Borrowers are eligible to have their loans forgiven, if they follow all the rules.
A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 24-week period beginning on the date of loan disbursement. At least 60% must be used for payroll costs.
- Any amount forgiven will not be included in your taxable income.
- Payroll costs (using the same deﬁnition of payroll costs used to determine loan eligibility)
- Rent on a leasing agreement
- Payments on utilities (electricity, gas, water, transportation, telephone, or internet)
- For borrowers with tipped employees, additional wages paid to those employees
- Interest on the mortgage obligation incurred in the ordinary course of business
- The loan forgiveness cannot exceed the principal.
How could the forgiveness be reduced?
The amount of loan forgiveness calculated above is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees. Speciﬁcally:
Reduction based on reduction of number of employees
PAYROLL COST x Average Number of Full-Time Equivalent Employees (FTEs) Per Month for the 24-Weeks Beginning on Loan Disbursement divided by;
- Option 1: Average number of FTEs per month from February 15, 2019 to June 30, 2019
- Option 2: Average number of FTEs per month from January 1, 2020 to February 29, 2020
- For Seasonal Employers: Average number of FTEs per month from February 15, 2019 to June 30, 2019
Reduction based on reduction in salaries
PAYROLL COST – For any employee who did not earn during any pay period in 2019 wages at an annualized rate more than $100,000, the amount of any reduction in wages that is greater than 25% compared to their most recent full quarter.
What if I bring back employees or restore wages?
Reductions in employment or wages that occur during the period beginning on February 15, 2020, and ending 30 days after enactment of the CARES Act, (April 26, 2020) shall not reduce the amount of loan forgiveness IF by December 31, 2020 the borrower eliminates the reduction in employees or reduction in wages.