The Paycheck Protection Program (PPP) is a Small Business Administration (SBA) guaranteed loan program that was created under the CARES Act, and extended under the Economic Aid Act, to assist small businesses during the pandemic. These loans were offered to certain businesses to cover specific eligible expenses, such as payroll, rent, mortgage interest, utilities, and employee healthcare and retirement benefits. Additional eligible non-payroll costs were added under the Economic Aid Act.
“Employers who utilize these funds for eligible expenses and meet other criteria set by the CARES Act and the Economic Aid Act are eligible to apply for forgiveness for the full amount of the loan,” said Pamela Frie, SVP, Team Leader, Lakeland Bank SBA Lending Team.
Let’s dive into what all of this information means for your business and taxes.
Is the PPP loan forgivable?
Your Paycheck Protection Program loan is forgivable if the right criteria are met. What does this mean for your business? In essence, if your PPP loan is forgiven, it becomes a grant rather than a loan, which means that you do not need to pay back the funds.
You must apply for forgiveness within 10 months of the end of your elected covered period by submitting a complete loan forgiveness application to your PPP lender. The PPP lender has two months to review the complete loan forgiveness application and the SBA has an additional three months to approve it.
Your PPP lender will be able to provide the criteria guidelines that must be met to be approved for full loan forgiveness as well as information for qualified expenses. Some of the qualifying expenses include:
- At least 60% of the loan must be used for payroll during the covered period.
- Payroll expenses are capped at $100,000 per employee and includes their wages, tips, and any payroll costs to the company.
- Healthcare and other employer paid employee benefits.
- Employer paid state and local taxes.
- Mortgage interest or rent expenses.
- Personal Protective Equipment purchased to operate during the pandemic.
Certain entrepreneurs, sole proprietors, and independent contractors, were also eligible to apply for a forgivable PPP loan.
Does the PPP loan count as taxable income?
No. Under the CARES Act and Economic Aid Act, forgiven PPP loans are not included in taxable income.
The law was originally unclear regarding deductions. Initially, law makers indicated that businesses were still allowed to deduct their business expenses, though they would not be taxed on the forgiven PPP loans. However, the IRS disagreed with that assessment and, as of the Economic Aid Act enacted in December 2020, businesses can claim all deductions from expenses paid through their loan. The forgiven loan is still not included in their taxable income.
“Lakeland Bank assisted over 2000 customers with the first round of PPP loans and as we help them with the next phase, we are encouraging them to check in with their accountant or tax advisor for additional guidance related to taxes and forgiveness,” said Frie.
How do you apply for forgiveness?
You can apply for loan forgiveness by completing the Loan Forgiveness Application located on the SBA's website and filing it with your PPP lender. Lakeland Bank is currently accepting forgiveness applications for the SBA PPP loans they funded under the CARES Act. Review the following information regarding the status of current forgiveness applications.
The documents you need to submit with the forgiveness application will vary and may include: bank account statements, payroll information, proof of payment of rent, mortgage interest, and utility bills. You will also need to supply the SBA Loan Number for any EIDL loan you received.
Need help determining if you're eligible for a new PPP loan or loan forgiveness?
If you need more information on the PPP program, whether to learn how to apply for PPP funds under the Economic Aid Act or if you want to determine if your current Lakeland Bank PPP loan is forgivable, please contact a Business Banking Officer. It's important to have professional guidance on these matters to ensure that all information is accurate, loans are processed, and applications for forgiveness meet required criteria so you should also consult with your accountant or tax advisor before applying.
The Lakeland Bank PPP Loan Forgiveness Guidelines or Business Resources in Response to Coronavirus page may be useful resources for you. Learn how Lakeland Bank supports local business and hear what our customers are saying about their relationship with us.