As previously discussed, the Economic Aid Act provided for a new one-page Paycheck Protection Program (PPP) loan forgiveness application for borrowers with PPP loans of $150,000 or less. On January 19, 2021, the SBA released this new form. This article discusses the changes to the Form 3508S. The SBA also released updated versions of PPP loan forgiveness application Forms 3508 and 3508EZ.  These revisions are discussed here.

The “New” Form 3508S

Rather than issue a completely new form, the SBA has revised its existing Form 3508S (previously available for borrowers with loans of $50,000 or less) and instructions (now combined with the form in one document) to serve as the form required by the Economic Aid Act.

As with the original Form 3508S, the revised Form 3508S requires that borrowers provide:

  • legal name and dba name, if any;
  • address;
  • business TIN (EIC, SSN);
  • contact information;
  • SBA and lender PPP loan numbers;
  • PPP loan amount;
  • PPP loan funding date;
  • number of employees at the time of loan application and forgiveness application, and;
  • amount of PPP loan forgiveness requested.

The key changes to Form 3508S are as follows:

  1. Borrowers with PPP loans of $150,000 (up from $50,000) or less can now use the form.
  2. The borrower’s NAICS code is now required.
  3. There is a new “check box” to indicate whether the application is for the forgiveness of a First Draw or Second Draw PPP loan.
  4. The borrower must provide the date range of its Covered Period (between 8 and 24 weeks).
  5. There is a new “check box” to indicate whether the borrower and its affiliates, received First Draw or Second Draw loans of $2 million or more (previously, such borrowers could not use Form 3508S).
  6. The boxes for EIDL Advance amount and EIDL Application Number have been removed.
  7. The borrower must provide the amount of the PPP loan spent on payroll costs (must be at least 60% of the requested forgiveness amount).
  8. There are only two (compared to seven) borrower certifications that need to be initialed.
    a.    In essence, the certifications are that the borrower has followed all the PPP rules and that the information in the application is true and correct.

Page one of the revised Form 3508S also includes this language regarding supporting documents (that, with one potential exception [see below], are not required to be submitted with the application):

Following submission of this forgiveness application, the Borrower must retain all records necessary to prove compliance with Paycheck Protection Program Rules for four years for employment records and for three years for all other records. SBA may request additional information for the purposes of evaluating the Borrower’s eligibility for the PPP loan and for loan forgiveness, and the Borrower’s failure to provide information requested by SBA may result in a determination that the Borrower was ineligible for the PPP loan or in a denial of the Borrower’s loan forgiveness application.

These two-document retention time periods above are reduced from the six-year retention period included in the original Form 3508S. The instructions also clarify that the retention periods start when the forgiveness application is submitted to the lender, rather than on the date the PPP loan was paid or forgiven in full, as before.

Finally, the Form 3508S includes a second, optional page asking for borrower “demographic information.”

While all of the above is relatively straightforward, with the revised Form 3508S the “the devil is in the details.” The instructions for the revised Form 3508 include the following additional or revised guidance regarding Form 3508S – in particular, please note the last bullet point.

  • Each PPP loan must use a separate loan forgiveness application form. Borrowers cannot use one form to apply for forgiveness of both a First and Second Draw PPP loan.
  • The exception to the “no supporting documents required” is that Borrowers who did not submit documents with their Second Draw PPP loan application supporting the 25% gross receipts reduction certification on the Borrower’s loan application must provide those documents with their forgiveness application.
  • Employer contributions for employee group health, life, disability, vision, or dental insurance, including employer contributions to a self-insured, employer-sponsored group health plan, but excluding any pre-tax or after-tax contributions by employees.

TAKEAWAY: Life and disability contributions are newly eligible expenses pursuant to the Economic Aid Act and can be included in forgiveness applications for first draw loans, too.

  • Eligible owner’s compensation is capped at the lesser of (a) $20,833 (the 2.5-month equivalent of $100,000 per year), or (b) the 2.5-month equivalent of the individual’s applicable compensation in the year that was used to calculate the loan amount (2019 or 2020).

TAKEAWAY:  Previously, 2019 was the only comparison period for part (b) of this equation. Second draw loans based on 2020 payroll will need to use 2020 owner’s compensation amounts for this comparison. In addition, it appears that the $20,833 cap also applies to 8-week covered periods – the prior instructions specifically limited owner’s compensation in an 8-week Covered Period to $15,385 and that limitation is not included in the revised instructions.

  • As authorized by the Economic Aid Act, eligible non-payroll expenses now include four new categories:
    • covered operations expenditures: payments for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting of tracking of supplies, inventory, records, and expenses;
    • covered 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: expenditures made to a supplier of goods for the supply of goods that are essential to the operations of the Borrower at the time at which the expenditure is made, and made pursuant to a contract, order, or purchase order in effect prior to the beginning of the Covered Period (for perishable goods, the contract, order, or purchase order may have been in effect before or at any time during the Covered Period); and
    • covered worker protection expenditures: operating or capital expenditures that facilitate the adaptation of the business activities of an entity related to standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19, but does not include residential real property or intangible property (see additional details in instructions).

TAKEAWAY:  If you have not filed for forgiveness of your first PPP loan, you can include these new expense categories even though they were not part of the PPP during the first loan’s Covered Period.

  • FTE and Salary/Wage Reductions:  Borrowers using Form 3508S with loans between $50,000.01 and $150,000 (and borrowers with loans of any amount in an affiliate group with total loans of $2 million or more) must also perform FTEE reduction and wage rate reduction calculations to determine their amount of loan forgiveness unless:
    • The Borrower did not reduce annual salaries or hourly wages of any employee by more than 25% during the Covered Period compared to the most recent full quarter before the Covered Period, AND;
    • The Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period OR the Borrower was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with certain COVID-19 requirements (further detailed in the Form’s instructions).

If the Borrower does not satisfy these requirements then it must calculate the amount of potential forgiveness using SBA Form 3508 and its instructions to calculate its Requested Loan Forgiveness Amount net of any FTEE or wage rate reductions. The Borrower is not required to submit the Form 3508 or any related documentation with its Form 3508S forgiveness application, but the SBA may request those calculations as part of its loan review and audit process.

TAKEAWAY:  Some borrowers will have to complete parts of the Form 3508 – in particular, the FTEE and wage rate calculations – to determine the amount of forgiveness to request on their Form 3508S.

Please do not hesitate to contact a member of GBQ’s SBA team – Rebekah Smith, Dustin Minton or Jeremy Bronson – if you have questions or would like GBQ’s assistance in preparing or reviewing your PPP loan forgiveness application, including Form 3508S.


Article written by:
Rebekah Smith, CPA, CFF, CVA, MAFF
  Director of Forensic & Dispute Advisory Services
Dustin Minton, CPA, MBA
  Director, Assurance & Business Advisory Services
Jeremy Bronson
  Director, Accounting & Business Advisory Services


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