From April 3rd to August 8th, 2020, the SBA approved more than 5.2 million Paycheck Protection Program loans totaling $525 billion dollars to private business owners. What made this program incredibly popular was that the loans could be forgiven by conversion into a grant as long as specific requirements were followed in how the money was used.
These requirements were:
Funds are allowed to be used for payroll costs, rent, utilities and interest on mortgages.
At least 60% of loan must be used for payroll costs.
While the loan is being used, employers must attempt in good faith to maintain similar levels of employment and pay that they had prior to the pandemic.
Additionally, as long as the business submitted the loan forgiveness forms within ten months of the loan being used, the business would not have to make any payments on the loan.
The required forms are available from the SBA through this link.
For small businesses with employees, the fairly simple five-page application asks businesses to submit details such as payroll and nonpayroll costs, adjustments for wage reductions and potential forgiveness amounts. Additionally, you’ll use the application to certify that the loan funds were used as intended, that you verified payments to employees and generally that the forms and information submitted to the SBA are true.
Impact on business taxes
After the loan has been forgiven, businesses should be prepared for the forgiven loan to impact their 2020 business taxes. While a forgiven PPP loan is tax-exempt, using the loan can also reduce how much you can write off on your business taxes. This means that some of your everyday expenses like payroll, rent and utilities that would normally be deductible from taxable income would not be deducted. Without this deduction, your business may in fact owe more taxes at the end of the year than normal.