What expenses are forgivable for a PPP loan? (important 2021 updates)



Congress has approved an extension of the PPP loan program. SBA will accept applications through May 31, 2021, including “second draw” PPP loans for businesses that received PPP funding in 2020. ADDITIONALLY, NEW EXPENSES ARE COVERED/FORGIVABLE. PPP loans for 2021 will cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures.

In this 2-minute read:

  • PPP loan expenses that can be forgiven
  • What new expenses are forgivable for 2021?
  • What can cause loan forgiveness to be reduced?
  • How do I apply for PPP loan forgiveness?

As you are receiving your loan from the Paycheck Protection Program or preparing to do so, it’s a good idea to be familiar with what expenses you can and should use your PPP loan for in order to receive any amount of forgiveness on your loan.

IMPORTANT NOTE: On Wednesday, May 13, 2020, the SBA released revisions to their FAQs regarding PPP loan forgiveness. Read the details here

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What expenses are authorized under a Paycheck Protection Program loan? Can all business expenses be forgiven?

Since the intent of the Paycheck Protection Program is to stimulate the American economy and save American jobs and businesses, there’s a huge upside to PPP loans: It is possible to have your full PPP loan completely forgiven. In other words, if you follow the rules and document your expenses properly, you won’t have to pay it back. Ever.

But you do have to apply for PPP loan forgiveness, and there are specific items that you need to use these funds on in order to receive that forgiveness. 

The first thing to know is that you must use at least 75% (now 60%) of your loan funds towards maintaining payroll expenses in order to receive forgiveness of your loan. 

On June 5, 2020, the President Trump passed updates to PPP loan forgiveness requirements, extending the covered period to 24 weeks, and reducing the minimum loan funding that must be spent on payroll to 60%. Please read the details here.

Approved payroll expenses accepted for PPP loan forgiveness include:

  • Wages, including tips and commissions
  • Paid time off for vacation or sick leave
  • FMLA
  • Severance payments
  • Group healthcare benefits
  • Retirement benefits
  • State or local tax
  • Certain sole proprietor and independent contractor compensation
  • As of 2021, PPP loans now cover additional expenses, including operations expenditures, certain property damage costs, supplier costs, and worker protection expenditures

You may also use the other portion of your PPP loan to cover approved, legitimate business expenses such as commercial rent, mortgage payments, and utilities and receive loan forgiveness as long as the required percentage is used toward the above-mentioned payroll costs. 

If you need to use your PPP funding for other business expenses, you can. But just be aware that they may not qualify as forgivable expenses and you’ll have to pay back that portion of your loan under the terms of the PPP agreement.

What can cause a reduction in my PPP loan forgiveness amount?

If you use your PPP loan for anything other than the costs mentioned above, you won’t receive full loan forgiveness. But since it’s a 1% loan and you have 2 years (or 5 years, depending on when you got your loan) to pay back any unforgivable expenses and interest, that may be worth it to many businesses. You can still apply for forgiveness of any portion of your loan that you spent on authorized PPP forgiveness expenses.

Other things that can cause your PPP loan forgiveness to be reduced include:

  • Not maintaining your employee headcount (NOTE: FOR 2021 THERE ARE IMPORTANT EXCEPTIONS TO THIS RULE. See below)
  • Not maintaining employee salary and wage levels (these can’t fall more than 25%)

Note for 2021: there are exceptions to the “maintain payroll and headcount” rule

There are new exceptions for 2021 to the requirement that you maintain employee and compensation levels in order to achieve full loan forgiveness, including:

A borrower received a PPP loan of $50,000 or less

If you received a PPP loan that was $50,000 or less, you are exempt from having to maintain your employee and compensation levels in order to receive loan forgiveness. Your loan must still be spent on approved costs and maintain that 60% will go towards payroll. 

You’ll also have an alternative loan forgiveness form than businesses with larger loan amounts. 

An employee quit, retired, or was fired (with just cause)

If you couldn’t maintain employee levels due to someone quitting or being fired with just cause, then you can still qualify for your full loan forgiveness. But, it’s very important that you document each of these instances so that you can verify this when you apply for loan forgiveness. 

You’ll need documentation to explain why your employee was fired or other supporting documents to verify an employee’s termination.

If I get my my First Draw PPP Loan after December 27, 2020, do I still need to restore payroll or headcount to previous levels in order to receive forgiveness?

No. PPP Loans received after December 27th, 2020 are not required to “rehire” any employees in order to receive forgiveness. You will, however, need to maintain current payroll levels during the forgiveness period. (Exceptions to this would include employees who resign or are terminated with cause).

If you’ve kept those requirements for the 8 (or 24) weeks after you received your PPP loan, at that point you may apply for loan forgiveness through the lender that serviced your loan.

In order to request any amount of forgiveness on your loan, you will need to verify that your loan was used for the required expenses, which means you’ll need documented proof.


The Treasury released a new IFR and an “easy” version of the PPP loan forgiveness application on June 17, 2020. Please read the full details here.

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.

More helpful resources for PPP loan forgiveness:

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