PPP Forgiveness: 4 Word of Advice To Maximize Other ‘Free Money’ You Are Eligible For

Updated: Sep 8, 2021

Many small businesses have received either one or two draws of the paycheck protection program from the SBA. Restaurants in particular have been provided support of up to 3.5x their average monthly payroll in the second draw during 2021 due to challenges covid19 has had on their business. Now- in apply for ppp forgiveness, are there any tips that employers should follow? Maximize Non Payroll Expenses


Every PPP recipient should list 40% of qualified non-payroll expenses on their ppp forgiveness, using those paid during the covered period. These include: rent, utilities, supplier costs, and other qualified expenses. Why? Because the payroll costs not used up can then be used for payroll refunds that the employer receives. Employers that do not include non-payroll costs on their ppp forgiveness will be wasting ‘free money’ payroll refunds they are eligible for. Below is the specific IRS notice regarding calculation for the payroll tax refund and why it makes sense to maximize non-payroll expenses up to 40%. This will maximize the employee retention tax credits. The employee retention credits are applicable to many employers.



IRS Notice Regarding PPP & Payroll Refund Interaction

An eligible employer that received a PPP loan is deemed to have made the election under section 2301(g)(1) of the CARES Act for those qualified wages included in the amount reported as payroll costs on a Paycheck Protection Program Loan Forgiveness Application (PPP Loan Forgiveness Application). Specifically, the amount for which the eligible employer is deemed to have made the election is the amount of qualified wages included in the payroll costs reported on the PPP Loan Forgiveness Application up to (but not exceeding) the minimum amount of payroll costs, together with any other eligible expenses reported on the PPP Loan Forgiveness Application, sufficient to support the amount of the PPP loan that is forgiven. The PPP does in fact impact the employee retention tax credit.


Payroll costs used in PPP forgiveness are not qualified wages for the Payroll Refund

Example: Employer C received a PPP loan of $200,000. Employer C is an eligible employer and paid $200,000 of qualified wages that would qualify for the payroll refund during the second and third quarters of 2020. Employer C also paid other eligible expenses of $70,000. In order to receive forgiveness of the PPP loan in its entirety, Employer C was required, under the SBA rules, to report a total of $200,000 of payroll costs and other eligible expenses (and a minimum of $120,000 of payroll costs). Employer C submitted a PPP Loan Forgiveness Application and reported the $200,000 of qualified wages as payroll costs in support of forgiveness of the entire PPP loan, but did not report the other eligible expenses of $70,000. Employer C received a decision under section 7A(g) of the Small Business Act in the first quarter of 2021 for forgiveness of the entire PPP loan amount of $200,000.


Employer C is deemed to have made an election not to take into account $200,000 of qualified wages for purposes of the payroll refund, which was the amount of qualified wages included in the payroll costs reported on the PPP Loan Forgiveness Application up to (but not exceeding) the minimum amount of payroll costs, together with any other eligible expenses reported on the PPP Loan Forgiveness Application, sufficient to support the amount of the PPP loan that is forgiven. Although Employer C could have reported $70,000 of eligible expenses (other than payroll costs) and $130,000 of payroll costs, Employer C reported $200,000 of qualified wages as payroll costs on the PPP Loan Forgiveness Application. As a result, no portion of those qualified wages reported as payroll costs may be treated as qualified wages for purposes of the payroll refund. Employer C cannot reduce the deemed election by the amount of the other eligible expenses that it could have reported on its PPP Loan Forgiveness Application.


Example 2: Same facts as Example 3, except Employer C submitted a PPP Loan Forgiveness Application and reported the $200,000 of qualified wages as payroll costs, as well as the $70,000 of other eligible expenses, in support of forgiveness of the PPP loan. Employer C received a decision under section 7A(g) of the Small Business Act in the first quarter of 2021 for forgiveness of the entire PPP loan amount of $200,000. In this case, Employer C is deemed to have made an election not to take into account $130,000 of qualified wages for purposes of the payroll refund, which was the amount of qualified wages included in the payroll costs reported on the PPP Loan Forgiveness Application up to (but not exceeding) the minimum amount of payroll costs, together with the $70,000 of other eligible expenses reported on the PPP Loan Forgiveness Application, sufficient to support the amount of the PPP loan that was forgiven. As a result, $70,000 of the qualified wages reported as payroll costs may be treated as qualified wages for purposes of the payroll refund.


Reference: Page 77–78, Answer 49, Examples 3 & 4. IRS notice n-21–20.


In conclusion: when applying for PPP forgiveness make sure you include all qualified non-payroll expenses in your application, subject to 40% of ppp loan amount maximum. This will allow you to qualify for more refundable tax credits such as the employee retention tax credit with the IRS.


To apply for the retention tax credit fill in your information here.