How to apply for forgiveness for PPP loans between $50,001 and $150,000
By Bill Cunningham
This is a blog on how to apply for Paycheck Protection Program (PPP) loan forgiveness for loans between $50,001 and $150,000 using Form 3508S.
- If you are self-employed with no employees, you may want to read our post How to apply for forgiveness if you are self-employed with no employees.
- If your PPP Loan is $50,000 or less, you may want to read our post How to apply for forgiveness for PPP Loans $50,000 or less.
- If your PPP loan is greater than $150,000, you may want to read our post How to apply for forgiveness for PPP loans over $150,000
For PPP loans between $50,001 and $150,000 you will need to calculate your forgiveness amount based on the eligible payroll and non-payroll costs that you paid or incurred during your Covered Period. In addition, you will need to calculate any FTE reduction adjustments or salary and hourly rate adjustments.
This blog is almost identical to the blog regarding How to apply for forgiveness for PPP loans over $150,000 with several changes:
- Loans between $50,001 and $150,000 are required to use Form 3508S
- Documentation requirements are different.
This blog includes changes made to PPP by the Economic Aid Act signed into law on December 27, 2020 including forgiveness filing deadlines, changes to the deductibility of expenses for income tax purposes, the repeal of the EIDL Advance Deduction, and allowing certain small businesses the ability to apply for a Second Draw PPP Loan.
Excel Forgiveness Calculator
This post uses Excel Forgiveness Calculator for Form 3508, Form 3508EZ, or Form 3508S, which is a Microsoft Excel workbook, to help you with calculating your Forgiveness Amount. You should input data only in grey cells with blue font. The other cells that contain formulas are protected. If you would like a copy of the Excel Forgiveness Calculator, please email email@example.com.
Score Restaurant Example
We will use a mock company called Score Restaurant as an example to help you better understand how to complete this application. We will also use the Excel Forgiveness Calculator to calculate Score Restaurant’s forgiveness amount.
Let’s get started! After entering the business and loan information, Score Restaurant will enter the PPP loan amount of $165,310, the loan disbursement date of April 24, 2020 and select the number of weeks they will use for their Covered Period, which will be 8 weeks. Eight weeks is how long Olivia, the owner, believes that it will take for the restaurant to use 100% of loan proceeds.
Olivia knows that the restaurant has experienced FTE changes during the Covered Period as compared to the Reference Period, so she decides to run payroll reports for each payroll report period used by the Excel Forgiveness Calculator.
Now Olivia is ready to begin calculating her forgiveness amount that will include both payroll and non-payroll costs. She knows that she must be mindful of the sixty-forty rule, the no double dipping rule and the paid or incurred rule as she inputs her data.
(Note that an explanation of each of the above rules can be found by clicking on the blue text. The same is true for any other term in the post in blue text.)
The first step in calculating the forgiveness amount is to calculate covered payroll costs. This includes five components:
- Employee cash compensation
- Employer-paid employee benefits
- Employer-paid employee retirement benefits
- Employer-paid state/local payroll taxes
- Owner-employees or owner replacement compensation
Employee Cash Compensation
Olivia will start entering her payroll data into the Excel Forgiveness Calculator. She’ll enter each employee total payroll cash compensation during the Covered Period along with their employee identifier (social security number).
She will enter employees, who are paid more than $100,000, in the Table 2 section and she’ll enter owner-employees in the Owner-Employee section under the “Other Costs” tab. The Excel Forgiveness Calculator will automatically apply the employee cash compensation cap of $100,000 to all employees.
Employer-Paid Insurance Benefits
Next, Olivia will enter the employer-paid insurance benefits that were paid or incurred during the Covered Period. This includes group healthcare premiums of $22,154. The restaurant is required to exclude the premiums paid on behalf of Olivia, because she is an owner-employee, as well as the portion of the insurance premiums paid by employees.
Employer-Paid Retirement Benefits
Employer-Paid State and Local Payroll Taxes
Next, Olivia will enter any employer-paid state and local payroll taxes. The restaurant paid state unemployment insurance taxes of $1,040 and Job Development Fund taxes of $40.
Employer-paid federal payroll taxes and employee-paid federal and state payroll taxes are not eligible payroll costs.
The last payroll section is owner employee compensation.
Score Restaurant is a C-Corp, so Olivia will use her 2019 W-2 wages to calculate her compensation eligible for forgiveness. She’ll enter total wages into the Excel Forgiveness Calculator and it will make the calculation for her.
She can also include employer-paid insurance benefits and employer-paid retirement contributions on behalf of Olivia because the legal entity is a C-Corp. However, her eligible retirement costs is capped based on her 2019 employer-paid insurance benefits and employer-paid retirement contribution.
Eligible Non-Payroll Costs
Now that Olivia has entered in her eligible payroll costs, she is ready to enter her eligible non-payroll costs, including:
- mortgage interest
- rent payments
- utility payments
- covered operations expenditures
- covered property damage costs
- covered supplier costs
- covered worker protection expenditures
Score Restaurant has no mortgage interest costs, so Olivia will skip to the next section.
She records $8,000 for rent payments for her restaurant space paid or incurred during the Covered Period. Olivia doesn’t own the building and doesn’t sublet any of the space so she can take the full rent deduction.
Next, Olivia will record utility payments including electricity costs of $1,600, telephone costs of $1,400 and Internet connection costs of $200 that were paid or incurred during the Covered Period. Each of these utilities were in service before February 15, 2020.
Covered Operations Costs
Next, Olivia enters her covered operations costs including the costs of their POS system as well as the subscription fees for their accounting software.
Covered Property Damage Costs
Olivia remembers that she incurred damages to the restaurant in June of 2020 during one of the protests, however the insurance company covered 100% of the repair costs so she realized that she cannot include any covered property damage costs.
Covered Supplier Costs
Because Score Restaurant purchases perishable goods, Olivia can deduct their purchase orders for food supplies signed before and during their Covered Period. The payments of $4,500 related to the covered supplier costs are eligible for forgiveness.
Covered Worker Protection Costs
Olivia paid $4,000 to upgrade her ventilation system. She will include those costs as covered worker protection costs. Her other worker and customer safety protection costs were paid using a Restore RI grant so she will not include those costs.
Olivia has entered all of the restaurant’s eligible forgiveness costs totaling $167,815, which is $2,475 more than the PPP loan of $165,340. The Excel Forgiveness Calculator checks that payroll costs are at least 60% of the Forgiveness Amount and that the Forgiveness Amount does not exceed the amount of PPP loan. SCORE Restaurant should be able to apply for 100% forgiveness of $165,340. However, they still have several more steps.
FTE and Salary/Hourly Rate Reduction Adjustments
Now that Olivia has calculated the Forgiveness Amount, she needs to determine:
- Does she have a FTE Reduction Adjustment?
- Does she have a Salary/Rate Reduction Adjustment?
The Excel Forgiveness Calculator can help her answer these two questions.
FTE Reduction Exceptions
This table shows the employees changes from the Reference Period through the period when Olivia files for forgiveness and how Olivia will apply the FTE Reduction Exception rule. The first 12 employees on this table were employed during the period from February 15, 2019 and June 30, 2019 which Olivia is using for her Reference Period. The FTEs during the Covered Period are initially compared to the Reference Period to determine whether there is a decrease in FTEs. During the Reference Period, Score Restaurant had 12 FTEs and during the Covered Period 7 FTEs or a 42% reduction.