Should you wait 8 or 24 weeks to apply for PPP Loan forgiveness? This depends on when you reach full forgiveness. This presentation will help guide you.

1. PPP Loan
When should I apply for forgiveness

2. When to
apply for
PPP loan
forgivenes
s?
If you received your loan
proceeds before June 5th , you
could elect to use an 8 week or
a 24-week expenditure period.
After June 5th, you must use a
24-week testing period
However, you can submit your
loan forgiveness application if
you have used all the loan
proceeds.

3. Last day to
use proceeds
Regardless of when you took your
loan, all proceeds must be used by
December 31, 2020

4. Periods you
should
understand
before deciding
when to apply for
forgiveness

5. Covered Period
The Covered Period is either
(1) the 24-week (168-day) period beginning on
the PPP Loan Disbursement Date, or
(2) (2) if the Borrower received its PPP loan
before June 5, 2020, the Borrower may elect
to use an eight-week (56-day) Covered
Period.
For example, if the Borrower is using a 24-week
Covered Period and received its PPP loan
proceeds on Monday, April 20, the first day of the
Covered Period is April 20 and the last day of the
Covered Period is Sunday, October 4. In no
event may the Covered Period extend beyond
December 31, 2020.

6. Alternative Payroll Covered Period
Borrowers with a biweekly (or more
frequent) payroll schedule may elect to
calculate eligible payroll costs using the
24-week (168-day) period (or for loans
received before June 5, 2020 at the
election of the borrower, the eight-week
(56-day) period) that begins on the first
day of their first pay period following their
PPP Loan Disbursement Date.
For example, if the Borrower is using a
24-week Alternative Payroll Covered
Period and received its PPP loan
proceeds on Monday, April 20, and the
first day of its first pay period following its
PPP loan disbursement is Sunday, April
26, the first day of the Alternative Payroll
Covered Period is April 26 and the last
day of the Alternative Payroll Covered
Period is Saturday, October 10.

7. Wage
reduction
compariso
n period
The actual amount of loan forgiveness the
Borrower will receive may be reduced if
pay was reduced by more than 25% when
compared to wages paid between January
1, 2020 to March 31, 2020.

8. Wage
reduction
safe
harbor
periods
If the Borrower restored
salary/hourly wage levels,
the Borrower may be eligible
for elimination of the
Salary/Hourly Wage
Reduction amount if:
• The wage rate paid between
February 15, 2020 and April 26,
2020 is less than the amount paid as
of February 15th
• But was restored as of the
application submission date or
December 31st (whichever is earlier)

9. Wage Reduction Safe Harbor Example
You have an employee
making $25,000 as of
February 15th.
Your business slowed
down so you reduced
salary between February
15th and April 26th
However, you restored the salary
back to the level (or more) by the
application submission date
You meet the salary/ wage harbor and
not subject to salary/ wage reduction.

10. Reference
period
In addition to the salary wage
reduction, there is also a full-time
equivalency reduction i.e. a reduction
for reducing your employee's hours
However, in the case of the FTE
reduction calculation, you get to
choose your reference period.
The reference period with the least
FTE will help you most.

11. Reference
period
contd.
Date
choices
(i) February 15, 2019 to June 30, 2019;
(ii) January 1, 2020 to February 29,
2020; or
(iii) in the case of seasonal employers,
either of the preceding periods or any
consecutive 12-week period between
May 1, 2019 and September 15, 2019.

12. Example
With the relevant periods in mind,
let us work through an example
This example will deal with the
wage reduction caveat

13. Example
Adam Smith who had one employee
received a $20,000 PPP Loan. Find below his
data referencing the key periods:
Covered period: 8 weeks from 3/18/2020 to
5/12/2020
Since the covered period and payroll fell on the same day, there
was no need to use the alternative payroll covered period.
Wages paid during the covered periods was $12,000 at an
average rate of $10 an hour

14. Example
cont.
• Wage reduction comparison
period:
• The average wage rate between
January 1 and March 31, 2020
was $20
• Due to a decline in business
income, Adam was not able to
keep up with the wages

15. Example contd.
Wage reduction safe harbor periods: The average wage rate
paid between February 15, 2020 and April 26, 2020 was $10
The wage rate as of February 15th was $20
The wage rate as of the application submission date or
December 31st (whichever is earlier) was $10 ( was not restored
to previous levels)

16. Example cont.
Wage reduction calculation:
From the example we see that wage was reduced by 50% (more than 25%)
The wage as of February 15th was $20
Reduced to $10 between February 15th and April 26th
But not restored by the application submission date.
No safe harbor applies
Salary is reduced by $3,720 (calculation on the next slide)

17. Salary/ Hourly Wage
Reduction Calculation
• Figure out the salary reduction over 25%
• Jan to Mar wage = $20 *. 75 = $15
• Subtract the wage paid during the covered period
from $15 = $5
• Multiply by the average # of hours worked per
week $31
• 5 * 31 = $155
• Multiply by # of weeks in your forgiveness window
(8 weeks)
• 155 *8 = $1,240
• Salary wage reduction will be $1,240

18. Wages
eligible for
forgivenes
s
The wages eligible for
forgiveness will be
Payroll cost less
the salary reduction
which will be
12,000 –
3,720 =
10,760

19. Apply or
not?
Adam’s only other expense was his pay
of $8,000 (Note: Owners pay is not
evaluated the same way as payroll
expenses).
Total payroll expenses of $8000 +
$10,760 = $18,760
Adam has not achieved full forgiveness
and is better off waiting till the end of the
24-week period to accumulate more
expenses

20. Apply or
not?
However, if Adam had other expenses
like rent and utilities, he will be able to
reach the $20,000 without waiting
Total payroll expenses of $18,760 is
94% of total loan. This is more than the
60% required
With other expenses, Adam will not
need to wait even though he reduced
wages during the covered period.

21. Apply or
not?
This workbook will make it
easier to run your numbers.
It is worth checking to see if you
are eligible for full forgiveness
within the 8-week window.

22. Apply or not
Next, we look at the effect of
reduction in work hours.

23. https://lifestylecpa.com/product/ppp-loan-forgiveness-in-less-than-1-hour/