Congratulations you have received your PPP funding, and want to maximize your loan forgiveness. The amount spent over the next 8 weeks is eligible to be completely forgiven IF you use these funds for the following expenses: payroll, mortgage interest, rent and utilities. According to the ‘CARES’ Act, the forgiveness of a PPP loan is completely tax free. The sum of the following “costs incurred and payments made” will be eligible for loan forgiveness:

Payroll costs

75% of your loan will need to be allocated to your payroll expense. However, you are limited to paying an employee $15,385 during the payout period. This is eight weeks of payroll for an employee who earns $100,000 per year. If you exceed the limit, the difference is not eligible for forgiveness. Current provisions do not limit the ability to increase an employee’s salary, or offer ‘hazard’ pay during the payout period.

Payroll costs that are eligible for loan forgiveness:

  • Salary, wages, commission or similar compensation (recent SBA guidance states that payroll costs include all cash
  • compensation, including a housing stipend or allowance) Payments for vacation, parental, family, medical or sick leave Allowance for dismissal or separation
  • Payments for the provision of group health care benefits, including insurance premiums Payments for retirement benefits
  • State or local payroll taxes

“Penalty” provisions include that the amount of forgiveness is reduced for those who made workforce reductions after February

15, unless reductions are restored by June 30. (i.e. you had 10 full time employees prior to COVID-19 but were forced to lay off 5 employees; Only half of your loan will qualify for forgiveness unless you hire 5 FTE back by June 30th).

Additional “penalty” provisions in the law state that if, during the payout period you have reduced the salary of any employee by more than 25% of what they earned in the first quarter of 2020, that reduction will result in a portion of the loan not qualifying for forgiveness, unless the salary is restored by June 30. This provision applies to employees who, during 2019, did not earn more than $100,000 per annum. The ‘CARES’ act does not specify if this provision applies if you had to lay someone off and they choose not to return to work. Further regulations should provide guidance.

In order to be eligible for full forgiveness, you cannot utilize more than 25% of the loan proceeds to pay expenses unrelated to payroll. You may still pay mortgage interest, rent and utility bills. However, if more than 25% of the loan proceeds are allocated to these expenses the excess will not qualify for forgiveness.

Mortgage Interest

Payment of interest on any mortgage obligation (not including any prepayment of or payment of principal on a mortgage obligation) that was incurred before February 15, 2020, is eligible for forgiveness. (Keep in mind the 25% rule)

Rent and Utilities

Any payment of rent under a leasing agreement in force before February 15, 2020, any utility payment, including payment for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020 is eligible for forgiveness. (Keep in mind the 25% rule)

Create an audit trail

We suggest having the PPP loan funds deposited into a separate business checking account, so that they are not co-mingling with other business funds. Only the expenses which qualify for forgiveness (payroll costs, rent, mortgage interest (but not interest on non-mortgage loans), and utilities) should be paid from this account. This will allow you to provide clear and concise records when it is time to apply for forgiveness.

Keep precise records

Keep records of payroll for the payout period, as well as invoices for health insurance, mortgage statements, a copy of your lease, copies of canceled checks or other evidence of rent and utility payments. Be prepared to present these records to your lender, potentially in an electronic format. If you have a payroll that is due to be paid on the 57th day following the funding date, you may want to expedite it a day to fall within the 8 week payout period.

If you have any additional questions, please call us at 352-683-7365 or email at

7211 Hiawatha Pkwy., Spring Hill, FL 3466