How to Maximize PPP Loan Forgiveness

Many of you have received PPP loans over the past few weeks, and we know you are eager for guidance regarding how to maximize loan forgiveness.  The Treasury Department and Congress are still considering final regulations that may change some of the loan forgiveness rules, but at this point, nothing is final.  While we wait for final regulations, we wanted to outline the interim steps to take to use PPP funds effectively.

Step 1 – Understand how PPP loan forgiveness works

As many of you know, the loan forgiveness period is eight weeks.  We understand the eight-week period can be challenging if you are slowly reopening your practice.  If you do not need all of your team to work, it does not make sense, in our opinion, to get everyone off unemployment.  Instead, we recommend you only pay team members for the hours you need them to work.  Spending all the PPP loan money does not need to be the main focus.  Please keep in mind that Congress could extend the eight-week forgiveness period.  If this happens, it will be better to have not spent all your PPP funds unless it was necessary. If the eight-week forgiveness is not extended and you are not able to spend all of your PPP money, you will still receive partial forgiveness on the money you spent, and the remaining amount can be paid back or you can continue to use it as low interest rate working capital.

Now to the specifics about how to spend the loan.  You are required to use at least 75% of the loan proceeds on payroll costs which include:

  • Gross salary up to a maximum of $15,384 per employee for the entire eight weeks *
  • State Unemployment, WBF and Trimet employer payroll taxes*
  • Health insurance – what the employer pays
  • Retirement match paid with each payroll during the eight-week period

*Please see the link to the sample reports used for the calculation on the “Payroll report examples” tab

You cannot use more than 25% of the remaining loan proceeds for the following:

  • Rent *
  • Utilities – gas, electricity, water, internet, telephone costs for the business location only *
  • Mortgage interest *

*Please note there has to have been a contract for the expense as of 2/15/20.  Also, these expenses need to have been incurred and paid during the eight-week period starting from when loan proceeds were received.

Step 2 – Determine the appropriate amount for owner payroll

We know you are used to us telling you exactly how much salary to take and how much to withhold for taxes.  We typically also provide that information to your payroll processing company. During the eight-week loan forgiveness period, however, we are not going to be able to do that for you. Here are the reasons:

  • We do not know your current cash flow levels or bank balances given the COVID-related disruptions to the practice.
  • We do not know how much production and collections you will have in the next eight weeks. We anticipate a lot of fluctuations.
  • We cannot tax plan for you, at this time, because there are too many uncertainties that will impact the remainder of the year.

Our recommendation for how much to pay yourself depends on your current situation:

  • If practice bank balances are low or getting low and cash flow is a struggle:
    1. We recommend you plan on taking the maximum payroll for PPP loan forgiveness. It is a prorated payroll of $100,000 per year over an eight-week period. $100,000 divided by 52 weeks times 8 weeks gives you $15,384 as the maximum payroll. Many people thought it would be $100,000 divided by 12 months times 2 months for a total of $16,666. This is not accurate and please use $15,384.
    2. You can pay $15,384 in one payroll or multiple payrolls, you just want to make sure you have hit the $15,384 as gross payroll, not net, by the end of your eight-week window.
    3. Since we cannot tax plan for you, at this time, we are recommending that you tell your payroll company that you want to update your W-4* to indicate “Single or Married Filing Jointly with zero dependents in step 3 and zero other adjustments in step 4.”
  • If bank balances are higher and/or cash flow is not a struggle:
    1. We recommend that you simply start your old payroll back up. You can use the same numbers that you were using for payroll before all of this happened. You would use the same gross and the same tax withholdings. These will be in the payroll processing system so it will be easy to do if your practice can afford it.
  • If you fall somewhere between #1 and #2 above, you will have to choose your own gross payroll:
    1. Keep in mind that any amount over $15,384 in the eight-week period will not be eligible for PPP loan forgiveness. Please remember that it is okay to have PPP money not forgiven. It just becomes a low interest rate line of credit or working capital loan.
    2. Since we cannot tax plan for you, at this time, we are recommending that you tell your payroll company that you want to update your W-4* to indicate “Single or Married Filing Jointly with zero dependents in step 3 and zero other adjustments in step 4.”

*Below is a line to the 2020 W-4 that you can submit to your payroll company-

  • If your spouse or children were on payroll, it makes sense to bring them back onto payroll now if the practice has reopened. If you or they have been receiving unemployment benefits and the practice is opening back up, we do not recommend that you or they continue to file an unemployment claim. The risk of being accused of unemployment fraud outweighs the benefits. It makes sense to put them on the same payroll they had before all of this happened.

Step 3 – Plan for other allowable expenses

Not more than 25% of the PPP funds can be spent on other allowable expenses.  Currently as the CARES ACT stands, the other allowable expenses are limited to rent/mortgage interest (only one of these will apply to you) and utilities, as outlined previously.  There is a lot of lobbying being done to allow for other expenses like PPE expense, but as of today, nothing has been passed.

During this 8- week covered period our recommendation is to use PPP funds as follows:

  1. Reimburse your operating account for two full months of rent or mortgage interest. The lease or building loan needs to have been in place before 2/15 to qualify. These expenses need to have been incurred and paid during the eight-week covered period.  For example, if you paid your May rent on April 30th but did not receive your PPP funds until May 4th, you would not include the May rent in your PPP loan forgiveness calculation.  You would want to make sure that you pay your June rent as well as your July rent by 6/28/2020 to get two full rent payments to qualify.
  2. If your landlord or bank has allowed you to defer or pay lower rent or mortgage payments, we recommend that you talk to your landlord or bank about making the full payment for the two months that fall within this covered period. Please note: this is for mortgage payments on the office building if owned by the practice and does not include equipment loans or other debt.
  3. Reimburse your operating account for all practice utility bills that have incurred and need to be paid during this eight-week covered period. The service needs to have been in place prior to 2/15. We do not believe that the PPP funds can cover the owner’s cell phone or personal internet.  It should cover the utilities that are incurred at the practice location as previously noted.

Step 4 – When needed, transfer money from the PPP account to your regular checking account

  • Keep the PPP checking account separate from your regular business account.
  • You will have your regular business account pay for all expenses.
  • The PPP account will reimburse for each item separately. In addition, the PPP account can only reimburse the amount that is eligible for forgiveness.
    • For example, your total payroll costs paid will not be reimbursed. Instead the PPP funds will only reimburse for gross salaries paid during the pay period and state employer taxes assessed. Federal employer taxes are not reimbursable (federal employer taxes are not included in PPP loan forgiveness).
  • The easiest way to reimburse for these expenses is to transfer between accounts. Otherwise, the PPP account will write a check to reimburse the regular checking account.
  • The only amounts transferred will be amounts that are forgiven. Then you will know what is remaining to use for loan forgiveness before the end of the eight weeks and what you may have to pay back.

Step 5 – Prepare documentation to give the bank at the end of the eight weeks

Documentation will be a critical part of loan forgiveness, and each bank will require proof of how the PPP loan was used.  What follows are the documents to keep:

  • Gross payroll and state employer payroll taxes
    • Payroll reports used in the loan forgiveness calculation.
    • This includes any calculation done for employee wages over $15,384 during the eight weeks.
  • Health Insurance
    • A copy of the invoice.
    • A copy of the calculation showing the employer portion less employee portion withheld to come to the amount forgiven.
    • A copy of the check that clears or the bank or credit statement showing the payment, if made by EFT.
  • Employer Retirement Match
    • A copy of the retirement match calculation with payroll reports.
    • A copy of the check that clears or the bank or credit statement showing the payment, if made by EFT.
  • Utilities
    • A copy of the invoice.
    • A copy of the check that clears or the bank or credit statement showing the payment, if made by EFT.
  • Rent
    • Lease agreement.
    • A copy of the invoice, if applicable.
    • A copy of the check that clears or the bank or credit statement showing the payment, if made by EFT.
  • Mortgage Interest
    • A copy of the Loan agreement.
    • A copy of the loan statement.
    • A copy of the check that clears or the bank or credit statement showing the payment, if made by EFT

Step 6 – Ask for our help, if needed

If you would like our help with the PPP loan forgiveness process, please let us know by Friday, May 22nd.  We will add you to our list of clients who want our PPP loan forgiveness services, which will include the following:

  • Excel template tracking of PPP loan forgiveness.  We will keep you updated regarding how much has been used and how many PPP loan funds remain.
  • Develop a plan to maximize PPP loan forgiveness.
  • Calculate the payroll costs to reimburse for each payroll during the eight-week period.  Payroll will be the most complex calculation since federal employer taxes are excluded from loan forgiveness.
  • Help with the documentation that the bank will need.

Please let us know as soon as possible if you want to use our services.  Here is the information we will need from you:

  • Copy of your PPP loan documents.
  • Date the PPP money was deposited into your bank account.

We recommend if you do this on your own, you use the excel template in the link above under Step 1.


While this blog covers the PPP loan, we also wanted to briefly mention the EIDL loan.  Many of you have asked us about taking the EIDL loan.  If you expect to have more than $2,000,000 in gross collections for 2020, please contact us before taking the EIDL loan.  There may be additional reporting requirements.  If you expect collections to be less than $2,000,000 for 2020, we recommend taking the EIDL loan, parking the money in a separate bank account, and only using EIDL money after the PPP loan has been exhausted.  We will provide more information about the EIDL loan soon.  If your cash flow is tight and you need to use the EIDL loan proceeds, please let us know and we will help you develop a plan.

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