FAQs | Applying For PPP Loan Forgiveness

  • Contributors:
  • Brandi Clark-Hubbard
Business owner applies for PPP loan forgiveness

Find answers to common questions about the Paycheck Protection Program loan forgiveness process.


Is my PPP loan eligible for automatic forgiveness?

At this time, no. There’s no automatic forgiveness for any loan amount. In June 2020, the Senate introduced a bill that would forgive PPP loans of $150,000 or less. To achieve forgiveness, borrowers would have to submit a one-page attestation form. In October 2020, the House of Representatives proposed a new stimulus package that includes automatic forgiveness for PPP loans of $50,000 or less.

We don’t expect Congress to pass any coronavirus relief measures before the general election on Nov. 3, 2020. We’ll continue to monitor any legislative progress.


When do I have to apply for loan forgiveness?

You have up to 10 months from the end of your covered period to apply for forgiveness.


Should I wait and see what happens in Congress before applying for forgiveness?

If your loan amount is between $0 and $150,000, you may benefit from waiting. But we can’t say for sure. We recommend discussing your situation with your accounting team and lender and preparing to apply for forgiveness if Congress doesn’t allow any automatic forgiveness.


Are there special forgiveness rules for loans under $50,000?

Yes! If your PPP loan is $50,000 or less, you can use SBA Form 3508S to apply for forgiveness. And, you’re exempt from any loan forgiveness reductions if you had to reduce the number of full-time equivalent (FTE) employees or reduce employee salaries or wages.


Can I apply for loan forgiveness before my covered period ends?

Yes. If you’ve used all your loan funds, you don’t have to wait until the end of your covered period to apply for forgiveness. You can apply whenever you’re ready.

Once your lender processes your application, you’re also released from FTE restrictions, meaning you could reduce staffing or wages without affecting your forgiveness. When applying for forgiveness, you must project any wage reductions over the entire 24-week covered period. You must prorate wage caps for employees and owner-employees based on the number of weeks you used funds during the covered period (which could be less than the full covered period if you apply early). Also, your ability to use certain safe harbors is limited if you apply before the end of your covered period.


Can I deduct expenses paid with a PPP loan on my tax return?

No. IRS Revenue Ruling 2020-27 states that expenses incurred to achieve forgiveness of a PPP loan are disallowed in the year they’re incurred. So, if you received a PPP loan and paid or incurred eligible expenses, you may not deduct those expenses in the same taxable year the expenses were paid or incurred if you expect the SBA to approve your loan forgiveness request.

This ruling doesn’t match the congressional intent of the CARES Act, but it’s how the IRS will treat the deductibility of eligible PPP expenses.


Can I deduct expenses paid with my PPP loan if those expenses aren’t forgiven?

Yes, IRS Revenue Procedure 2020-51 provides a safe harbor that allows taxpayers to claim a deduction for some or all eligible expenses on their 2020 or 2021 tax return. Here’s how the safe harbor works:

  1. If you file your 2020 return and some/all loan forgiveness is later denied, you can file an amended 2020 tax return to report the correct amount of disallowed expenses. Or, you can extend your 2020 tax return, wait to receive notice of your forgiveness, and report the correct amount of disallowed expenses.
  2. If you file your 2020 tax return and later receive notice that some/all forgiveness is denied, or if you decide to rescind your forgiveness application, you can claim any previously disallowed deductions on your 2021 return.


Has the SBA defined a change of ownership?

Yes. For PPP purposes, a change of ownership occurs when one of the following happens:

  1. At least 20% of the common stock or other ownership interest of a PPP borrower is sold or transferred, whether in one or more transactions, including to an affiliate or an existing owner of the entity
  2. The PPP borrower sells or transfers at least 50% of its assets, whether in one or more transactions
  3. A PPP borrower is merged with or into another entity

Regardless of a change in ownership, the PPP borrower is responsible for complying with PPP requirements, certifications, and more.


What is my deferral period for loan payments?

It varies, but the SBA states that lenders must recognize the extended deferral period for principal, interest, and fee payments on all PPP loans, even if the executed promissory note states a six-month deferral. According to the Paycheck Protection Program Flexibility Act of 2020, the deferral period for loan payments is either 1) the date the SBA remits the borrower’s loan forgiveness amount to the lender, or 2) 10 months after the end of the borrower’s loan forgiveness covered period.


Are mortgage interest payments to a related party eligible for forgiveness?



I’m an owner-employee. Am I subject to the owner-employee compensation rule?

If you have less than a 5% ownership stake in a C or S corporation, you aren’t subject to the owner-employee compensation rule. At this time, all owners in a partnership are subject to the owner-employee compensation rule.


What’s the owner-employee compensation rule?

The owner-employee compensation rule limits eligible compensation to $15,385 or the eight-week equivalent of 2019 compensation, whichever is less. These wages apply to an eight week covered period.

For a 24-week covered period, compensation is limited to $20,833 or the 2.5-month equivalent of 2019 compensation, whichever is less. Self-employed individuals and general partners apply these limits on their Schedule C, Schedule F, or K-1 income.¬†In addition, special limits apply to health insurance and retirement costs for owners based on the borrower’s entity type.¬†Connect with your accounting professional to make sure your calculations and limits are correct.


What is common ownership? How does the SBA define it?

We don’t know yet. The SBA hasn’t clarified what common ownership means or what types of relationships qualify. If you pay rent to a related party, you could potentially face limitations on the amount of allowable rent expense you can list on your forgiveness application.


You can view more FAQs published by the SBA here.

Originally published 10/21/20. Updated 11/25/20.


Have more questions about the loan forgiveness process? Our experts can help. Let’s talk!