PPP loan forgiveness update: new form 3508EZ and revisions for self-employed individuals

In this 2-minute read:

  • Who can use the new PPP forgiveness application Form 3508EZ
  • Clarifications on PPP owner compensation forgiveness limits for individuals with self-employment income
  • The Treasury’s IFR released June 17, 2020

The Paycheck Protection Program authorized by the CARES act of 2020 has provided emergency relief loans for millions of American small businesses, and applications are still being accepted until June 30, 2020.

Understandably, due to the haste with which the program was enacted, there have been several updates and revisions to the PPP program rules and effective dates. The latest guidance and revisions from the Treasury as of June 17, 2020 include a new “easy” PPP loan forgiveness form (Form 3508EZ) as well as clarification on how much owner compensation forgiveness may be applied for by individuals with self-employment income.

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Let’s go over the new PPP loan forgiveness forms first.

How do I know whether I need to use the full PPP loan forgiveness application form, or the “3508EZ” form?

Everyone who wants their PPP loan forgiven (meaning you don’t have to pay it back) in full or in part, must complete and submit an application for loan forgiveness. 

Here’s how borrowers decide which forgiveness application to use. You may use Form 3508EZ if:

  • You are self-employed and have no employees; OR
  • You did not reduce the salaries or wages of employees by more than 25%, and did not reduce the number or hours of employees; OR
  • You experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of employees by more than 25%.

If you don’t fit into any of the above conditions, you will need to complete and submit the full PPP loan forgiveness application.

You may also like: How do I get my PPP loan forgiven?

New limits on forgivable PPP owner compensation replacement for self-employed individuals

In addition to the new EZ forgiveness application form, we also received clarification on how much loan forgiveness borrowers with self-employment income may apply for. Here’s what the Treasury IFR released on June 17, 2020 said about forgivable loan amounts for individuals with self-employment income:

The Administrator, in consultation with the Secretary, has determined that it is appropriate to limit the forgiveness of owner compensation replacement for individuals with self-employment income who file a Schedule C or F to either eight weeks’ worth (8/52) of 2019 net profit (up to $15,385) for an eight-week covered period or 2.5 months’ worth (2.5/12) of 2019 net profit (up to $20,833) for a 24-week covered period per owner in total across all businesses. 

“This approach is consistent with the structure of the CARES Act and its overarching focus on keeping workers paid, and will prevent windfalls that Congress did not intend. Specifically, Congress determined that the maximum loan amount is generally based on 2.5 months of the borrower’s average total monthly payroll costs during the one-year period preceding the loan.

“For example, a borrower with one other employee would receive a maximum loan amount equal to five months of payroll (2.5 months of payroll for the owner plus 2.5 months of payroll for the employee). 

“If the owner laid off the employee and availed itself of the safe harbor in the Flexibility Act from reductions in loan forgiveness for a borrower that is unable to return to the same level of business activity the business was operating at before February 15, 2020, the owner could treat the entire amount of the PPP loan as payroll, with the entire loan being forgiven. This would not only result in a windfall for the owner, by providing the owner with five months of payroll instead of 2.5 months, but also defeat the purpose of the CARES Act of protecting the paycheck of the employee. 

“For borrowers with no employees, this limitation will have no effect, because the maximum loan amount for such borrowers already includes only 2.5 months of their payroll.”

Read our complete PPP loan forgiveness FAQs here.

There’s still time to apply for a PPP loan, but hurry! The extended deadline for application is August 8, 2020

If you haven’t applied for your PPP loan and you determine it’s right for you, there is still time. Talk to your lender and get your application submitted ASAP.

Sign up for your Womply Free account and we’ll keep you updated on new funding opportunities. Customer relationships thrive when local businesses and consumers are connected through Womply data and technology.

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