Preparing for Forgiveness

Preparing for Forgiveness

briefing by Tracey Flynn Martin

Many of you have been notified by your lender that your SBA Paycheck Protection Program application has been approved and have received or are anxiously awaiting the receipt of your loan proceeds.  Now the next phase – how best to track the use of these proceeds so you are in the best place possible when it comes time to apply for loan forgiveness at the end of your eight-week measurement period.  Remember, your eight-week measurement period begins on the date you receive the loan proceeds.

The SBA indicates that the loans will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (likely requiring that at least 75% of the forgiven amount must have been used for payroll) during the eight-week measurement period which begins when the loan proceeds are received. Forgiveness is also based on the employer maintaining or quickly rehiring employees and maintaining salary levels.  Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.

Similar to the application process, each lender will have their own required documentation to support PPP loan forgiveness.  Along with their lender-specific recommendations, here are suggested best practices to implement now for tracking the use of the proceeds.

SBA PPP loan proceeds should preferably be deposited into a separate single-purpose account (SBA Funds account) during the eight-week measurement period.

As qualified expenses are paid and funds are transferred from the SBA Funds account to your operating account, consider documenting as follows:

  1. Payroll (wages and SE earnings for partners) – summarize the funds you are transferring to cover each payroll separately. Documenting the calculation of this transfer using the payroll report for each pay period including the following:

100% of the total earnings for all employees and SE earnings for partners making less than $100K annually


$3846.15 per employee or partners making over $100K annually for bi-weekly payroll ($100K / 26 pay periods) (NOTE: if your pay period is other than bi-weekly, this amount will change accordingly)


Total Employer State Payroll taxes (SUTA)

Employee qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act


Transfer made from the SBA Funds account to your operating account to cover the payroll


In addition to these payroll costs, you may transfer to cover other payroll costs including:

  1. Retirement Benefits – Transfer the exact amount of the Safe Harbor funding from SBA Funds account to your operating account with the 401k report for each pay period kept as support.  The total transfer will agree with the report and with the actual Safe Harbor funding.  Other retirement benefits paid should be supported by plan reporting and documents.
  2. Group Health – maintaining copies of group health payments (premiums and / or expenses for self-funded) to support each transfer from SBA Funds account to your operating account.

Up to 25% of your loan forgiveness may consist of payments for:

  1. Rent or Mortgage Interest – Transfer the exact amount of the rent or mortgage interest paid with the check to your landlord or mortgage payment documentation maintained as support.
  2. Utilities – We think it’s reasonable to transfer funds for utilities by check run with the transfer agreeing to the total of utilities (for example, Duke energy, telephone, internet, cable) using the detailed checks as support for the transfer.

Rent, mortgage interest, and utilities must be valid contractual obligations entered into before February 15, 2020.

At the end of the eight-week period, everything you have used as support for the transfers above will be available to be given to your lending institution with your request for forgiveness.  This documentation, along with other information required by your lender, will be used to document your use of the SBA PPP loan funds and evaluate loan forgiveness.

There are a lot of specifics that are still unknown regarding how the SBA and lenders will define certain terms; whether they consider costs incurred and / or paid in determining forgiveness; whether expenses paid with forgiven dollars are tax deductible to name two; whether any two lenders will interpret the rules the same.  With all of the uncertainty, one thing we are certain of is that the receipt of and use of PPP loan proceeds need to be tracked closely.

Tracey Martin-4970

Tracey Flynn Martin Partner, CPA

Tracey has over 30 years of experience as a CPA and is a tax and consulting partner in our Wilmington office. She applies her knowledge and practical ideas to meet the needs of firm clients from both a business and tax perspective. Tracey leads our Firm’s CAS service line (Client Accounting Solutions – a […]