Rising Above the Chaos

PPP Forgiveness Strategy

Note: The Paycheck Protect Program Flexibility Act of 2020 passed by Congress on June 3, 2020 has drastically changed the contents of this article.  


On May 15th and May 22nd, the Treasury Department and Small Business Administration released the Paycheck Protection Program Forgiveness Application, Instructions, and Forgiveness Interim Final Rule Guidance.

Of course, the SBA and Treasury did not disappoint with a few new curve balls! The changes work both in and against PPP borrowers’ favor.

The most formidable challenge lies in the complexity of the optimal forgiveness calculation, requiring applicants to compare and analyze up to 9 different periods of employee level payroll data. While many national payroll companies are touting easy to use forgiveness calculators and reports, none so far appear to assist business owners in full analysis or optimization.

The goal at The Kane Firm continues to be to Rise Above the Chaos. Our focus over the last ten days has been on the methods to maximize forgiveness as efficiently as possible. The following text contains:

      1. To Do List
      2. Strategic Considerations
      3. Forgiveness Calculation in a Nutshell
      4. Good News
      5. Challenges
      6. Further Reading

As a disclaimer, the information below is relevant as of the date of this email.  The Journal of Accountancy reports that multiple bills are under consideration in Congress that could dramatically change the PPP Forgiveness guidance that was just issued.

The Kane Firm will continue to keep you apprised of the major changes as well as provide support on an individual basis.


  1. Strategic Considerations. Review the following strategic focus section for possible considerations
  2. Schedule Strategy Call. Schedule a phone call with us for the 6th week after you received PPP funding. Together, we will develop a strategy to optimize the guidance issued at that time.
  3. Keep in Contact with Your Banker. Maintain a strong relationship with your banker. Keep an eye out for trainings, calculation templates, tips and tricks.
  4. Start Collecting & Organizing Documentation. The Kane Firm created a checklist available for download here.


  • Avoid Wage Reduction. (and need for Optimization) Ensure each employee is paid the minimum cash compensation during the 8-week period:
    1. Run a 2020 Q1 2020 employee register with total cash compensation in excel.
    2. Remove any owner-employees and any employees that made in excess of $100,000 in 2019.
    3. Calculate the minimum cash compensation to pay each employee to avoid a wage reduction calculation:


  • Avoid FTE Wage Reduction. (and need for safe harbors) Ensure to have the minimum FTE count no later than 6/30/20:

CONSIDER: Did you reduce the number of employees or the average paid hours of your employees between January 1, 2020 and the end of the Covered Period? If no, all set!  If yes, On 6/30/20, Target to have your FTE count equal to or greater than your choice of the following:

a. Average FTE for 1.1.20 through 2.29.20


b. Average FTE for 2.15.19 through 6.30.19


What is An FTE? **NEW** PPP will not use the IRS and SBA standard FTE definition.  Instead, full-time equivalent employee means an employee who works 40 hours or more, on average, each week. SBA has made 2 calculations available:

      1. Standard: Average number of hours paid per week, divide by 40, and round to the nearest tenth.
      2. Simplified: Assign 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours. 

The simplified calculation should be considered when a business does not have hours well tracked or it has a significant number of employees averaging less than 20 hours / week.


  • Consider Employees that Received Commissions in Q1 2020.
    Commissioned employees that made less than $100,000 in 2019 are more likely to create a reduction in forgiveness due to wage reduction. Some options to address this include:

    • Advance against commissions to bring cash compensation up to the 75%.
    • Pay additional bonus / base wage within the covered/alternate 8-week period to the affected employees
    • Simply absorb the related forgiveness reduction

Consult with your HR expert for any potential labor law conflicts on the first two options.


  • Consider Employees that worked Overtime in Q1 2020.
    These employees may have an inflated Q1 cash compensation as related to the 8-week loan period.Business owners may choose to simply absorb the related forgiveness reduction or pay additional bonus / base wage within the 8-week period to the affected employees.Disclaimer: Consult with your HR expert for any potential labor law conflicts.
  • Prepayments of Nonpayroll Costs. Consider prepaying lease or utility expenses, that would have been incurred anyway, prior to the end of the 8-week period.The benefit of the nonpayroll costs will be capped at 25% of the total forgiveness amount.For administrative purposes, we suggest focusing on expenses that will give you the “biggest bang for your buck.” For instance, prepaying a month of office rent for $4,000 will be more effective than several $200 per month printer lease prepayments.Disclaimer: This recommendation is based on The Kane Firm’s current interpretation of the guidance (page 4 & 12 of the interim final rule).
  • Prepayments of Payroll Costs. Consider paying a portion or all of regular annual bonuses during the 8-week period.
  • Prepayments of Pension. If you typically make one employee pension contribution at the end of the year, consider prepaying a portion of the annual pension during the 8-week period.

Disclaimer: Be sure to work with your pension administrator to ensure compliance.


Loan Amount. Generally, PPP loans were made based on 2.5 times average 2019 payroll costs

Maximum Forgiveness. The sum of the following costs Paid or Incurred:

    • Payroll Costs Paid or Incurred
      within the Covered OR Alternate Period
    • Interest Payments on any Business Mortgage for Real or Personal Property.
      • Mortgage must have been in place before 2/15/20
      • Prepayments are excludedWhat is Real and Personal Property? Real Property typically describes land and buildings.  We are surprised but happy to see personal property included. Personal property is anything exclusive of land and buildings. Most commonly, this would include loans on printers, furniture or machinery.
    • Business Rent Payments for Real or Personal Property
      • Lease must have been in place before 2/15/20
      • Prepayments are not excluded
    • Payments on Business Utilities
      • Includes electricity, gas, water, transportation, telephone, or internet access
      • Service began before 2/15/20
      • Transportation remains undefined

Forgiveness Reduction.

    • Amount of EIDL Advance
      • Forgiveness will be reduced by the amount of the EIDL grant received, if applicable, as required by the CARES Act.
    • Payroll Costs Must Comprise 75% of Total
      • Forgiveness of qualified nonpayroll expenses will be reduced to 25% of the total.
      • Experts and banks continue to debate if the total is 75% of the loan proceeds or 75% of the forgiveness amount.
      • While borrowers are able to prepay rent and utilities in order to optimize forgiveness, this cap prevents an “excessive inclusion of nonpayroll costs.” Page 13 IFR
    • FTE Reduction
      • Forgiveness of qualified expenses is reduced by the % of FTE reduction. If you have not reduced the number of employees or average paid hours of your employees between 1/1/20 and end of covered period, no reduction will occur.
      • This is an average calculation across all employees comparing the covered or alternate period with:a. Average FTE for 1/1/20 through 2/29/20-OR-b. Average FTE for 2/15/19 through 6/30/19
    • Borrower is exempt from reduction if FTE employee levels are restored by 6/30/20.
    • Exceptions include employees fired for cause, voluntarily resigned, voluntarily requested reduction in hours or rejected a written, good faith offer to return.Note: If offer rejected, the employer must report such information to the unemployment insurance office within 30 days.
  • Wage Reduction
    • Forgiveness of qualified expenses is reduced by the amount of wage reduction in excess of 25%.
      If average annualized salary or hourly wage was not decreased between Q1 2020 and the covered period/alternate period in excess of 25%, no reduction will occur.
    • This reduction is calculated for each employee
    • Only applies to employees who made less than $100,000 in 2019.
    • Remember commission and overtime discussion above.


  • Forgiveness Caps on cash compensation
    • S-Corp Owners: Lesser of $15,385 or 8/52nds of 2019 wages + 2019 health insurance + 2019 employer retirement compensation.
    • General Partners: Lesser of $15,385 or 92.35% of 2019 Net Earnings. No additional forgiveness for retirement or health insurance.
    • Schedule C Filers: Owners: Lesser of $15,385 or 8/52nds of 2019 net profit.
    • Cash Compensation for each employee and owner is capped at $15,385.


Unforgiven Loan Terms.

  • Terms. Fixed Rate of 1% interest for 2 years
  • First Payment. First 7th month after you received funds
  • Prepayment. You can prepay the loan at any time without penalty.


Magical Phrase: “Paid or Incurred”. 
We believe that these three words will allow business owners to include significantly more expenses in the forgiveness calculation than originally anticipated. This includes:

    • More than 8-weeks of cash compensation.
    • Late paid rent, utilities, or mortgage interest. For instance, April or May rent paid late but during the 8-week covered period.
    • Prepayment of rent or utilities. So long as payments are made within the 8-week cover period. Mortgage interest is excluded from this.   The 25% cap on nonpayroll costs is expected to prevent excessive inclusion.
    • Payroll cost and nonpayroll costs incurred but paid after the covered period. For instance, a utility bill with a service period overlapping with the covered period but not paid until after the covered period.

Wages to Furloughed Employees, Bonuses and Hazzard Pay are Forgivable.

Rent Payments to Related Parties are not Excluded.

Forgiveness for Personal Property.  Interest and Rent payments on personal property like furniture, printers or machinery can be included in nonpayroll costs.

Reductions in forgiveness for FTE and Wages will NOT be double counted.

$2 Million Loan Proceeds Safe Harbor. It will be assumed that any borrower with an original principal amount of less than $2 Million has met the required certifications in good faith. (Meaning, no automatic audit, no requirement to return the funds.)



Caps on Forgiveness for Owner Compensation.

    • S-Corp Owner. Lesser of $15,385 or 8/52nds of 2019 wages + 2019 health insurance + 2019 employer retirement compensation
    • General partners. Lesser of $15,385 or 8/52nds of 2019 net earnings from self-employment (reduced by sec 179 deduction and unreimbursed partnership expenses) times 92.35%. No additional forgiveness for retirement or health insurance.
    • Schedule C Filers. Lesser of $15,385 or 8/52nds of 2019 net profit. No additional forgiveness for retirement or health insurance.
    • Cash Compensation. Each employee and owner is capped at $15,385.

2020 Health Care and Retirement Costs Excluded from Forgiveness for General Partners and Self-Employed Owners.

Highly Complex Optimization Calculation and Inclusion of Safe Harbors.

Forgiven Expenses Are Not Tax Deductible.  Expenses paid for with forgiven PPP funds are not tax deductible.  This prevents doubling up on the tax benefit.


Disclaimer: All Online PPP Resources are Regularly Updated. Be aware of version changes. You may need to clear browsing data to view the most recent version.


Paycheck Protection Program Loan Forgiveness Application and Instructions

SBA Loan Forgiveness Interim Final Rule

US Chamber of Commerce PPP Forgiveness Guide

Nitti, Tony “SBA Releases Paycheck Protection Program Loan Forgiveness Application: A Deep Dive”, Forbes

Gassman, Alan “May 22 PPP Final Interim Rules Provide Further Guidance And Some Surprises”, Forbes

Drew, Jeff “PPP Forgiveness Guidance Issued as Congress Mulls Changes”, Journal of Accountancy

The Kane Firm COVID-19 Updates



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