,000 is 60% of.
- Do the math: $54,000 is 60% of $90,000.
- So $90,000 is your new maximum forgiveness amount.
- You'd have to repay $10,000 of your loan.
Here’s what the revisions to the new interim final rule say:
If you use less than 60% on payroll, “...the borrower will receive partial loan forgiveness, based on the requirement that 60 percent of the forgiveness amount must be attributable to payroll costs.”
Want someone else to do the math? Use the PPP loan forgiveness calculator from Paychex to find out your max forgiveness amount.
Forgiveness Doesn’t Have to Be Complicated
Forgiveness was a piece of cake.
Now that you know that you do qualify for forgiveness even if you didn’t use 60% on payroll, you can apply. Make sure you verify your maximum loan amount with your lender or accountant before you start the process.
Still hesitating? Here are a few members on how easy the forgiveness process has been:
“I am a tax professional here in Lake Worth, and it is true that PPP loan forgiveness is available and easily completed. And unlike other debt forgiveness, it is not taxable.”—Harold Blotcher EA
“My first PPP Loan was actually just forgiven. So rest assured, as long as you use it according to the rules, it will be forgiven.” —Nicholas Radice of GSB Web Design
“Forgiveness was a piece of cake. We were hit hard by reduction in business by Covid restrictions but we were able to keep people employed with PPP and forgiving the loan was easy.”—Mike Fry of Furniture Repair by Fry’s
Have you or will you apply for PPP loan forgiveness? Do you qualify for full or partial forgiveness? Share in the comments.
More questions? These resources can help:
- Ready to apply? Get all the info you need plus PPP loan forgiveness applications here
- What was in the latest PPP update? Check out Your Simple Covid Relief and PPP Guide
- What are the new rules for PPP loan forgiveness? Find out in this PPP Loan Forgiveness Under $150k Update
- For more about the latest Covid relief package, see Covid Relief: 8 Ways to Access Funding
- What’s the forgiveness process if you have no employees or are an independent contractor? This Guide to PPP Loan Forgiveness for the Self Employed breaks it down
- Join the Finance Experts & Advice group to ask questions and share advice on anything and everything money related
Comments (1-10)
What if I am the business owner and also the only employee? Would I have to write myself checks (of at least 60% of total loan)? Thank you!
It seems like the emphasis here is on how you spent the funds. I was told, by the bank loan officer, to qualify for forgiveness, you have to have one quarter in 2020 where you had a loss compared to THE SAME QUARTER IN 2019. It doesn’t matter if your loan was for, say, Q2 and your loss was in Q3 or Q4, but you have to show the loss in comparison to the same quarter in the previous year. So yes, the forgiveness process is super easy and at best will take you 5 minutes to complete, but I don’t hear anyone talking about this. Have I been misinformed or are people just ignoring this part?
So I took a sbu loan for 67000 and it's just me. So if I pay myself a portion of it for salary I don't have to pay that back? I used it for marketing, and paying off business credit cards and other business expenses. Please let me know.
thanks
Grace Ko: Yes, You need to write yourself checks unless you are a schedule C filer or partnership.
Michael: PPP is different than an SBA loan. IF PPP you need to make sure you are doing a 60% payroll 40% other expenses (within the guidelines) to ensure 100% forgiveness
Traci that is for round 2 of the PPP loan. Not for a first draw.
How does one figure payroll if I’m a sole proprietor?
First, I applied for 1st draw and also received 100% forgiveness. I'm a sole proprietor with no employees. The amount was based upon my application in which I based my payroll cost on 2019 average net profit (on Schedule C) - in my case the 60% was not difficult because of information I used at time of application.
The 2nd draw allows schedule C filers to use gross income (rather than net profit) to determine amount eligible for - in my case about 2.4 times what I received in 1st draw based upon my 2020 gross income as reported on Schedule C. The 60% min. on 'payroll costs' still applies when it eventually comes time for forgiveness. Also at least one of 4 quarters of 2020 will need to have gross income more than 25% less than in same quarter of 2019 - which in my case applies.
Problem I'm facing now is bank, nor 3rd party they work with, knows if at time 2nd draw forgiveness is applied for if the gross income monthly average in 2020 may be used as the monthly 'payroll cost' regardless of actual gross income or net profit in weeks of 2021 that the loan forgiveness applies to. Seems could accept the higher amount (based upon 2020 gross) when accepting loan and later have to use less than gross (when applying for forgiveness) and as a result not be able to be forgiven 100% of amount received. Also asked regional SBA representative office - no definitive answer other than loan is ultimately a contract with the bank and the bank is responsible for what is reported to SBA for reimbursement/payment to bank at time of forgiveness approval. Researched fed. interim rule dated March 3, 2020 on topic - but not absolutely clear on future 'forgiveness application' for 2nd draw. Attempted to reach SBA Wisconsin state office for clarity and so far no response to left voice messages or emails.
I have not asked for PPP I have had to pay rents on properties and utilities which put an extreme dent into my funding. I also did not pay an employee who receives a 1099 can I apply for the PPP?
Although we have two months left of the PPP program, we are running out of money. There is only $60 Billion left. That is 20% left of what the SBA Program originally had. These loans come on a first come, first serve basis. We are here to assist in getting you funded, please call so we can assist you (805) 499-2200.
Very helpful article. Thanks
Businesses may be eligible for the Employee Retention Credit as well as PPP loan forgiveness. ERC pros can help businesses calculate both for you to ensure you are able maximize both.