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SBA Paycheck Protection Program (PPP) Loan Forgiveness: In Brief

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SBA Paycheck Protection Program (PPP) Loan
October October 15, 20206, 2021
Forgiveness: In Brief
Robert Jay Dilger
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) created created
Senior Specialist in Senior Specialist in
the Small Business Administration (SBA) Paycheck Protection Program (PPP) to provide short- the Small Business Administration (SBA) Paycheck Protection Program (PPP) to provide short-
American National American National
term, low-interest loans that could be forgiven under specified circumstances to certain small term, low-interest loans that could be forgiven under specified circumstances to certain small
Government Government
business and nonprofits. For more information on Coronavirus Disease 2019-related (COVID-19- business and nonprofits. For more information on Coronavirus Disease 2019-related (COVID-19-

related) assistance to small businesses, including a summary of enacted legislation and select related) assistance to small businesses, including a summary of enacted legislation and select
Sean Lowry
bills, see CRS Report R46284, bills, see CRS Report R46284, COVID-19 Relief Assistance to Small Businesses: Issues and
Analyst in Public Finance
Policy Options, by Robert Jay Dilger, by Robert Jay Dilger, and Bruce R. Lindsay Bruce R. Lindsay, and Sean Lowry.

. Congress initially authorized $349 billion for SBA 7(a) loans, including PPP loans, which were Congress initially authorized $349 billion for SBA 7(a) loans, including PPP loans, which were

available through June 30, 2020. Lending began on April 3, 2020, and the initial authorization available through June 30, 2020. Lending began on April 3, 2020, and the initial authorization
was exhausted by April 16. On April 24, 2020, Congress authorized another $310 billion ($659was exhausted by April 16. On April 24, 2020, Congress authorized another $310 billion ($659 billion total) for 7(a) loansbillion total) for 7(a) loans ——
including PPP loans—in the Paycheck Protection Program and Health Care Enhancement Act (P.L. 116-139).including PPP loans—in the Paycheck Protection Program and Health Care Enhancement Act (P.L. 116-139). Lending Lending
resumed on April 27, 2020, and stopped, once again, on June 30, 2020, as required by the CARES Act. Lending resumed on resumed on April 27, 2020, and stopped, once again, on June 30, 2020, as required by the CARES Act. Lending resumed on
July 6, 2020, following enactment of An Act to Extend the Authority for Commitments for the Paycheck Protection Program July 6, 2020, following enactment of An Act to Extend the Authority for Commitments for the Paycheck Protection Program
(P.L. 116-147).(P.L. 116-147).
The act extended the authorization for issuing new PPP loans from June 30, 2020, to August 8, 2020; it authorized $659 The act extended the authorization for issuing new PPP loans from June 30, 2020, to August 8, 2020; it authorized $659
billion for PPP loan commitments and $30 billion for 7(a) loan commitmentsbillion for PPP loan commitments and $30 billion for 7(a) loan commitments . The SBA stopped accepting new PPP loan . The SBA stopped accepting new PPP loan
applications on August 8, 2020. As of that date, the SBA had approved over 5.2 millionapplications on August 8, 2020. As of that date, the SBA had approved over 5.2 million PPP loans, totaling more than $525 billion. P.L. 116-260, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Division N, Title III of the Consolidated Appropriations Act of 2021), among other provisions, extended the PPP through March 31, 2021, increased the program’s authorization amount from $659 billion to $806.45 billion, and authorized second-draw PPP loans of up to $2 million. P.L. 117-2, the American Rescue Plan Act of 2021, among other provisions, increased the PPP authorization amount to $813.7 billion. P.L. 117-6, the PPP Extension Act of 2021, extended the acceptance of PPP applications through May 31, 2021, and authorized the SBA to process any pending applications submitted on or before that date through June 30, 2021. As required by law, the SBA stopped accepting new PPP applications on May 31, 2021, and it had approved over 11.8 million PPP loans, totaling nearly $800 billion. PPP loans, totaling more than $525
billion.
Initially, PPP loans used for payroll expenses and for specified nonpayroll operating costs paid or incurred during an eight-Initially, PPP loans used for payroll expenses and for specified nonpayroll operating costs paid or incurred during an eight-
week “covered period” following the loan’s origination date could be fully forgiven if the borrower met certain payroll and week “covered period” following the loan’s origination date could be fully forgiven if the borrower met certain payroll and
employment retention criteria. Borrowers were required by SBA regulations to use at least 75% of the loan forgiveness employment retention criteria. Borrowers were required by SBA regulations to use at least 75% of the loan forgiveness
amount on payroll costs and the remainder on eligible mortgage interest, rent, and utility payments in order to receive full amount on payroll costs and the remainder on eligible mortgage interest, rent, and utility payments in order to receive full
loan forgiveness. The 75% payroll requirement was reduced to 60% by the Paycheck Protection Program Flexibility Act loan forgiveness. The 75% payroll requirement was reduced to 60% by the Paycheck Protection Program Flexibility Act
(P.L. 116-142).(P.L. 116-142). The act also extended the PPP loan forgiveness covered period from 8 weeks after the loan’s origination date The act also extended the PPP loan forgiveness covered period from 8 weeks after the loan’s origination date
to the earlier of 24 weeks after the loan’s origination date or December 31, 2020. The act also provides borrowers that to the earlier of 24 weeks after the loan’s origination date or December 31, 2020. The act also provides borrowers that
received a PPP loan prior to the date of enactment (June 5, 2020) the option to use the CARES Act’s loan forgiveness received a PPP loan prior to the date of enactment (June 5, 2020) the option to use the CARES Act’s loan forgiveness
covered period of eight weeks after the loan’s origination date. covered period of eight weeks after the loan’s origination date.
This In Brief report discusses statutes, regulations, and agency guidance relevant to the PPP loan forgiveness process and This In Brief report discusses statutes, regulations, and agency guidance relevant to the PPP loan forgiveness process and
determination. A summary of the Paycheck Protection Program Flexibility Act is also provided. determination. A summary of the Paycheck Protection Program Flexibility Act is also provided.
Congressional Research Service Congressional Research Service

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Contents
Introduction ..................................................................................................................................... 1
PPP Forgiveness Provisions and Process ........................................................................................ 4 5
Forgiveness Application Process ............................................................................................... 4 6
Payroll Costs ............................................................................................................................. 5 7
Nonpayroll Costs ....................................................................................................................... 5 7
Reductions in Forgiveness ........................................................................................................ 6 8
Calculating Full-Time Equivalent Employees . ................................................................... 7
9 Calculating Salaries and Wages .......................................................................................... 7
Pending Legislation of Interest ................................................................................................. 8 9

Contacts
Author Information .......................................................................................................................... 9 10

Congressional Research Service Congressional Research Service

SBA Paycheck Protection Program (PPP) Loan Forgiveness: In Brief

Introduction
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) created the The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) created the
Small Smal Business Administration (SBA) Paycheck Protection Program (PPP) to provide short-term, Business Administration (SBA) Paycheck Protection Program (PPP) to provide short-term,
low-interest “covered loans” that could be forgiven in whole or in part under specified conditions low-interest “covered loans” that could be forgiven in whole or in part under specified conditions
to to small smal businesses eligiblebusinesses eligible to participate in the SBA’s 7(a) loan guarantee program and any to participate in the SBA’s 7(a) loan guarantee program and any
business, 501(c)(3) nonprofit organization, 501(c)(19) veteran’s organization, or tribal business business, 501(c)(3) nonprofit organization, 501(c)(19) veteran’s organization, or tribal business
not currently eligiblenot currently eligible that has not more than 500 employees or, if applicable, the SBA’s size that has not more than 500 employees or, if applicable, the SBA’s size
standard in number of employees for the industry in which they operate. Sole proprietors, standard in number of employees for the industry in which they operate. Sole proprietors,
independent contractors, and eligible self-employed individuals are also eligibleindependent contractors, and eligible self-employed individuals are also eligible to receive a to receive a
covered loan.1 For more information on Coronavirus Disease 2019-related (COVID-19-related) covered loan.1 For more information on Coronavirus Disease 2019-related (COVID-19-related)
assistance to assistance to small smal businesses, including a summary of enacted legislation and select businesses, including a summary of enacted legislation and select billsbil s, see , see
CRS Report R46284, CRS Report R46284, COVID-19 Relief Assistance to Small Businesses: Issues and Policy
Options, by Robert Jay Dilger, by Robert Jay Dilger, and Bruce R. Lindsay Bruce R. Lindsay, and Sean Lowry. .
Congress Congress initially initial y authorized $349 authorized $349 billion bil ion for SBA 7(a) loans—including PPP loans—which were for SBA 7(a) loans—including PPP loans—which were
available available through June 30, 2020, had a 100% SBA loan guarantee, no borrower fees, a 1% interest through June 30, 2020, had a 100% SBA loan guarantee, no borrower fees, a 1% interest
rate, and a two-year term. Loan payments were deferred for six months. Loan amounts were rate, and a two-year term. Loan payments were deferred for six months. Loan amounts were
capped at the lesser of (1) 2.5 times the average total monthly payments by the applicant for capped at the lesser of (1) 2.5 times the average total monthly payments by the applicant for
payroll costs incurred during the one-year period before the date on which the loan is made, plus payroll costs incurred during the one-year period before the date on which the loan is made, plus
the outstanding balance of any Economic Injury Disaster Loan (EIDL) made on or after January the outstanding balance of any Economic Injury Disaster Loan (EIDL) made on or after January
31, 2020, that is refinanced as part of a covered loan or (2) $10 31, 2020, that is refinanced as part of a covered loan or (2) $10 millionmil ion. Lending began on April . Lending began on April
3, 2020, and the initial3, 2020, and the initial authorization was exhausted by April 16. authorization was exhausted by April 16.
On April On April 24, 2020, Congress authorized another $310 24, 2020, Congress authorized another $310 billion ($659 billion bil ion ($659 bil ion total) for 7(a) loans—total) for 7(a) loans—
including PPP loans—in the Paycheck Protection Program and Health Care Enhancement Act including PPP loans—in the Paycheck Protection Program and Health Care Enhancement Act
(P.L. 116-139). Lending resumed on April 27, 2020, and stopped, once again, on June 30, 2020, (P.L. 116-139). Lending resumed on April 27, 2020, and stopped, once again, on June 30, 2020,
as required by the CARES Act. as required by the CARES Act.
Lending resumed on July 6, 2020, following enactment of An Act to Extend the Authority for Lending resumed on July 6, 2020, following enactment of An Act to Extend the Authority for
Commitments for the Paycheck Protection Program (P.L. 116-147). The act extended the Commitments for the Paycheck Protection Program (P.L. 116-147). The act extended the
authorization for issuing new PPP loans from June 30, 2020, to August 8, 2020; and it authorized authorization for issuing new PPP loans from June 30, 2020, to August 8, 2020; and it authorized
$659 $659 billion bil ion for PPP loan commitments and $30 for PPP loan commitments and $30 billionbil ion for 7(a) loan commitments. As required for 7(a) loan commitments. As required
by the act, the SBA stopped accepting new PPP loan applications on August 8, 2020. As of that by the act, the SBA stopped accepting new PPP loan applications on August 8, 2020. As of that
date, the SBA had approved over 5.2 date, the SBA had approved over 5.2 millionmil ion PPP loans, totaling more than $525 PPP loans, totaling more than $525 billion.
Initially, PPP loans used for payroll expenses and for specified nonpayroll operating costs paid or
incurred during an eight-week “covered period” following the loan’s origination date could be
fully forgiven if the borrower met certain payroll and employment retention criteria. Borrowers
were required by SBA regulations to use at least 75% of the loan forgiveness amount on payroll
costs and the remainder on eligible mortgage interest, rent, and utility payments in order to
receive full loan forgiveness.2

1 For purposes of determining not more than 500 employees, the term employee includes individuals employed on a
full-time, part-time, or other basis. Also, special eligibility considerations are provided for certain businesses and
organizations. For example, businesses operating in NAICS Sector 72 (Accommodation and Food Services industry)
that employ not more than 500 employees per physical location are also eligible for a covered loan. Affiliation rules are
also waived for (1) NAICS Sector 72 businesses, (2) franchises, and (3) SBIC-owned businesses. In other words, these
businesses would not be denied a covered loan solely because they employ more than 500 employees across multiple
businesses under common ownership.
2 Small Business Administration (SBA) and Department of the Treasury (Treasury), “Interim Final Rule - Business
Congressional Research Service
1
SBA Paycheck Protection Program (PPP) Loan Forgiveness: In Brief

On May 18, 2020, the SBA released the first version of the borrower’s application for PPP loan
forgiveness.3 On May 22, 2020, the SBA posted an interim final rule (IFR) on PPP loan
forgiveness on its website. The interim final rule was published in the Federal Register on June 1,
2020.4
In an effort to make it easier for borrowers to receive full loan forgiveness, especially those with
relatively high mortgage interest, rent, or utility costs, the at least 75% payroll requirement
imposed by the SBA through regulations was statutorily reduced to at least 60% by the Paycheck
bil ion. P.L. 116-260, the Economic Aid to Hard-Hit Smal Businesses, Nonprofits, and Venues Act (Division N, Title III of the Consolidated Appropriations Act of 2021), enacted on December 27, 2020, among other provisions, extended the PPP through March 31, 2021 (the PPP loan application portal reopened on January 11, 2021); increased the program’s authorization amount from $659 bil ion to $806.45 bil ion; and authorized second-draw PPP loans of up to $2 mil ion. P.L. 117-2, the American Rescue Plan Act of 2021, among other provisions, increased the PPP authorization amount to $813.7 bil ion. P.L. 117-6, the PPP Extension Act of 2021, extended the 1 For purposes of determining not more t han 500 employees, the term employee includes individuals employed on a full-time, part -time, or other basis. Also, special eligibility considerations are provided for certain businesses and organizations. For example, businesses operating in NAICS Sector 72 (Accommodation and Food Services industry) that employ not more than 500 employees per physical location are also eligible for a covered loan. Affiliation rules are also waived for (1) NAICS Sector 72 businesses, (2) franchises, and (3) SBIC-owned businesses. In other words, these businesses would not be denied a covered loan solely because they employ more than 500 employees across multiple businesses under common ownership. Congressional Research Service 1 SBA Paycheck Protection Program (PPP) Loan Forgiveness: In Brief acceptance of PPP applications through May 31, 2021, and authorized the SBA to process any pending applications submitted on or before that date through June 30, 2021. As required by law, the SBA stopped accepting new PPP applications on May 31, 2021, and it had approved over 11.8 mil ion PPP loans, totaling nearly $800 bil ion. Initial y, PPP loans used for payroll expenses and for specified nonpayroll operating costs paid or incurred during an eight-week “covered period” following the loan’s origination date could be fully forgiven if the borrower met certain payroll and employment retention criteria. Borrowers were required by SBA regulations to use at least 75% of the loan forgiveness amount on payroll costs and the remainder on eligible mortgage interest, rent, and utility payments in order to receive full loan forgiveness.2 On May 18, 2020, the SBA released the first version of the borrower’s application for PPP loan forgiveness (Form 3508).3 On May 22, the SBA posted an interim final rule (IFR) on PPP loan forgiveness on its website. The interim final rule was published in the Federal Register on June 1, 2020.4 In an effort to make it easier for borrowers to receive full loan forgiveness, especial y those with relatively high mortgage interest, rent, or utility costs, the at least 75% payroll requirement imposed by the SBA through regulations was statutorily reduced to at least 60% by the Paycheck Protection Program Flexibility Act (P.L. 116-142). The act also Protection Program Flexibility Act (P.L. 116-142). The act also
 extended the PPP loan forgiveness covered period from 8 weeks after the loan’s  extended the PPP loan forgiveness covered period from 8 weeks after the loan’s
origination date to the earlier of 24 weeks after the loan’s origination date or origination date to the earlier of 24 weeks after the loan’s origination date or
December 31, 2020; December 31, 2020;
 provides borrowers that received a PPP loan prior to the date of enactment (June  provides borrowers that received a PPP loan prior to the date of enactment (June
5, 2020) the option to use the CARES Act’s loan forgiveness covered period of 5, 2020) the option to use the CARES Act’s loan forgiveness covered period of
eight weeks after the loan’s origination date; eight weeks after the loan’s origination date;
 provides borrowers a “safe harbor” from the loan forgiveness rehiring  provides borrowers a “safe harbor” from the loan forgiveness rehiring
requirement if the borrower is unable to rehire an individual requirement if the borrower is unable to rehire an individual who was an who was an
employee of the recipient on or before February 15, 2020, or if the borrower can employee of the recipient on or before February 15, 2020, or if the borrower can
demonstrate an inability to hire similarlydemonstrate an inability to hire similarly qualified employees on or before qualified employees on or before
December 31, 2020; December 31, 2020;
 provides borrowers another “safe harbor” from the loan forgiveness rehiring  provides borrowers another “safe harbor” from the loan forgiveness rehiring
requirement if the business can document that it was unable to operate between requirement if the business can document that it was unable to operate between
February 15, 2020, and the end of the covered period at the same level of February 15, 2020, and the end of the covered period at the same level of
business activity as before February 15, 2020, due to compliance with business activity as before February 15, 2020, due to compliance with
requirements established or guidance issued between March 1, 2020, and requirements established or guidance issued between March 1, 2020, and
December 31, 2020, by the U.S. Department of Health and Human Services December 31, 2020, by the U.S. Department of Health and Human Services
(HHS), the Centers for Disease Control and Prevention (CDC), or the (HHS), the Centers for Disease Control and Prevention (CDC), or the
Occupational Safety and Health Administration (OSHA), related to the Occupational Safety and Health Administration (OSHA), related to the
maintenance of standards for sanitation, social distancing, or any other worker or maintenance of standards for sanitation, social distancing, or any other worker or
customer safety requirement related to COVID-19 (the SBA indicates that this
safe harbor includes state and local government directives based on these
requirements or guidance);5
 establishes a minimum PPP loan maturity of five years for loans made on or after
the date of enactment;
 extends the PPP loan deferral period from 6 months (under SBA regulations) to
the date that the SBA remits the borrower’s loan forgiveness amount to the
lender or, if the borrower does not apply for loan forgiveness, 10 months after the
end of the borrower’s loan forgiveness covered period; and

Loan Program Temporary 2 Small Business Administration (SBA) and Department of the Treasury (T reasury), “Interim Final Rule - Business Loan Program T emporary,” 85,” 85 Federal Register 20811, April 15, 2020, at https://home.treasury.gov/system/files/136/ 20811, April 15, 2020, at https://home.treasury.gov/system/files/136/
PPP—IFRN%20FINAL.pdf. PPP—IFRN%20FINAL.pdf.
3 SBA, 3 SBA, “Paycheck Protection Program – Loan Forgiveness Application,” at https://home.treasury.gov/system/files/136/“Paycheck Protection Program – Loan Forgiveness Application,” at https://home.treasury.gov/system/files/136/
3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf. 3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf.
4 SBA 4 SBA and Treasury and T reasury, “Interim Final Rule - Business, “Interim Final Rule - Business Loan Program Loan Program TemporaryT emporary,” 85 Federal Register 33004, June 1, 2020. Congressional Research Service 2 SBA Paycheck Protection Program (PPP) Loan Forgiveness: In Brief customer safety requirement related to COVID-19 (the SBA indicates that this safe harbor includes state and local government directives based on these requirements or guidance);5  establishes a minimum PPP loan maturity of five years for loans made on or after the date of enactment;  extends the PPP loan deferral period from 6 months (under SBA regulations) to the date that the SBA remits the borrower’s loan forgiveness amount to the lender or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period; and ,” 85 Federal Register 33004, June 1,
2020.
5 SBA and Treasury, “Business Loan Program Temporary Changes; Paycheck Protection Program – Revisions to Loan
Forgiveness and Loan Review Procedures Interim Final Rules,” 85 Federal Register 38309, June 26, 2020.
Congressional Research Service
2
SBA Paycheck Protection Program (PPP) Loan Forgiveness: In Brief

 eliminates the exception in the CARES Act preventing taxpayers who receive  eliminates the exception in the CARES Act preventing taxpayers who receive
PPP loan forgiveness from delaying the payment of employer payroll taxes.6 PPP loan forgiveness from delaying the payment of employer payroll taxes.6
The act also specified that, as long as the borrower submits an application for loan forgiveness The act also specified that, as long as the borrower submits an application for loan forgiveness
within 10 months of the covered period (within 10 months of the covered period (typicallytypical y 8 or 24 weeks), the borrower is not required to 8 or 24 weeks), the borrower is not required to
make any PPP loan payments until the forgiveness amount is remitted to the lender by the SBA. make any PPP loan payments until the forgiveness amount is remitted to the lender by the SBA.
SBA guidance indicates that SBA guidance indicates that
If the loan is fully forgiven, the borrower is not responsible for any payments. If only a If the loan is fully forgiven, the borrower is not responsible for any payments. If only a
portion of the loan is forgiven, or if the forgiveness application is denied, any remaining portion of the loan is forgiven, or if the forgiveness application is denied, any remaining
balance due on the loan must be repaid by the borrower on or before the maturity date of balance due on the loan must be repaid by the borrower on or before the maturity date of
the loan. Interest accrues during the time between the disbursement of the loan and SBA the loan. Interest accrues during the time between the disbursement of the loan and SBA
remittance of the forgiveness amount. The borrower is responsible for paying the accrued remittance of the forgiveness amount. The borrower is responsible for paying the accrued
interestinterest on any amount of the loan that is not forgiven. The lender is responsible on any amount of the loan that is not forgiven. The lender is responsible for for
notifying the borrower of remittance by SBA of the loan forgiveness amount (or that SBA notifying the borrower of remittance by SBA of the loan forgiveness amount (or that SBA
determined that no amount of the loan is eligible for forgiveness) and the date on which determined that no amount of the loan is eligible for forgiveness) and the date on which
the borrower’s first payment is due, if applicable.7 the borrower’s first payment is due, if applicable.7
On June 16, 2020, the SBA On June 16, 2020, the SBA
1. released a revised version of 1. released a revised version of the borrower’s application for PPP loan forgiveness
to account for changes made by theForm 3508 to account for Paycheck Protection Paycheck Protection Program Flexibility Program Flexibility
Act;8
2. released an EZ loan forgiveness application requiring fewer calculations and less
documentation than the standard loan forgiveness application form for borrowers
that meet specified criteria;9 and

6 Section 2302 of the CARES Act allows employers and self-employed individuals Act changes;8 5 SBA and T reasury, “Business Loan Program T emporary Changes; Paycheck Protection Program – Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules,” 85 Federal Register 38309, June 26, 2020. 6 Section 2302 of the CARES Act allows employers and self-employed individuals to defer, or postpone, the employer to defer, or postpone, the employer
share of the Social Securityshare of the Social Security payroll tax through the end of 2020. Deferred tax liability can be paidpayroll tax through the end of 2020. Deferred tax liability can be paid in two installments: in two installments:
one dueone due by December 31, 2021, and the second by December 31, 2022. by December 31, 2021, and the second by December 31, 2022. TheT he Social Security Social Security trust funds are not affected. trust funds are not affected.
SeeSee CRS CRS Report R46279, Report R46279, The Coronavirus Aid, Relief, and EconomicEconom ic Security (CARES) Act—Tax Relief for
Individuals and Businesses, coordinated by Molly F. Sherlock. Section 2302 prohibited taxpayers who obtain PPP loan , coordinated by Molly F. Sherlock. Section 2302 prohibited taxpayers who obtain PPP loan
forgiveness from also benefiting from deferral. Internal Revenue Service (IRS)forgiveness from also benefiting from deferral. Internal Revenue Service (IRS) guidance guidance had indicated that employers had indicated that employers
who obtain a PPP loan are able to defer their payroll taxes. However, “Once an employer receives a decision from its who obtain a PPP loan are able to defer their payroll taxes. However, “Once an employer receives a decision from its
lender that its PPP loan is forgiven, the employer is no longer eligiblelender that its PPP loan is forgiven, the employer is no longer eligible to defer deposit and payment of the employerto defer deposit and payment of the employer ’s ’s
share of Socialshare of Social Security tax dueSecurity tax due after that date.” See IRS,after that date.” See IRS, “ “Deferral of employment tax deposits and payments through Deferral of employment tax deposits and payments through
December 31, 2020,” at https://www.irs.gov/newsroom/deferral-of-employmentDecember 31, 2020,” at https://www.irs.gov/newsroom/deferral-of-employment -tax-deposits-and-payments-through--tax-deposits-and-payments-through-
december-31-2020. december-31-2020.
7 SBA,7 SBA, “Paycheck Protection Program Frequently Asked Questions (FAQs) on PPP “Paycheck Protection Program Frequently Asked Questions (FAQs) on PPP LoanLo an Forgiveness, as of August Forgiveness, as of August 11, 11,
2020,” at https://www.sba.gov/document/support-frequently-asked-questions-ppp-loan-forgiveness (hereinafter SBA, 2020,” at https://www.sba.gov/document/support-frequently-asked-questions-ppp-loan-forgiveness (hereinafter SBA,
“Paycheck Protection Program Frequently Asked Questions (FAQs)“Paycheck Protection Program Frequently Asked Questions (FAQs) on PPP Loan Forgiveness, as of Auguston PPP Loan Forgiveness, as of August 11, 11,
2020”). 2020”).
8 SBA,8 SBA, “Paycheck Protection Program – Loan Forgiveness Application Form (revised 6/16/2020),” at “Paycheck Protection Program – Loan Forgiveness Application Form (revised 6/16/2020),” at
https://www.sba.gov/document/sba-form-paycheck-protection-program-loan-forgiveness-application. https://www.sba.gov/document/sba-form-paycheck-protection-program-loan-forgiveness-application.
9 SBA, Congressional Research Service 3 SBA Paycheck Protection Program (PPP) Loan Forgiveness: In Brief 2. released an EZ loan forgiveness application (Form 3508EZ) requiring fewer calculations and less documentation than the standard loan forgiveness application form for borrowers that meet specified criteria;9 and 3. published in the Federal Register an interim final rule summarizing revisions to the first interim final rule resulting from the enactment of the Paycheck Protection Program Flexibility Act.10 On June 22, 2020, the SBA posted an interim final rule detailing revisions to the initial interim final rule on PPP loan forgiveness on its website. On June 26, 2020, the SBA published the interim final rule in the Federal Register.11 The SBA began accepting PPP lender loan forgiveness submissions on August 10, 2020, and began issuing decisions on these submissions, and remitting funds to lenders, on October 2, 2020. In an effort to expedite the processing of lender loan forgiveness submissions, on October 8, 2020, the SBA, in consultation with Treasury, released a simpler borrower loan forgiveness application form for PPP loans of $50,000 or less (Form 3508S).12 P.L. 116-260, among other provisions,  expanded the list of al owable uses of proceeds and loan forgiveness to include personal protective equipment, supplier costs, software payments, cloud 9 SBA, “Paycheck Protection Program, PPP Loan Forgiveness Application Form 3508EZ,” at https://www.sba.gov/“Paycheck Protection Program, PPP Loan Forgiveness Application Form 3508EZ,” at https://www.sba.gov/
document/sba-form-paycheck-protection-program-ez-loan-forgiveness-application. document/sba-form-paycheck-protection-program-ez-loan-forgiveness-application.
Borrowers can use Borrowers can use the EZ loan forgiveness applicationthe EZ loan forgiveness application if they meet any one of the following three criteria: (1) the if they meet any one of the following three criteria: (1) the
borrower is a self-employed individual,borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of independent contractor, or sole proprietor who had no employees at the time of
the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in
the Borrower Application Form; (2) the borrower didthe Borrower Application Form; (2) the borrower did not reduce annual salary or hourly wagesnot reduce annual salary or hourly wages of any employee by of any employee by
more than 25% duringmore than 25% during the covered period or the alternative payroll covered period (as defined below)the covered period or the alternative payroll covered period (as defined below) compared compared to with the the
period between January 1, 2020, and March 31, 2020, and didperiod between January 1, 2020, and March 31, 2020, and did not reduce the number of employees or the average paid not reduce the number of employees or the average paid
hours of employees between January 1, 2020hours of employees between January 1, 2020 , and the end of the covered period; or (3) the borrower did, and the end of the covered period; or (3) the borrower did not reduce
not reduce annual salary or hourly wagesannual salary or hourly wages of any employee by more than 25of any employee by more than 25 % during% during the covered period or the alternative payroll the covered period or the alternative payroll
covered period compared covered period compared towith the period between January 1, 2020, and March 31, 2020, and was the period between January 1, 2020, and March 31, 2020, and was unable to unable to operate during operate during
the covered period at the same level of businessthe covered period at the same level of business activity as before Februaryactivity as before February 15, 2020, due to compliance 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 , and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19. T he covered period is either (1) the 24-week (168-day) period beginning on the PPP loan disbursement date or (2) if the borrower received its PPP loan before June 5, 2020, the borrower may elect to use an 8-week (56-day) covered period. T he alternative payroll covered period is available for borrowers with a biweekly (or more frequent) payroll schedule. T hey may elect to calculate eligible payroll costs using the 24-week (168-day) period or for loans received before June 5, 2020 , at the election of the borrower, the 8-week (56-day) period that begins on the first day of their first pay period following their PPP loan disbursement date. 10 SBA, “Business Loan Program T emporary Changes; Paycheck Protection Program – Revisions to First Interim Final Rule,” 85 Federal Register 36308-36312, June 16, 2020. 11 SBA and T reasury, “Business Loan Program T emporary Changes; Paycheck Protection Program – Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules,” 85 Federal Register 38304-38312, June 26, 2020. 12 SBA, “ SBA and T reasury Announce Simpler PPP Forgiveness for Loans of $50,000 or Less,” at https://www.sba.gov/article/2020/oct/08/sba-treasury-announce-simpler-ppp-forgiveness-loans-50000-or-less. Borrowers using SBA Form 3508S (or lender’s equivalent form) to apply for PPP loan forgiveness are “exempt from any reductions in the borrower’s loan forgiveness amount based on reductions in f ull-time equivalent (FT E) employees (section 1106(d)(2) of the CARES Act) or reductions in employee salary or wages (section 1106(d)(3) of the CARES Act) that would otherwise apply.” See SBA, “ Business Loan Program T emporary Changes; Paycheck Protection Program—Additional Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules,” 85 Federal Register 66216, October 19, 2020. with
Congressional Research Service Congressional Research Service
34 SBA Paycheck Protection Program (PPP) Loan Forgiveness: In Brief computing, other human resources and accounting needs, and property damage costs from the 2020 public disturbances that are not covered by insurance;  al ows borrowers to select a PPP loan forgiveness covered period of either 8 weeks after the loan’s origination date or 24 weeks after the loan’s origination date regardless of when the loan was disbursed; and  created a simplified loan forgiveness application process for loans of $150,000 or less, which includes an application form that is not more than one page in length and only requires borrowers to provide a description of the number of employees the borrower was able to retain because of the loan, the estimated amount of the loan amount spent on payroll costs, and the total loan amount. Borrowers must also attest that they complied with al PPP loan requirements. Borrowers must retain relevant employment records for four years following submission of the form and other relevant records for three years. The SBA retains the right to review and audit these loans for fraud. Reporting of demographic information is optional.13 On January 19, 2021, the SBA issued a revised SBA Form 3508S, which increased the loan amount for which the form could be used from $50,000 to $150,000. The revised form was shortened to one page, as required by P.L. 116-260, and no longer requires the submission of supporting loan forgiveness documentation, as mandated by the act.14 Loans of $150,000 or less account for about 93% of al PPP loans.15 As of October 3, 2021, the SBA had received over 7.4 mil ion applications for PPP loan forgiveness, totaling more than $583.3 bil ion and issued over 7.2 mil ion payments, totaling more than $561.2 bil ion.16
SBA Paycheck Protection Program (PPP) Loan Forgiveness: In Brief

3. published in the Federal Register an interim final rule summarizing revisions to
the first interim final rule resulting from the enactment of the Paycheck
Protection Program Flexibility Act.10
On June 22, 2020, the SBA posted an interim final rule detailing revisions to the initial interim
final rule on PPP loan forgiveness on its website. On June 26, 2020, the SBA published the
interim final rule in the Federal Register.11
The SBA began accepting PPP lender loan forgiveness submissions on August 10, 2020, and
began issuing decisions on these submissions, and remitting funds to lenders, on October 2, 2020.
In an effort to expedite the processing of lender loan forgiveness submissions, on October 8,
2020, the SBA, in consultation with Treasury, released a simpler borrower loan forgiveness
application form for PPP loans of $50,000 or less.12
This In Brief report discusses statutes, regulations, and agency guidance relevant to the PPP loan This In Brief report discusses statutes, regulations, and agency guidance relevant to the PPP loan
forgiveness process and determination. A summary of the Paycheck Protection Program forgiveness process and determination. A summary of the Paycheck Protection Program
Flexibility Flexibility Act is also provided. Act is also provided.
PPP Forgiveness Provisions and Process
The PPP loan forgiveness process is summarized and key terms are defined below, followed by an The PPP loan forgiveness process is summarized and key terms are defined below, followed by an
explanation of situations in which loan forgiveness amounts may be reduced.explanation of situations in which loan forgiveness amounts may be reduced.13
Forgiveness Application Process
Borrowers must 17 13 P.L. 116-260 also repealed the requirement that borrowers deduct the amount of their EIDL advance payment from their PPP loan forgiveness amount if the advance payment was refinanced into their PPP loan. 14 SBA, “Business Loan Program T emporary Changes; Paycheck Protection Program —COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment,” 86 Federal Register 40922, July 30, 2021. 15 SBA, “Business Loan Program T emporary Changes; Paycheck Protection Program —COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment,” 86 Federal Register 40923, July 30, 2021. 16 SBA, “Forgiveness Platform Lender Submission Metrics,” October 3, 2021, at https://www.sba.gov/document/report -ppp-forgiveness-platform-lender-submission-metrics-reports. 17 T he CARES Act gives private lenders “delegated authority” to issue PPP loans. T hese lenders (e.g., banks, credit unions, community financial institutions) have enrolled with SBA to issue PPP loans (or SBA loans, generally). SBA is not issuing the loans directly to borrowers. Congressional Research Service 5 SBA Paycheck Protection Program (PPP) Loan Forgiveness: In Brief Forgiveness Application Process Borrowers complete the SBA loan forgiveness application (SBA Form 3508, SBA Form complete the SBA loan forgiveness application (SBA Form 3508, SBA Form
3508EZ, 3508EZ, or, for loan forgiveness submissions of $or, for loan forgiveness submissions of $50150,000 or less, SBA Form 3508S) or a lender ,000 or less, SBA Form 3508S) or a lender
equivalent for PPP loan forgiveness and submit it to their lender, who is to then make a decision equivalent for PPP loan forgiveness and submit it to their lender, who is to then make a decision
on the on the application within 60 days after submission. The revisions to SBA Form 3508S were expected to expedite PPP loan forgiveness processing. However, many smal er PPP lenders informed the SBA that they did not have “the technology or human resources to develop efficient electronic loan forgiveness platforms to process the new streamlined loan forgiveness application” and many lenders reported that they were overwhelmed by the volume of PPP loan forgiveness applications.18 In response, the SBA made available to PPP lenders, effective July 28, 2021, an option to al ow their Form 3508S-eligible PPP borrowers to apply for PPP loan forgiveness through a new, online SBA Direct Borrower Forgiveness Portal. Upon receipt of SBA notice that an eligible PPP borrower had completed Form 3508S online, the lender reviews the application and issues a loan forgiveness decision to the SBA using the online platform. When the SBA Direct Borrower Forgiveness Portal launched on August 4, 2021, about 600 lenders had opted into the new process, and by September 22, 2021, that number had increased to about 1,400 lenders.19 The SBA maintains a list of PPP lenders participating in the new direct loan forgiveness process on its website.20 To encourage Form 3508S-eligible PPP borrowers to use the new online portal, the SBA provides these borrowers a partial y pre-populated Form 3508S that the borrower can complete online. The SBA reports that, as of September 22, 2021, more than one mil ion PPP borrowers had used the new online portal, requesting more than $17 bil ion in loan forgiveness. The SBA also reports that it takes PPP borrowers, on average, about six minutes to complete Form 3508S online and that borrowers who used the SBA Direct Borrower Forgiveness Portal received their PPP loan forgiveness decision within a week.21 Borrowers must retain documentation substantiating the information provided for six years after the date the loan is forgiven or repaid in full and make it available to the SBA, including representatives of its Office of Inspector General, upon request. If the lender determines that the borrower is entitled to some or al of the applied forgiveness amount, then the lender must request payment from the SBA. SBA is to review al loans in excess of $2 mil ion following the lender’s submission of the borrower’s loan forgiveness application.22 18 SBA, “Business Loan Program T emporary Changes; Paycheck Protection Program —COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment,” 86 Federal Register 40923, July 30, 2021. 19 T he SBA Direct Borrower Forgiveness Portal can be accessed at https://directforgiveness.sba.gov/requests/borrower/login/?next=/. 20 SBA, “PPP lenders participating in direct forgiveness,” effective September 23, 2021, at https://www.sba.gov/document/support -ppp-lenders-participating-direct-forgiveness. 21 SBA, “In Less T han T wo Weeks, Paycheck Protection Program Direct Borrower Forgiveness Portal Surpasses Expectations, Accepts More T han 340K Submissions,” August 18, 2021, at https://www.sba.gov/article/2021/aug/18/less-two-weeks-paycheck-protection-program-direct-borrower-forgiveness-portal-surpasses-expectations. 22 SBA may also review other smaller loans as it deems appropriate, following the lender’s submission for loan forgiveness. During a review process, SBA could choose to review the initial PPP loan application, forgiveness application, or both. (In addition, borrowers may request that SBA review the lender’s forgiveness decision.) See FAQ #39 in SBA, “Paycheck Protection Program Frequently Asked Questions,” at https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf. Congressional Research Service 6 SBA Paycheck Protection Program (PPP) Loan Forgiveness: In Brief About 0.25% of al approved PPP loans are larger than $2 mil ion (29,733 of 11.8 mil ion), representing slightly more than 13.6% of approved loan amounts ($109.3 bil ion of $800 bil ion).23 The SBA application within 60 days after submission. Borrowers must retain documentation
substantiating the information provided for six years after the date the loan is forgiven or repaid
in full and make it available to the SBA, including representatives of its Office of Inspector
General, upon request.

requirements established or guidance issued between March 1, 2020, and December 31, 2020, by the Secretary of
Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety
and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or
customer safety requirement related to COVID-19. The covered period is either: (1) the 24-week (168-day) period
beginning on the PPP loan disbursement date, or (2) if the borrower received its PPP loan before June 5, 2020, the
borrower may elect to use an 8-week (56-day) covered period. The alternative payroll covered period is available for
borrowers with a biweekly (or more frequent) payroll schedule. They may elect to calculate eligible payroll costs using
the 24-week (168-day) period or for loans received before June 5, 2020, at the election of the borrower, the 8-week (56-
day) period that begins on the first day of their first pay period following their PPP loan disbursement date.
10 SBA, “Business Loan Program Temporary Changes; Paycheck Protection Program – Revisions to First Interim Final
Rule,” 85 Federal Register 36308-36312, June 16, 2020.
11 SBA and Treasury, “Business Loan Program Temporary Changes; Paycheck Protection Program – Revisions to Loan
Forgiveness and Loan Review Procedures Interim Final Rules,” 85 Federal Register 38304-38312, June 26, 2020.
12 SBA, “SBA and Treasury Announce Simpler PPP Forgiveness for Loans of $50,000 or Less,” at
https://www.sba.gov/article/2020/oct/08/sba-treasury-announce-simpler-ppp-forgiveness-loans-50000-or-less.
13 The CARES Act gives private lenders “delegated authority” to issue PPP loans. These lenders (e.g., banks, credit
unions, community financial institutions) have enrolled with SBA to issue PPP loans (or SBA loans, generally). SBA is
not issuing the loans directly to borrowers.
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SBA Paycheck Protection Program (PPP) Loan Forgiveness: In Brief

If the lender determines that the borrower is entitled to some or all of the applied forgiveness
amount, then the lender must request payment from the SBA. SBA is to review all loans in excess
of $2 million following the lender’s submission of the borrower’s loan forgiveness application.14
Less than 1% of all PPP loans are larger than $2 million (28,982 of 5.2 million), representing
slightly more than 20% of loan amounts ($105.3 billion of $525 billion).15
The SBA is then to remit the appropriate forgiveness amount to the lender, plus any interest is then to remit the appropriate forgiveness amount to the lender, plus any interest
accrued through the payment date, no later than 90 days after the lender issues its decision to accrued through the payment date, no later than 90 days after the lender issues its decision to
SBA. The borrower must repay any amount not forgiven within the PPP loan’s two-year or, if the SBA. The borrower must repay any amount not forgiven within the PPP loan’s two-year or, if the
application received an SBA loan number on or after June 5, 2020, five-year maturity period. application received an SBA loan number on or after June 5, 2020, five-year maturity period.
Payroll Costs
In general, only payroll costs paid In general, only payroll costs paid or incurred during the 8-week (56 consecutive days) or 24- incurred during the 8-week (56 consecutive days) or 24-
week (168-day) “covered period” are eligible for forgiveness. Borrowers can consistently apply week (168-day) “covered period” are eligible for forgiveness. Borrowers can consistently apply
one of two start dates: (1) the date that their lender disbursed their PPP loan or (2) the first day of one of two start dates: (1) the date that their lender disbursed their PPP loan or (2) the first day of
their first payroll cycle in the covered period (termed the “alternative payroll covered period”).their first payroll cycle in the covered period (termed the “alternative payroll covered period”).1624
Payroll costs incurred during the borrower’s last pay period of the covered period are eligiblePayroll costs incurred during the borrower’s last pay period of the covered period are eligible for for
forgiveness only if paid on or before the next regular payroll date. This is intended for the forgiveness only if paid on or before the next regular payroll date. This is intended for the
borrower’s administrative convenience. In addition, any payroll costs that were incurred before borrower’s administrative convenience. In addition, any payroll costs that were incurred before
the covered period but paid during the covered period are eligiblethe covered period but paid during the covered period are eligible for loan forgiveness. for loan forgiveness.
Compensation to furloughed employees, even if they are not performing their day-to-day Compensation to furloughed employees, even if they are not performing their day-to-day
functions, is considered a “payroll cost” eligible for forgiveness. functions, is considered a “payroll cost” eligible for forgiveness.
No more than $15,385 in cash compensation per individual during the 8-week covered period and No more than $15,385 in cash compensation per individual during the 8-week covered period and
$20,833 in cash compensation per individual during the 24-week covered period is eligible for $20,833 in cash compensation per individual during the 24-week covered period is eligible for
forgiveness.forgiveness.1725 Noncash compensation for employee health insurance, employer contributions to Noncash compensation for employee health insurance, employer contributions to
employee retirement plans, and payment of state and local taxes assessed on employee employee retirement plans, and payment of state and local taxes assessed on employee
compensation are not subject to this limitation. compensation are not subject to this limitation.
Self-employed individuals Self-employed individuals (e.g., sole proprietors, independent contractors) are limited to (e.g., sole proprietors, independent contractors) are limited to
forgiveness based on their positive net profit or earnings amounts from their 2019 federal income forgiveness based on their positive net profit or earnings amounts from their 2019 federal income
tax filings.tax filings.1826 The SBA has labeled this as “owner compensation replacement.” The SBA has labeled this as “owner compensation replacement.”
Nonpayroll Costs
NonpayrollInitial y, nonpayroll costs eligible for forgiveness costs eligible for forgiveness includeincluded payments for the following expenses: 1. interest on any business mortgage obligation on real or personal property, 2. business rent obligations on real or personal property under a lease agreement, and 23 SBA, “Paycheck Protection Program (PPP) Report (Approvals through 8/8/2020),” at https://www.sba.gov/document/report -ppp-2020-data-reports; and SBA, “ Paycheck Protection Program (PPP) Report (Approvals through 5/31/2021),” at https://www.sba.gov/document/report-paycheck-protection-program-weekly-reports-2021. 24 Payroll costs are considered payments for the following expenses:

14 SBA may also review other smaller loans as it deems appropriate, following the lender’s submission for loan
forgiveness. During a review process, SBA could choose to review the initial PPP loan application, forgiveness
application, or both. (In addition, borrowers may request that SBA review the lender’s forgiveness decision.) See FAQ
#39 in SBA, “Paycheck Protection Program Frequently Asked Questions,” at https://home.treasury.gov/system/files/
136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf.
15 SBA, “Paycheck Protection Program (PPP) Report (Approvals through 8/8/2020),” at https://home.treasury.gov/
system/files/136/SBA-Paycheck-Protection-Program-Loan-Report-Round2.pdf.
16 Payroll costs are considered paid on the day that paychecks are distributed or the borrower originates an automated paid on the day that paychecks are distributed or the borrower originates an automated
clearing house (ACH) credit transaction. clearing house (ACH) credit transaction.
1725 SBA, SBA, “Paycheck Protection Program Frequently Asked Questions (FAQs) on PPP Loan Forgiveness, as of August “Paycheck Protection Program Frequently Asked Questions (FAQs) on PPP Loan Forgiveness, as of August
11, 2020,” p. 4. 11, 2020,” p. 4.
1826 CRS CRS Insight IN11341, Insight IN11341, SBA’s Paycheck Protection Program (PPP) Loans and Self-Employed Individuals, by Sean , by Sean
Lowry. Lowry.
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SBA Paycheck Protection Program (PPP) Loan Forgiveness: In Brief

1. interest on any business mortgage obligation on real or personal property,
2. business rent obligations on real or personal property under a lease agreement,
and
3. business utility payments for the distribution of electricity, gas, water,
transportation, telephone, or internet access.19
Eligible 3. business utility payments for the distribution of electricity, gas, water, transportation, telephone, or internet access.27 As mentioned, P.L. 116-260 expanded the list of al owable uses of loan proceeds and PPP loan forgiveness to include personal protective equipment, supplier costs, software payments, cloud computing, other human resources and accounting needs, and property damage costs from the 2020 public disturbances that are not covered by insurance. Eligible expenses must have been incurred, in force, or in service as of February 15, 2020. No expenses must have been incurred, in force, or in service as of February 15, 2020. No
more than 40% of the loan forgiveness amount can be attributed to nonpayroll costs. more than 40% of the loan forgiveness amount can be attributed to nonpayroll costs.
Nonpayroll costs are eligible for forgiveness if they were paid during the covered period (even if Nonpayroll costs are eligible for forgiveness if they were paid during the covered period (even if
they were incurred prior to the covered period) or incurred during the covered period and paid on they were incurred prior to the covered period) or incurred during the covered period and paid on
the next regular the next regular billing bil ing date. If a date. If a billing bil ing cycle covers a period within and outside of the covered cycle covers a period within and outside of the covered
period, only the portion of the payment attributed to costs incurred during the covered period is period, only the portion of the payment attributed to costs incurred during the covered period is
eligible eligible for forgiveness. for forgiveness.
Reductions in Forgiveness
Under Section 1106 of the CARES Act, forgiveness for borrowers’ PPP-eligible expenses during Under Section 1106 of the CARES Act, forgiveness for borrowers’ PPP-eligible expenses during
the covered period is to be reduced according to specified formulas (discussed below) if a the covered period is to be reduced according to specified formulas (discussed below) if a
borrower (1) reduces its full-time equivalent (FTE) employees (including employees who made borrower (1) reduces its full-time equivalent (FTE) employees (including employees who made
more than $100,000), as compared to a reference period selected by the borrower, or (2) reduces more than $100,000), as compared to a reference period selected by the borrower, or (2) reduces
the amount of salaries or wages paid to certain FTE employees by more than 25% below levels in the amount of salaries or wages paid to certain FTE employees by more than 25% below levels in
a reference period selected by the borrower.a reference period selected by the borrower.2028 Reducing loan forgiveness means borrowers would Reducing loan forgiveness means borrowers would
have to repay some or have to repay some or all al of their original PPP loan amount. of their original PPP loan amount.
The CARES Act specified that these reductions would not take place if the borrower eliminated The CARES Act specified that these reductions would not take place if the borrower eliminated
the reductions in FTEs or salaries and wages by no later than June 30, 2020. As mentioned, in the reductions in FTEs or salaries and wages by no later than June 30, 2020. As mentioned, in
recognition of the difficulties some recognition of the difficulties some small smal businesses were experiencing in rehiring employees, the businesses were experiencing in rehiring employees, the
Paycheck Protection Program Flexibility Act of 2020 (P.L. 116-142) Paycheck Protection Program Flexibility Act of 2020 (P.L. 116-142) allowsal ows borrowers to exclude borrowers to exclude
any reduction in FTE employees if they are able to document in good faith (1) an inabilityany reduction in FTE employees if they are able to document in good faith (1) an inability to to
rehire individualsrehire individuals who were employees of the borrower on February 15, 2020, and (2) an inability who were employees of the borrower on February 15, 2020, and (2) an inability
to hire similarly qualifiedto hire similarly qualified individuals for individuals for unfilledunfil ed positions on or before December 31, 2020. This positions on or before December 31, 2020. This
is commonly referred to as the “rehiring provision.”is commonly referred to as the “rehiring provision.”
The act also The act also allowsal ows borrowers to exclude any reduction in FTE employees if they can document borrowers to exclude any reduction in FTE employees if they can document
an inabilityan inability to return to the same level of business activity the business was operating at before to return to the same level of business activity the business was operating at before
February 15, 2020, due to compliance with requirements established or guidance issued by the February 15, 2020, due to compliance with requirements established or guidance issued by the
Secretary of HHS, the Director of the CDC, or OSHA, related to the maintenance of standards for Secretary of HHS, the Director of the CDC, or OSHA, related to the maintenance of standards for
sanitation, social distancing, or any other worker or customer safety requirement related to
COVID-19.

19 27 Advance interest payments (prepayment) on a covered mortgage or loan principal payments are not eligible for Advance interest payments (prepayment) on a covered mortgage or loan principal payments are not eligible for
forgiveness. forgiveness.
2028 Borrowers have the following options for their reference period: (1) February 15, 2019, through June 30, 2019; (2) Borrowers have the following options for their reference period: (1) February 15, 2019, through June 30, 2019; (2)
January 1, 2020, through February 29, 2020; or (3) in the case of a seasonal employer, either of the two preceding January 1, 2020, through February 29, 2020; or (3) in the case of a seasonal employer, either of the two preceding
methods or a consecutive 12-week period between May 1, 2019, and September 15, 2019. A “methods or a consecutive 12-week period between May 1, 2019, and September 15, 2019. A “ covered employee” is an covered employee” is an
individualindividual who who (1) was(1) was employed by the borrower at any point during the covered period or alternative payroll covered employed by the borrower at any point during the covered period or alternative payroll covered
period and whose principal place of residence is in the United States and (2) received period and whose principal place of residence is in the United States and (2) received compensationco mpensation from the borrower from the borrower
at an annualizedat an annualized rate less than or equalrate less than or equal to $100,000 for all pay periods in 2019 or wasto $100,000 for all pay periods in 2019 or was not employed by the borrower at not employed by the borrower at
any point in 2019. See SBA,any point in 2019. See SBA, “ “Paycheck Protection Program Frequently Asked Questions (FAQs) on PPP Loan Paycheck Protection Program Frequently Asked Questions (FAQs) on PPP Loan
Forgiveness, as of AugustForgiveness, as of August 11, 2020,” pp. 8, 9. 11, 2020,” pp. 8, 9.
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SBA Paycheck Protection Program (PPP) Loan Forgiveness: In Brief
sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19. In addition, effective October 14, 2020, the SBA administratively exempted borrowers of PPP loans of $50,000 or less from the FTE and wage reduction penalties.29
Calculating Full-Time Equivalent Employees
If the average number of FTE employees during the covered period is less than during the If the average number of FTE employees during the covered period is less than during the
reference period selected by the borrower, then the forgiveness amount is reduced reference period selected by the borrower, then the forgiveness amount is reduced
proportionately. For example, if an employer had an average of 100 FTE employees in its proportionately. For example, if an employer had an average of 100 FTE employees in its
reference period and 80 FTE employees during the covered period, then it would be eligiblereference period and 80 FTE employees during the covered period, then it would be eligible for for
loan forgiveness on up to 80% (8/10) of its total eligibleloan forgiveness on up to 80% (8/10) of its total eligible expenses (payroll and nonpayroll) during expenses (payroll and nonpayroll) during
the covered period. the covered period.
An FTE is defined as an employee who works 40 hours per week. An FTE is defined as an employee who works 40 hours per week.2130 FTE employee counts are FTE employee counts are
determined on an aggregate basis, based on the hours of determined on an aggregate basis, based on the hours of all al employees on the borrower’s payroll employees on the borrower’s payroll
divided by the number of employees. An employee working more than 40 hours per week is divided by the number of employees. An employee working more than 40 hours per week is
capped as counting as one FTE employee. For example, an employee who was paid 48 hours per capped as counting as one FTE employee. For example, an employee who was paid 48 hours per
week during the covered period would be considered to be 1.0 FTE employee. As an week during the covered period would be considered to be 1.0 FTE employee. As an
administrative convenience, employees who were paid for less than 40 hours per week may be administrative convenience, employees who were paid for less than 40 hours per week may be
counted in one of two ways: (1) based on the average hours worked per week, or (2) counting counted in one of two ways: (1) based on the average hours worked per week, or (2) counting
each part-time employee as 0.5 FTE employees. Borrowers must consistently apply their each part-time employee as 0.5 FTE employees. Borrowers must consistently apply their
calculation methods across calculation methods across all al employees. employees.
Calculating Salaries and Wages
The amount of loan forgiveness is reduced by the amount of any reduction over 25% of an The amount of loan forgiveness is reduced by the amount of any reduction over 25% of an
employee’s total salary or wages during the covered period compared with the employee’s total employee’s total salary or wages during the covered period compared with the employee’s total
salary or wages during the most recent full quarter prior to the covered period. Employees who salary or wages during the most recent full quarter prior to the covered period. Employees who
earned more than $100,000 in 2019 are not taken into account for the compensation reduction earned more than $100,000 in 2019 are not taken into account for the compensation reduction
part of the reduction formula. In other words, such employees may have their pay reduced by part of the reduction formula. In other words, such employees may have their pay reduced by
more than 25% without affecting the borrower’s forgiveness amounts. more than 25% without affecting the borrower’s forgiveness amounts.
The salary and wages reduction formula only applies to the decline in total salary or wages that is The salary and wages reduction formula only applies to the decline in total salary or wages that is
not attributed to FTE employee reductions. This is to prevent borrowers from being “doubly not attributed to FTE employee reductions. This is to prevent borrowers from being “doubly
penalized” for FTE employee reductions. For example, an employee worked 40 hours per week penalized” for FTE employee reductions. For example, an employee worked 40 hours per week
during the reference period and was reduced to 20 hours per week during the covered period with during the reference period and was reduced to 20 hours per week during the covered period with
no hourly wage reduction. Although the employee earned half the compensation during the no hourly wage reduction. Although the employee earned half the compensation during the
covered period, the employer’s forgiveness amount covered period, the employer’s forgiveness amount will wil only be reduced with respect to a only be reduced with respect to a
reduction in FTE employees (from 1.0 to 0.5 FTE employees). reduction in FTE employees (from 1.0 to 0.5 FTE employees).
Three other groups of employees do not affect a borrower’s forgiveness:
1. employees who were laid off or forced to reduce their hours, but then declined
their employer’s subsequent offer to return to work or restore their previous
schedules;22
2. employees who were fired for cause; and
3. employees who requested a schedule reduction.

21 Note that this is different than the 30 hour-per-week FTE 29 SBA, “Business Loan Program T emporary Changes; Paycheck Protection Program —Additional Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules,” 85 Federal Register, 66215-66216, October 19, 2020. Although borrowers of PPP loans of $150,000 or less may use SBA Form 3508S, only borrowers of $50,000 or less are exempt from the FT E and salary/wage reduction penalt ies. See SBA, “ Business Loan Program T emporary Changes; Paycheck Protection Program—COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment,” 86 Federal Register 40922, July 30, 2021. 30 Note that this is different than the 30 hour-per-week FT E employee definition and determination under the employee definition and determination under the
Affordable Care Act’s Employer SharedAffordable Care Act’s Employer Shared Responsibility Provision. See CRSResponsibility Provision. See CRS Report R45455, Report R45455, The Affordable Care Act’s
(ACA’s) Employer Shared Responsibility Provisions (ESRP), by Ryan J. Rosso. , by Ryan J. Rosso.
22 The offer must be for the same salary or wages and same number of hours as earned by such employee in the last pay
period prior to the separation or reduction in hours. For example, an employer cannot offer an employee compensation
at half the employee’s previous pay rate or hours and qualify for the safe harbor.
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SBA Paycheck Protection Program (PPP) Loan Forgiveness: In Brief

The borrower must make a good faith certification attesting to the above conditions and maintain
various documentation (e.g., employee-employer communications).
As mentioned, in an effort to expedite the processing of lender loan forgiveness submissions, on
October 8, 2020, the SBA, in consultation with Treasury, released a simpler borrower loan
forgiveness application form for PPP loans of $50,000 or less (SBA Form 3508S).23 Borrowers
using this form (or a lender’s equivalent form) are exempt from any reductions in the borrower’s
loan forgiveness amount based on reductions in full-time equivalent employees or reductions in
employ salary or wages that would otherwise apply. About 3.57 million PPP loans of $50,000 or
less were approved (68.6% of the 5.21 million PPP loans that were approved) totaling about
$62.7 billion (12.0% of the $525.0 billion loaned).
Pending Legislation of Interest
The Continuing Small Business Recovery and Paycheck Protection Program Act (S. 4321) would,
among other provisions, create simplified PPP loan forgiveness application processes for loans of
$150,000 or less and for loans between $150,000 and $2 million.
 The SBA would be authorized to forgive PPP loans of $150,000 or less if the
borrower submits a signed attestation to the lender indicating that the borrower
made a good faith effort to comply with all loan forgiveness requirements.
Borrowers would be required to retain (but not submit) records relevant to the
attestation that prove compliance with all loan forgiveness requirements for three
years. The SBA would retain the right to review and audit these records. As is
currently the case, borrowers may complete and submit any form related to
borrower demographic information.
 For PPP loans between $150,000 and $2 million, the borrower would not be
required to submit to the lender supporting documentation verifying the number
of full-time equivalent employees on payroll and applicable pay rates, mortgage
or lease obligations, and utility payments, or provide a certification that the
documents are true and correct. Borrowers would be required to retain all
relevant supporting documentation for three years. Lender review of the
application for loan forgiveness would be limited to whether the lender received
a complete application, with all fields completed, initialed, or signed, as
applicable. The SBA would retain the right to review and audit these records. As
is currently the case, borrowers may complete and submit any form related to
borrower demographic information.
The House-passed (updated) Heroes Act (H.R. 925) would, among other provisions,
create a three-tiered PPP loan forgiveness application process for loans of $50,000 or
less, greater than $50,000 to $150,000, and over $150,000.
 The SBA would be authorized to forgive PPP loans of $50,000 or less if the
borrower certifies to the SBA that they have complied with all forgiveness
requirements. No documentation or application to receive forgiveness would be
required. Borrowers would be required to retain records relevant to the
certification for a period of time determined by the SBA, but not less than three
years. The SBA would retain the right to review and audit these records during

23 SBA, “SBA and Treasury Announce Simpler PPP Forgiveness for Loans of $50,000 or Less,” at
https://www.sba.gov/article/2020/oct/08/sba-treasury-announce-simpler-ppp-forgiveness-loans-50000-or-less.
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SBA Paycheck Protection Program (PPP) Loan Forgiveness: In Brief

 the specified time period. As is currently the case, borrowers may complete and
submit any form related to borrower demographic information.
 For PPP loans greater than $50,000 to $150,000, the borrower would certify to
the lender that they have complied with all forgiveness requirements and
completed a simplified one-page application form that does not require the
borrower to submit to the lender supporting documentation verifying the number
of full-time equivalent employees on payroll and applicable pay rates, mortgage
or lease obligations, and utility payments. As is currently the case, borrowers
may complete and submit any form related to borrower demographic
information.
 For PPP loans greater than $150,000, borrowers would follow the existing PPP
loan forgiveness process.
In addition, under the (updated) Heroes Act, lenders would be required only to review
PPP loan forgiveness applications to ensure completion, including that required
attestations have been made, before submitting the application to the SBA.

Author Information

Robert Jay Dilger
Sean Lowry
Senior Specialist in American National Government Analyst in Public Finance



Three other groups of employees do not affect a borrower’s forgiveness: 1. employees who were laid off or forced to reduce their hours, but then declined their employer’s subsequent offer to return to work or restore their previous schedules;31 2. employees who were fired for cause; and 3. employees who requested a schedule reduction. The borrower must make a good faith certification attesting to the above conditions and maintain various documentation (e.g., employee-employer communications). Author Information Robert Jay Dilger Senior Specialist in American National Government Acknowledgments Sean Lowry, former CRS analyst, co-authored an earlier version of this report.
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31 T he offer must be for the same salary or wages and same number of hours as earned by such employee in the last pay period prior to the separation or reduction in hours. For example, an employer cannot offer an employee compensation at half the employee’s previous pay rate or hours and qualify for the safe harbor. Congressional Research Service Congressional Research Service
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