Austin Tax Blog


Small business owners all over the country will soon be applying for loan forgiveness as part of the Paycheck Protection Program (PPP). As a small business, you should know that PPP loans keep Americans working by having their companies continue to pay employees who are in need. The program reimburses struggling businesses–ultimately enabling them to survive–by allowing them to keep workers on payroll and certain other expenses. 

Beware of the terms associated with PPP Draw 1 and 2 loans. These can have serious implications when it comes to forgiveness, especially if you are unable to make your payments in a timely manner. Before applying for either loan type, be sure that you know what repayment options will work best for both yourself as well as any other business partners.


First Draw PPP loans are designed to assist eligible borrowers in the process of repairing their business by providing a temporary financial solution. These loans offer full loan forgiveness if they qualify for one of these conditions: ·   

Maintained employee staffing and compensation levels, spent the money on payroll costs or other eligible expenses, used at least 60% during this time period towards covering payroll costs.


Second Draw PPP Loan forgiveness terms are the same as First Draw, but with one exception. If a borrower qualifies for full loan forgiveness under Second Draw’s requirements and they have done the following during an 8- to 24-week period after their initial disbursement: 

  • Maintained employee and compensation levels in the same manner required of First draw borrowers; 
  • Spent at least 60% on payroll costs or other eligible expenses; then they will be granted full debt relief from both loans if all criteria are met.

Paycheck Protection ProgramHow and when to apply for loan forgiveness

Small business borrowers can apply for forgiveness once all the money from their loan is spent. Borrowers are free to request forgiveness any time up until their loans mature, but if they don’t do so within 10 months after the last day of a covered period then PPP Loan payments will no longer be forgiven and instead repayments with interest will begin being made back to your lender.


Small business owners and their CPAs/accountants can use AICPA’s free online platform to apply for loan forgiveness, which will save them thousands of dollars in the long run. The PPPForgivenessTool is available on payroll includes salaries, wages or similar forms compensation; payment of cash tips or equivalent; payment for vacations or parental family medical sick leave severance payouts when dismissed from employment retirement benefits and state local tax assessed on employee compensation


PPP reimbursement covers salaries with a cap of $100,000. All employees regardless of salary above 100,000 are eligible to be counted in PPP loan forgiveness up until the point that total paid compensation reaches $125K or more. At this point any additional money is not covered by the program and must be repaid on an individual basis through repayment plans like IBR based upon income levels.


The rules for the PPP (payroll percentage) calculation are different if you have a part-time worker. In this case, take their average hours and multiply it by the hourly rate to calculate how much they should be paid in order to count towards your total payroll amount. Keep in mind that contractors don’t count as employees but can still apply independently for an individual’s eligibility of PPP benefits with Social Security Administration or Railroad Retirement Board, depending on which type is applicable based on what kind of work was performed during employment instead


The way you report salary information impacts whether or not it counts toward your company’s overall payroll when calculating pay ratio disclosures under new regulations from 2020 onwards. If someone works full time then just one number would

What types of businesses are eligible for Paycheck Protection Program (PPP) loans?

  •       Self-employed individuals, independent contractors, and sole proprietors.
  •       Small businesses with employee count of 500 or fewer.
  •       Non-profits – 501(c)(3) and 501(c)(19) with 500 or fewer employees
  •       Franchises on a location by location basis

For more information specific to Small Business Administration business size requirements visit SBA table-size standards.

What type of documentation does small businesses need to apply for PPP loan forgiveness?

Small business owners should be able to provide documentation for all payroll periods that overlapped with the covered period of the PPP loan. These documents include:

  •       Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.
  •       Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the covered period.
  •       Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941).
  •       State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.
  •       Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the borrower included in the forgiveness amount.

Non-payroll expenses covered by PPP include: 

  •       Business mortgage interest payments. (Provide a copy of lender amortization schedule and receipts verifying payments, or lender account statements.)
  •       Business rent or lease payments. (Provide a copy of current lease agreement and receipts or cancelled checks verifying eligible payments.)
  •       Utility payments (Provide copies of invoices and receipts, cancelled checks or account statements.)
  •       Operation expenditures related to business software or cloud computing service
  •       Property damage costs related to vandalism or looting
  •       Payments made to a supplier of goods
  •       Worker protection expenditures (masks, sanitizer, etc.)

Covered items have expanded from the first iteration of PPP forgiveness, which focused primarily on salary expenses and rent, to items including PPE, software, and supplier costs. Once the documentation is compiled, the small business owner is ready to submit the loan forgiveness application to the lender. If the SBA undertakes a review of your PPP loan application, your lender will notify you of the review and, ultimately, of the SBA’s review decision.

You may be eligible to appeal an SBA loan decision. If you are denied, your lender will notify you of the amount and date for a first payment due if applicable.