Paycheck Protection Program (PPP) Loan Forgiveness Rules: Answers to your Frequently Asked Questions

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By: Shuchita Lotlikar

The US Small Business Administration (SBA) recently expanded its rules for Paycheck Protection Program (PPP) loan forgiveness. New regulations allow businesses to spend a smaller percentage of their PPP loan proceeds on payroll costs, have a longer time to rehire their workforce, and get more time to spend their loan proceeds, among other changes. But how exactly is PPP loan forgiveness calculated, and how does the process work? There are a few critical pieces of information that businesses should know when seeking PPP loan forgiveness.

Applying for PPP Loan Forgiveness

Businesses should apply for PPP loan forgiveness at least 10 months from the end of the loan’s covered period. If the application is submitted on time, PPP loan payments will be suspended until the lender receives the loan forgiveness amount from SBA.

Which Payroll Costs Qualify for PPP Loan Forgiveness

Payroll costs are eligible for forgiveness if they were incurred during the covered period and:

  • Paid within the covered period
  • Paid within the next payroll cycle after the covered period is over

For the purposes of PPP loan forgiveness, SBA will consider the gross amount of cash compensation paid to employees. All forms of payment to employees qualify for loan forgiveness up to the maximum forgiveness limit, including salaries and wages, bonuses, commissions, or any other incentive payments.

Health insurance premiums and employer contributions to employee retirement plans are considered payroll costs. However, healthcare premiums and retirement plan contributions that are paid by the employee do not count as payroll costs and do not qualify for PPP loan forgiveness.

Getting Non-Payroll Costs Forgiven on PPP Loans

Non-payroll costs are eligible for PPP loan forgiveness if they were:

  • Incurred and paid during the loan covered period
  • Incurred before but paid during the loan covered period
  • Incurred during but paid after the loan covered period, within the next regular billing date

State or local government transportation utility fees and electricity charges (including distribution charges and supply charges) are eligible for PPP loan forgiveness.

Mortgage loan interest is eligible for forgiveness if the mortgage loan:

  • Existed before February 15, 2020
  • Was renewed/refinanced after February 15, 2020

Interest on unsecured credit is not eligible for loan forgiveness because it is not backed by any real property.

How Reductions in Employees Impact PPP Loan Forgiveness

Businesses can still qualify for PPP loan forgiveness even if they do not meet the rehiring requirement. These borrowers must be able to show in good faith that they could not rehire their employees to pre-COVID-19 levels by February 15, 2020 or recruit similarly qualified employees on or before December 31, 2020.

When calculating their workforce for PPP loan forgiveness purposes, businesses should include full-time equivalent (FTE) hours for all employees including those that earn more than $100,000 per year.

Reductions of 25% or more in the salary or hourly wages of a covered employee during the covered period may lead to a reduced PPP loan forgiveness amount, unless the borrower satisfies the safe harbor requirement. SBA will only consider salaries or wages and not bonuses, commissions, or related compensation when calculating a reduced loan forgiveness amount.


For help getting your PPP loan forgiven, or for additional questions related to financing for your business, please contact your Chugh CPAs, LLP tax professional or email us at