Paycheck Protection Program (PPP) Loan Forgiveness

You, the borrower, may not be responsible for full or partial repayment of the loan if you use the PPP loan proceeds for forgivable expenses. NBT Bank will follow SBA guidance to determine the amount that is forgivable and will require an application with supporting documentation. You will be required to apply for your loan forgiveness through NBT Bank. We will provide more information about the application process soon.

PPP Loan Forgiveness =
  + Money Spend on Covered Period Eligible Expenses
  - Non-Payroll Cost Reduction
  - FTE Reduction
  - Salary/Hourly Wage Reduction

Payroll Costs

Cash Compensation Payroll Costs

• Gross Salary, Wages, Tips, Commissions, Bonuses, and similar compensation.
• Paid Leave; PTO, Family, Medical or Sick. (Excluding Families First Coronavirus Response Act)
• Allowances for dismissal or separation for individuals.
• Other items to note regarding Cash Compensation Payroll Costs:
  • Maximum of $46,154 cash compensation per employee (24 wk. equivalent of $100k/yr.)
  • Employees principal place of residence must be within the United States.
  • Employer taxes are not included.
  • Form 1099 Independent Contractors should not be included.

Non-Cash Compensation Payroll Costs

• Health, Life, Disability, Vision and Dental Insurance (employer contributions)
• Retirement Plan (employer contributions)
• State & Local taxes assessed (e.g., State Unemployment Insurance)
• Other items to note:
  • Non-Cash Payroll Costs, above, are not included in the $46,154 cap per individual.
  • Only the employer costs should be included, do not include amounts withheld on behalf of the employee.

Compensation for Owners, Partners and Self-Employed

• The amount of loan forgiveness requested for owner-employees and self-employed individuals payroll compensation is capped at 2.5 months’ worth (2.5/12) of 2019 (or 2020) compensation or $20,833 per individual, whichever is less, in total across all businesses.
  • Self Employed - 2019 (or 2020) net earnings from Form 1040, Schedule C, Line 31.
  • General Partners - 2019 (or 2020) net earnings from self-employment, Schedule K-1, Line 14a (Reduced by Section 179 deduction, Unreimbursed Partnership Expenses, and Depletion from Oil & Gas Properties) multiplied by 0.9235.
  • C-Corps - are capped by the amount of their 2019 (or 2020) employee cash compensation and employer retirement and health insurance contributions made on their behalf
  • S-Corps - are capped by the amount of their 2019 (or 2020) employee cash compensation and employer retirement contributions made on their behalf. Owner distributions are not forgivable.

Non-Payroll Costs – All items must be in effect prior to February 15th, 2020

Rent/Leases for Real or Personal Property

• Office
• Copiers/Printers
• Vehicles
• Other Common Items of Personal Property

Utilities

• Electricity
• Gas
• Water
• Telephone
• Internet
• Transportation (Gas & Other Auto Expenses usually part of auto deductions on the tax return)

Debt Interest Payments

• Mortgage/Loan obligations on Real or Personal Property
• Payments of Interest only, not including Principal
• Does not include any Prepayments

Operations Expenditures

• Business operations
• Product or service delivery
• Processing, payments, sales, and billing functions
• Tracking of payroll expenses, human resources or accounting
• Tracking of supplies, inventory, records, and expenses

Property Damage Costs

Costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that were not covered by insurance or other compensation.

Covered Supplier Costs

Supply of goods that are essential to the operations of the Borrower at the time which the expenditure is made, and made pursuant to a contract, order, or PO in effect prior to the beginning of the Covered Period (for perishable goods only, may have been in effect at any time during the Covered Period as well).

Worker Protection Expenditures

Operating or capital expenditures that facilitate the adaptation of the business activities to comply with the requirements established or guidance issued by the Department of Health or any equivalent guidance issued by a health administration, State, or local government in respect to COVID-19. Does not include residential real property or intangible property.

In addition to using your loan proceeds for eligible expenses, follow the guidance below to maximize your potential loan forgiveness:

Covered Period

• Start date of the Covered Period is the same day PPP loan funds were received.
• Up to 24 Weeks or 168 Days. For example, PPP Loan funds were received on April 20th, the Covered Period is April 20th – October 4th.
• Borrowers with a bi-weekly (or more frequent) payroll schedule may elect the Alternative Payroll Covered Period (APCP).
  • APCP begins on the 1st day of the start of the next pay-period following the PPP Disbursement Date.
  • If elected to use the APCP, this only applies to Payroll Costs (Cash & Non-Cash Compensation). You cannot use the APCP for Non-Payroll Costs.

SBA Forgiveness Limitations

Salary/Hourly Wage Reduction:

• A reduction in an employee’s salary or wages of more than 25% will result in a reduction of loan forgiveness.
• To evaluate this reduction, you must go employee by employee and compare the salary/hourly wage percent reduction for the following periods;
  • ‘Covered Period’ (or ‘Alternative Payroll Covered Period’, if elected), to
  • January 1 – March 31, 2020.
• Safe Harbor – A reduction in loan forgiveness due to salary reduction is not required if you meet A and B, or C.
  • A - If average annual salary/hourly wage from February 15 – April 26, 2020 was LESS than salary/hourly wage as of Feb 15, 2020, see Step B.
  • B - If average annual salary/hourly wage as of December 31, 2020 (or end of the covered period if PPP loan was made after December 27, 2020) is equal or greater than February 15th, 2020, the safe harbor has been met and no Salary/Hourly Wage Reduction is required.
  • C - Any employee who earned more than $100k in 2019, no salary reduction is required.

Full-Time Equivalent (FTE) Reduction Quotient:

• Step One - Calculate the FTE Headcount during the ‘Covered Period’ or ‘Alternative Payroll Covered Period’ if elected. You may elect either the ‘Calculation’ or ‘Simplified’ Method. Whichever method is selected, you must use this method throughout.
  • Calculation Method
    • For each individual FTE, take the average hours worked over the 8-weeks.
    • Divide the average weekly hours by 40.
    • Round up to the nearest tenth (i.e. 30 / 40 = .75, round to .8)
    • Maximum amount for each FTE is 1.0
  • Simplified Method
    • FTE did work at least 40-hour week on average = 1.0
    • FTE did not work at least 40-hour week on average = 0.5
• Step Two – Select a comparison period at your election using the same calculation method.
  • February 15, 2019 - June 30, 2019
  • January 1, 2020 - February 29, 2020
  • For a Seasonal Employer Only - any 12-week period May 1, 2019 - Sept 15, 2019
• Step Three – If Step Two is greater than Step One, you must calculate the FTE Reduction Percentage. This percent reduction will be placed on the amounts previously eligible for forgiveness.
• Safe Harbor – A reduction in loan forgiveness due to FTE Reduction Quotient is not required if you meet A and B. or C or D or E.
  • A – If FTE’s from February 15 – April 26, 2020 was LESS than FTE’s as of February 15, 2020, see Step B.
  • B – If FTE’s as of December 31st, 2020 (or end of the covered period) is equal or greater than February 15th, 2020, safe harbor has been met.
  • C – No reduction in the number of FTE’s between January 1, 2020 and the end of the Covered Period.
  • D – If you can show you made a good-faith, written offer to rehire an employee during the covered period but you were rejected by the employee, then that reduction in headcount will not result in a reduction of the forgiveness. This is also true if an FTE was fired for cause, voluntarily resigned, or voluntarily required to receive a reduction in hours.
  • E – If able to document an inability to return to prior February 15, 2020 levels of business activity between March 1 – December 31, 2020 (or end of the covered period) due to maintenance of standards requirements related to COVID-19 for; sanitation, Social Distancing or Other Workers/Customer Safety.

Payroll Cost Reduction – 60% Rule

To receive full loan forgiveness, a borrower must use at least 60 percent of the PPP loan for payroll costs, and not more than 40 percent of the loan forgiveness amount may be attributable to non-payroll costs. For example, if a borrower uses 59 percent of its PPP loan for payroll costs, it will not receive the full amount of loan forgiveness it might otherwise be eligible to receive. Instead, the borrower will receive partial loan forgiveness, based on the requirement that 60 percent of the forgiveness amount must be attributable to payroll costs. For example, if a borrower receives a $100,000 PPP loan, and during the covered period the borrower spends $54,000 (or 54 percent) of its loan on payroll costs, then because the borrower used less than 60 percent of its loan on payroll costs, the maximum amount of loan forgiveness the borrower may receive is $90,000 (with $54,000 in payroll costs constituting 60 percent of the forgiveness amount and $36,000 in non-payroll costs constituting 40 percent of the forgiveness amount)

Economic Injury Disaster Loan (EIDL) Advance:

• If you received an EIDL Advance, your PPP Loan forgiveness will not be reduced by this amount. This was changed with the new Economic Aids Act passed on December 27, 2020.

Taxes

Loan forgiveness will not have an adverse effect for your Federal taxes. The new Economic Aids Act passed on December 27, 2020 overruled the IRS expense deductibility limitation.

Keep track of and document both payroll costs and other eligible expenses, in the 8 or up to 24 weeks following the loan disbursement. It will help with the forgiveness application process as you will need to provide documentation for all costs used in the forgiveness calculation. You should review any automatic payments such as ACH and automatic debits for the account holding these loan proceeds to ensure PPP funds are being used and tracked for eligible purposes. Following are some examples:

Payroll Cash Compensation Documents

• Bank Account Statement
• Third-Party Payroll Service Provider reports documenting cash compensation paid to employees.
• Form 941 & State Quarterly wage reports.

Payroll Non-Cash Compensation Documents

• Payment receipts, cancelled checks, or account statements documenting payment of employer contributions to employee insurance and retirement plan.

Non-Payroll Cost Documents

• Interest payments Amortization schedule and cancelled checks or account statements from February 2020 for the covered period.
• Rent & lease payments Lease agreement and receipts or cancelled checks or lessor account statements from February 2020 for the covered period.
• Utility & Other payments Invoices from February 2020 and the covered period and receipts, cancelled checks, or statements.