PPP Loan Forgiveness: Creative Planning Strategies to Consider

On May 15th the SBA released the PPP Loan Forgiveness Application for the Paycheck Protection Program loans, including detailed instructions for borrowers on how to complete the application. Additional interim final rules were issued on May 22nd. Given that the program started on April 3rd, this week marks the eighth week and first opportunity for companies to submit their request for forgiveness.

The application is made to your lender, who then has 60 days to determine eligibility for forgiveness. Amounts not forgiven are to be paid back at 1% interest over two years. Payments are deferred for six months.

Unfortunately, there has been little discussion regarding ways to increase eligibility for loan forgiveness. Clearly business owners appreciate the need to adhere to rules and principles, but at the same time, they will be disappointed to later learn that they could have done more for themselves and their employees had they received better counsel.

Important Reminders

The maximum loan was for 2.5 months of payroll costs based on average 2019 expenses with a cap of $100,000 per employee (including owners). The maximum that can be forgiven is for eligible costs incurred within eight weeks of receipt of funding, of which 75% or more must come from payroll costs.

In addition, despite concerns that the PPP funding would be exhausted rapidly, there remains around $100 billion from the second round of authorized funding. It is not too late to apply for a loan. Connect with your bank or through one of the FinTech lenders as soon as possible to apply.

IMPORTANT UPDATE: HR 7010 – PPP Flexibility Act

Passed by the House on May 28th with a vote of 417-1:

While the Senate has not yet acted, the House overwhelmingly passed legislation which would provide relief to employers. The main provisions are:

  • Extend 8-week period to 24 weeks
  • 75% requirement for payroll related expenses falls to 60%
  • Penalty calculations for workforce reductions moves from 6/30/2020 to 12/31/2020
  • Additional exceptions to FTE reductions
  • Note repayment from 2 years to 5 years
  • Two-year deferral of employer share of payroll taxes

Planning Strategies for Consideration

Many businesses have limited expenses for rent, mortgage interest, and utilities. Accordingly, payroll costs are likely needed to be greater than previous years’ in order to have the loan fully forgiven. This is particularly challenging for those who have been unable to retain full staffing due to reduced volume. A careful accounting of eligible expenses should be completed before the eight-week time period ends. Business owners may wish to carefully consider the following:


Many business owners also own the property(ies) where their business is located either directly or through LLCs. A temptation may exist to lower rent in order to conserve cash within the business. That would be a mistake. During the 8-week period following receipt of the loan, business owners will want to make full rent payments. If rent reductions are needed or warranted, making such concessions later would be wise. The same fact holds true for those who rent from non-related parties. Better to have rent relief in July than in May.

Retirement Plan Contributions

Again, during challenging times it is common (and generally wise) to reduce or defer benefit related costs. However, if you are likely to fall short of forgivable costs, boosting employer retirement plan contributions can provide great value to employees at (potentially) no incremental employer costs. Naturally, you will also build goodwill that can improve long-term employment satisfaction. Many companies make matching contributions on a per-payroll basis and should continue this practice. If your company matches (including via safe harbor) contributions at a later date, you may wish to accelerate to either quarterly or per paycheck. If you are a small, closely knit company that sponsors a plan that allows profit sharing contributions, you may wish to make a contribution corresponding to wage income during the 8-week time period (note that many plans have year-end employment eligibility requirements).

Smaller companies including sole proprietors, single member LLCs and single member S-corps may wish to make an employer contribution to SEPs and solo(K)s during this time period. Given the maximum eligible cash compensation for forgiveness may not exceed an annual salary of $100,000, as prorated for the covered period ($15,385) and the typical 20% retirement plan contribution, some small business owners may be eligible to contribute up to $3,077 during the 8-week covered period. Interestingly, some pass-through entities will not know their 2020 income and, as such, the amount (if any) that can be contributed to the company retirement plan will be unknown until the 2020 tax return is completed. Be aware that the forgiveness application is confusing for some, as the instructions for lines 6 and 7 state “… but excluding any pre-tax or after-tax contributions by employees.” This is stated as such because employee deferrals will already be counted in the normal payroll payments.

Bonuses and Pay Raises

Employee hazard pay increases or other bonuses are eligible for loan forgiveness provided that the employee’s annualized total compensation does not exceed $100,000. Based on current guidance, it does not appear that loan forgiveness for such additional pay is contingent on whether the recipient actually faced increased risk on the job. As with discretionary employer retirement plan contributions, you will want to calculate how much, if any, gap exists between the PPP loan received and projected eligible costs during the 8-week time period. If you find that there is a positive gap, you may wish to consider a bonus payment to front line (or even all) workers. Note that owner-employees cannot increase forgivable expenses beyond the lesser of 8/52 (15.38%) of 2019 compensation, or $15,385. We encourage clear documentation as to the basis for the bonus/raise and clarity on who is eligible for the additional compensation.

Timing of Payroll

In general, payroll costs are eligible for forgiveness if they are paid or incurred during the 8-week measurement period. Borrowers who have weekly or bi-weekly (but not semi-monthly) payroll can use an alternative measurement period that begins on the first day of the borrower’s first pay period following the loan disbursement. “Paid” refers to when paychecks are distributed or ACH credit transactions are initiated. “Incurred” is when pay is earned – so long as this proportional time is paid on the next regular payroll date. Non-payroll costs following the same methodology – paid during the 8-week period or incurred during the same time period and paid on the next regular billing date following the 8-week period.


Forgiveness is contingent on maintenance of Full Time Equivalent (FTE) employees. Any reductions in FTEs proportionately reduce loan forgiveness eligibility. Likewise, compensation reductions of any employee by more than 25% are ineligible for forgiveness. There are several considerations and safe harbors available. First, the borrower can utilize two baseline time periods for measurement: 2/15/2019 to 6/30/2019 or 1/1/2020 to 2/29/2020. Second, there are two ways to calculate part-time employees. Third, any FTE reduction made between 2/15/2020 and 4/26/2020 that is corrected by 6/30/2020 provides a safe harbor. Note: this may not be as helpful as it seems, as only actual payroll costs are eligible for forgiveness and these are likely to be lower if FTEs are significantly down from the baseline.

Additional FTE reduction safe harbors are provided by:

  1. a Good Faith Offer to Rehire (written, same salary, same # of hours) that is rejected, documented, retained and state unemployment agency notified within 30 days,
  2. if employee was fired for cause, or
  3. an employee voluntarily resigned or requested/received a reduction in hours. Salary reductions can be restored by 6/30/2020 and not count as a proportional reduction in forgiveness (though the same concern with actual payroll costs exists).

Finally, remember that there are other planning considerations and opportunities that the CARES Act and these uncertain times provide. These have been covered separately, but include tax loss harvesting, Roth conversions, Net Operating Loss carry-backs (requiring re-filing of prior years’ returns), stimulus payments for young adults who file as their own dependents for the first time in 2019, higher limits on charitable contributions, suspension of RMDs for 2020, eligibility for adjusting FSA contributions, and expanded unemployment benefits including for self-employed individuals. For more information on these opportunities, read our blogs, “Planning Strategies to Consider in a Volatile Environment” and “Take Action During the Pandemic: Ways to Update your Estate Plan and Factor in New Legislation”, or reach out to your advisor for further help.


It’s not too late – $100B of funding is still available – apply today!

Wealthspire Advisors LLC is a registered investment adviser and subsidiary company of NFP Corp.
Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP®, Certified Financial Planner and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
This information should not be construed as a recommendation, offer to sell, or solicitation of an offer to buy a particular security or investment strategy. The commentary provided is for informational purposes only and should not be relied upon for accounting, legal, or tax advice. While the information is deemed reliable, Wealthspire Advisors cannot guarantee its accuracy, completeness, or suitability for any purpose, and makes no warranties with regard to the results to be obtained from its use. © 2023 Wealthspire Advisors

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