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

In this 2-minute read:

  • NEW UPDATE 8/2021! SBA PPP Direct Forgiveness Portal announced
  • Who can use the new PPP forgiveness application Form 3508EZ
  • Who should use the new PPP forgiveness application Form 3508S
  • Clarifications on PPP owner compensation forgiveness limits for individuals with self-employment income
  • The Treasury’s IFR released June 17, 2020 

URGENT PPP FORGIVENESS UPDATE: On July 28, 2021, the SBA announced big news (for most PPP borrowers). The SBA has established an online PPP forgiveness platform called the SBA PPP Direct Forgiveness Portal. If your PPP loan was for $150,000 or less, AND if your lender has opted-in to the use of the platform, you will be able to submit your PPP loan forgiveness application online directly to the SBA, using the electronic equivalent of SBA Form 3508S. For full details, read our post about the new SBA PPP Direct Forgiveness Portal and other recent rule changes.

The Paycheck Protection Program authorized by the CARES act of 2020 has provided emergency relief loans for millions of American small businesses.

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. Guidance and revisions from the Treasury on 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. There have been additional updates for 2021, including simplified applications and a specific forgiveness form for loans of $150,000 or less (Form 3508S). 

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

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How do I know whether I need to use the full PPP loan forgiveness application form (3508 or 3508S), 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.

If your loan was for more than $150,000, you may use the full forgiveness application (Form 3508) OR the new Form 3508EZ (if you meet the criteria; see below).

If your loan was for $150,000 or less, use Form 3508S. IMPORTANT UPDATE: as of August 4, 2021, If your PPP loan was for $150,000 or less, AND if your lender has opted-in to the use of the platform, you will be able to submit your PPP loan forgiveness application online directly to the SBA, using the electronic equivalent of SBA Form 3508S, via the SBA’s new online PPP forgiveness platform called the SBA PPP Direct Forgiveness Portal. For full details, read our post about the new SBA PPP Direct Forgiveness Portal and other recent rule changes.

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%.

See all the new PPP application and forgiveness forms here.

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.

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