PPP Forgiveness Calculation

You have gotten a Paycheck Protection Program (PPP) loan, but you now want to make sure you maximize the forgiveness essentially turning the loan into a grant. How do you make sure that happens? Well here is a guide to help you sort through it! (For the purposes of this post the rest of the article is assuming you are trying to maximize the forgiveness of the loan).

To understand and make sense of how PPP forgiveness works it is important to understand the purpose of the PPP, which is to keep workers employed at their full pay. It is not directly meant to help businesses stay afloat which is why there are restraints on how the money can be spent. Hence the name, Paycheck Protection. The idea being workers do not have to go on unemployment and that when things hopefully open back up businesses still have their employees and can scale back to “normal” operations. So, the goal is to pay your employees even if there is no work at all for them to do whether the lack of work is due to slow business or workers not being able to leave the house as a result of state or local mandates.

Here are five important highlights regarding PPP forgiveness with the new 24-week covered period (assumption is that everyone will switch since it is more favorable):

  • Wages cannot be reduced by more than 25% to be eligible for full forgiveness.
  • At least 60% percent of the funds must have been used on payroll.
  • Taxes, healthcare, and retirement contributions do not count towards the $100,000 annual pay cap for employees, but does count towards the cap of owner’s whether they are on payroll or Schedule C.
  • 24-week period starts the day funds are received. Unless you are on a bi-weekly payroll in which case you can choose to have the 24 weeks start on the next payroll period after the funds are received in order to keep things simpler.
  • If your loan was under $2 million you do not need to justify why the loan was necessary and show how your business was impacted. It is understood that you acted in good faith.

To achieve full forgiveness there is no incentive to reduce any employee’s salary (at least not by more than 25%). There is incentive to make sure that you do not lower employees’ hours and pay by more than 25% as you will then be eligible to use the new Form 3508 EZ, which is much simpler to fill out. Quick aside, it is a cheap loan where if full forgiveness does not happen it is not terribly penalizing since the APR is only 1%.

To help you calculate the forgiveness and see where you will stand at the end of the 24 weeks here are the steps to take.



  • Total all payroll for the 24-week period
  • Total all employer contributions for health insurance
  • Must have a lease or agreement in place before February 15, 2020 to be eligible
  • Total all employer contributions to employee retirement plans
  • Total all employer paid state and local taxes
  • Take the total of steps 1-4
    1. a. Make sure that this number is at least 60% of your PPP loan.


  • Total any business mortgage interest.
  • Total business rent or lease payments.
    1. a. Must have a lease or agreement in place before February 15, 2020 to be eligible.
  • Total business utility payments.
    1. a. Service must have started before February 15, 2020 to be eligible. b. Per the Treasury “covered utilities are: electricity, gas, water, transportation, telephone, or internet”.
  • Total steps 1-3 and add in step 5 from payroll calculation
    1. a. If this number is greater than or equal to the PPP loan amount, great! It will be forgiven. b. If it is less, then you will need to find ways to increase the spend amount.The best way is to increase payroll and currently in the guidance from the SBA and Treasury there is no prohibition from giving out bonuses to employees with the remaining amount.

Some notes around the actual forgiveness process. The only requirement from the Treasury is that the application needs to be processed by October 31, 2020 but do check with your bank on the timing to submit the application. You can get the application directly from the Treasury site unless your bank has one. Most payroll processors are putting together reports for you to submit with the application for the supporting documents, just be sure to run those once the 24-week period is over.

*This blog does not constitute solicitation or provision of legal advice and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction.*

For any questions Contact us

  • Address Five Lucerne Street, Unit One, San Francisco, CA 94103
  • Phone number (415) 416-6682
  • Email hello@finvisor.com