PPP Loan Forgiveness: How to Keep 100%

The best part of the Paycheck Protection Program is that 100% of the loan can be forgiven—if you follow the rules.

Although the Forgiveness will be judged by your local bank or lender, (and so could be slightly different), here’s detailed guidance for getting 100% loan forgiveness.

[ALSO — be sure to watch the free video and get our PPP Forgiveness Calculator — an XL sheet with all the instructions.]

Remember what you borrowed

Remember, the loan you received was based on your average monthly payroll cost for 2019. You should have received 2.5 times that amount. That means you received about 10 weeks of payroll, to help cover just eight weeks of payroll expenses.

The funds from the PPP can be used for the following purposes:

  • Payroll—salaries, wages, tips, commissions, all paid time off, retirement plan matching, and health benefits (but not QSEHRA)
  • Mortgage interest—for mortgage loans started before February 15, 2020
  • Rent—for lease lease agreements made before February 15, 2020
  • Utilities—if service began before February 15, 2020
  • BUT… Do NOT count the payroll tax that the employer pays to the federal government (FICA and FUTA)

All expenses that fall under those categories are eligible for forgiveness. The following conditions will also apply:

1. Eight weeks of coverage

Eligible expenses are those that are incurred over eight weeks, starting from the day the first payment was made by your lender. This is not necessarily the date on which you signed your loan agreement.

Depending on your payroll schedule, you may want to adjust the timing of your payroll date to accommodate as many payroll cycles as possible.

For example, if your PPP loan gets deposited in your bank account on April 15, you could only use the funds on expenses incurred during the eight weeks following April 15, which ends on June 10. If you have a payroll scheduled for June 15, we suggest you pay it on or before the 10th to be safe.

2. The 75/25 rule

At least 75% of your loan must be used for payroll costs. Payments to independent contractors cannot be included in the payroll costs. But all compensation counts, including tips, commissions, mileage reimbursement and more. Whatever you pay your employees (cash compensation) counts toward the 75%. And of course, you can pay employees MORE than 75% of the total.

3. Staffing requirements

You must maintain the number of employees you had on payroll prior to the Covid crisis. Fortunately, there’s some flexibility for calculating this.

Here is the calculation you can use to determine if you’ve met this requirement:

First, determine the average number of full-time equivalent employees you had for:

  • The 8-week period following your initial loan disbursement, (A)
  • February 15, 2019 to June 30, 2019, (B1)
  • and January 1, 2020 to February 29, 2020. (B2)

Take A and divide that by B1. Do the same with B2. Take the largest number you obtain. If you’re a seasonal employer, you must divide by B1.

  • If you get a number equal to or larger than 1, you successfully maintained your headcount and meet this requirement.
  • If you get a number smaller than 1, you did not maintain your headcount and your forgivable expenses will be reduced proportionately.

4. Pay requirements

You must keep paying at least 75% of total wages for all employees.

This requirement will be individually assessed for every employee that did not receive more than $100,000 in annualized pay in 2019.

If the employee’s pay over the 8 weeks is less than 75% of the pay they received during the most recent quarter in which they were employed, the eligible amount for forgiveness will be reduced by the difference between their current pay and 75% of the original pay.

5. Rehiring grace period

You have until June 30 to “remedy” any of the shortfalls under #3 or #4.

You can rehire any staff that were laid off or put on furlough and reinstate any pay that was decreased by more than 25% to meet the requirements for forgiveness. You have until June 30th to do so.

And according to the latest guidance from SBA (Q&A #40), all you have to do is OFFER the furloughed employee their job back. If they decline to return to work, you are still considered to have remedied the FTE shortfall. (Strange but true. Also, the employee may inadvertently disqualify himself from Unemployment Insurance by declining your offer!)

PPP Forgiveness for self-employed individuals

If you are self-employed, your loan will follow different rules.

You may use the PPP loan to replace lost income due to the impacts of COVID-19. However, you are not entitled to use the full amount to replace pay. Only 8 weeks worth of your 2019 net profit will be eligible for forgiveness. Since you could have borrowed more than 10 weeks of income, you will either have some left over or have to show how you used the rest for qualified expenses.

If you have mortgage interest, rent, or utilities expenses, you must have claimed or be entitled to claim a deduction for those expenses on your 2019 Form 1040 Schedule C in order to claim them for forgiveness.

For example, if you worked in an office space in 2019 and did not have a home office, you could not have claimed a deduction on your home mortgage interest. Even if you are currently working at home now, you are not eligible to claim home mortgage interest payments for forgiveness.

After the eight weeks: applying for PPP loan forgiveness

Applications for loan forgiveness will be processed by your lender. They’ll provide you with instructions on where to apply

After you submit your application for forgiveness, your lender is required by law to provide you with a response within 60 days.

Recordkeeping and required documents for PPP loan forgiveness

These are the required documents you will need to collect to provide with your PPP forgiveness application. Your lender may have additional requirements.

  • Documents verifying the number of full-time equivalent employees on payroll and their pay rates, for the periods used to verify you met the staffing and pay requirements:
    • Payroll reports from your payroll provider
    • Payroll tax filings (Form 941)
    • Income, payroll, and unemployment insurance filings from your state
    • Documents verifying any retirement and health insurance contributions
  • Documents verifying your eligible interest, rent, and utility payments (canceled checks, payment receipts, account statements)

If you are a sole proprietor, you can have eight weeks of the loan forgiven as a replacement for lost profit. But you’ll need to provide documentation for the remaining two weeks worth of cash flow, proving you spent it on mortgage interest, rent, lease, and utility payments.

Good recordkeeping and bookkeeping will be critical for getting your loan forgiven—you’ll need to keep track of eligible expenses and their accompanying documentation over the eight weeks. Your lender will likely require these documents in digital format, so take the time to scan any paper documents and keep backups of your digital records.

If you don’t have a reliable bookkeeping solution in place, Bench can do your bookkeeping for you, all online. Learn more.

What if I’m NOT approved for PPP Loan Forgiveness?

Your lender may allow you to provide additional documentation so they can reevaluate your request.

Otherwise, your outstanding balance will continue to accrue interest at 1%, for the remainder of the 2-year period.

There is no prepayment penalty. You can pay off the outstanding balance at any time with no additional fees.


Can I prepay my rent or mortgage?

No, prepayment is not an allowed use of the PPP and andy pre-paid rent will not count toward PPP Loan Forgiveness.

What counts as mortgage interest?

Any interest paid on mortgage on property used for business purposes is an eligible expense that the PPP can be used for, and qualifies for forgiveness.

Acceptable examples include:

  • Mortgage interest on a warehouse you own to store business equipment
  • Auto loan interest on a car you own to make business deliveries

How is eight weeks of net profit from 2019 calculated?

Your net profit that was reported on your Form 1040 Schedule C is multiplied by 8/52.

Originally Published

0 thoughts on “PPP Loan Forgiveness: How to Keep 100%

    • David Worrell says:

      Good Question Robert:

      The law allows you to pay whatever you want to your employees — including “Tips and other cash wages”. So I suggest that you pay commissions right alongside wages during the 8 week period.

      If your people have not EARNED commission during this period, you may pay them anyway. The point of the law is to make up their full cash compensation. So if they used to earn commission, you may pay them something equivalent. The amount is up to you, but Forgiveness will be judged on keeping them paid approximately the same amount as they made pre-COVID.


  • Joanna Lopez says:

    Hi David,
    So I want to make sure I am understanding this correctly, so employees making over 100k/yearly are not counted in payroll costs? What about officers in an S corp who may over 100k/yearly? Thank you for your insight as well as your XL sheet that is very helpful.

    • David Worrell says:

      Hi Johanna:

      Employees and owners who are paid more than $100,000 annually ARE counted… but only for the first $100,000.
      The maximum you can pay anyone during the 8 week period is $16,666 …. or $8,333 per month x 2 months, which is the same as $100,000 annualized.

      Oh! And keep in mind that you CAN count BENEFITS and RETIREMENT contributions EVEN IF they are above the $100,000 limit.

      Hope that helps. Please subscribe to my YouTube channel to be sure you get the latest. I’ll be doing videos on how to account for the PPP money and more!


  • Hi David, thank you so much for your video and Excel calculators.
    I would like to ask you how I should calculate benchmark:
    My organization applies to pay overtime for part time employees (teachers) if they teach over than 8 hours per day, so OT will be paid for 1.5 rate. For example, teacher A works 20 hours per week of which she taught 9 hours on Monday, rate is $20 per hour. Wage = ($20 x 19 regular hours) + ($30 x 1 hr OT)

    However, I heard that the bank will not accept OT for part time employee. Is it correct?
    Hence I should calculate $20 x 20 hrs = Avg $ per week, is it correct?

    Thank you for your time and looking forward to hearing from you


    • David Worrell says:

      Hello (again!) Hang. Thanks for being a great member of our diyCFO club.
      First, let’s be clear that you need to do calculations for 2 different periods: (1) Prior Periods (like last year), and (2) the 8-week Post-PPP Period.
      AND you have to do two calculations: Wages and Hours (FTE).

      The rules are the same for BOTH periods. Simply count ALL wages and ALL hours for each person.
      –> If the hours for any one person are EQUAL TO OR MORE than 40 PER WEEK, then that person is counted as ONE FTE.
      –> If the wages for any one person are MORE than $100,000 (including overtime), count only the first $100,000.

      In any case, always INCLUDE OVERTIME unless and until you reach 40 hours/week or $100,000 in salary.

      Hope that helps.

      • Hi David, I highly appreciate your quick reply while I can say how busy you are.

        I will contact you for further advise.

        Great thanks


  • Larry Borglum says:

    David I watched your PPP Loan forgiveness webinar today (June 19th) the question I asked about the EZ form was related to pg 2 certifications
    to detemine if I can use the EZ form. Next to the last question “The Boorrower did not reduce the number of employees or the average paid hours of employees between Jan. 1, 2020 and the end of the covered period” (which for us would be June 9th, based on an 8wk forgiveness period). I don’t know the reference period to compare to so I know if I reduced the average hours. We did cut most overtime starting in late April, should I just use the EZ if we appear to qualify for 100% forgiveness after using your forgiveness caclulator? We based our loan amount on only payroll expenses rather than including non-payroll expenses and we did go through all of the loan, for payroll only, in the 8wks.

    • David Worrell says:

      Hi Larry. So sorry I did not reply timely to this great question. Lots of folks are stumbling on this odd wording within the EZ form. It means that “Within the period bounded by Jan 1 2020 and the end of your period (June 9), you did not reduce either hours or wage rates”. So, in otherwords, compared to Jan 1, do you still have the same number of people? (Or have you restored the same number of people?)
      The EZ form waivers are quite broad. If that one doesn’t fit you, perhaps one of the others will.

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