As previously discussed, the Economic Aid Act “revived” and made changes to the Paycheck Protection Program (PPP) including re-opening the program to first-time borrowers, creating “second draw” loans for previous borrowers and adding new categories of forgiveness eligible expenses. These changes necessitated changes to the applications for PPP loan forgiveness. On January 19, 2021, the SBA released a revised Form 3508 and a revised Form 3508EZ. This article discusses the changes to these two forms.
On that same day, the SBA also released a revised Form 3508S, now available to borrowers with PPP loans of $150,000 or less. The revised Form 3508S is discussed here.
Form 3508
The key changes to the revised Form 3508 are as follows:
Page 1
- The borrower’s NAICS code is now required.
- There is a new “check box” to indicate whether the application is for the forgiveness of a First Draw or Second Draw PPP loan.
- The boxes for EIDL Advance amount and EIDL Application Number have been removed.
- The boxes to indicate the time period of the Alternative Payroll Covered Period (APCP), if used, have been removed. The ACPC became less relevant once the 24-week Covered Period became an option and now it has been eliminated.
- Lines 5, 6, 7 and 8 have been added to provide an opportunity to enter amounts in the new expense categories: Operations Expenditures, Property Damage Costs, Covered Supplier Costs and Worker Protection Expenditures (see additional descriptions below).
- The remaining lines have been renumbered to account for the new lines noted above.
Page 2
- There are changes to the bullet in the first certification regarding owner’s compensation.
- The certifications include additional language to include the new expense categories.
- There is a new certification that if a second draw PPP loan forgiveness application that all first draw loan funds were used before the second draw loan was obtained.
- The last certification was adjusted to account for loans issued after December 27, 2020.
Page 3
- Relative minor wording changes only to remove references to the ACPC and add a reference to loans made after December 27, 2020.
TAKEAWAY: The chosen reference periods are not changed for new (first or second draw) loans. The FTEE calculations for covered periods in 2021 will still be compared to the 2/15/19 – 6/30/19 or 1/1/20 – 2/29/20 chosen reference periods.
Page 4
- Step 4 of the Safe Harbor 2 calculation is changed to reflect an end date of December 31, 2020 for loans made prior to December 27, 2020 (this was previously the earlier of the forgiveness application date or December 31, 2020) and an end date of the last day of the Covered Period for loans made after December 27, 2020.
TAKEAWAY: This safe harbor still compares to the early 2020 reference points. Borrowers will also have to return to 2/15/2020 levels of FTEEs by the end of their 2021-Covered Period to qualify for the safe harbor. There is no “grace” period afterward to allow for a return to prior levels as there was previously.
Page 5 – no significant changes noted (this is the optional demographic information page).
The instructions (now part of the application file again) also include some changes:
- 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.
- For a Second Draw PPP Loan in excess of $150,000, you must submit a loan forgiveness application for your First Draw PPP Loan before, or simultaneously with, the loan forgiveness application for your Second Draw PPP Loan, even if the calculated amount of forgiveness on your First Draw PPP Loan is zero.
- 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 to comply with 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.
- The comparison period for wage rate reductions has changed from the first quarter of 2020 to the “most recent full quarter before the Covered Period.” The safe harbor date for wage rate reductions is December 31, 2020 for loans made before December 27, 2020 and the end of the Covered Period for loans made after December 27, 2020.
- The instructions regarding required supporting documents have been updated to include the documents required to support the new categories of expenses described above.
- There is no change in the document retention period. Borrowers filing for forgiveness using Form 3508 are required to maintain their documents for six years.
Form 3508EZ
The key changes to the revised Form 3508EZ are as follows:
Page 1
- The borrower’s NAICS code is now required.
- There is a new “check box” to indicate whether the application is for the forgiveness of a First Draw or Second Draw PPP loan.
- The boxes for EIDL Advance amount and EIDL Application Number have been removed.
- The boxes to indicate the time period of the APCP, if used, have been removed. As also noted above, the APCP became less relevant once the 24-week Covered Period became an option and now it has been eliminated.
- Lines 5, 6, 7 and 8 have been added to provide an opportunity to enter amounts in the new expense categories: Operations Expenditures, Property Damage Costs, Covered Supplier Costs and Worker Protection Expenditures (see additional descriptions below).
- The remaining lines have been re-numbered to account for the new lines noted above.
Page 2
- There are changes to the bullet in the first certification regarding owner’s compensation.
- The certifications include additional language to include the new expense categories.
- There is a new certification that if a second draw PPP loan forgiveness application that all first draw loan funds were used before the second draw loan was obtained.
- The last two certifications (only one of which is needed) were adjusted to account for loans issued after December 27, 2020.
Due to the changes to page 2, the borrower’s signature is now on page 3 of the form. Page 4 is now the optional demographic information that was previously on page 3.
The instructions (now part of the application file again) also include some changes:
- 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.
- For a Second Draw PPP Loan in excess of $150,000, you must submit a loan forgiveness application for your First Draw PPP Loan before or simultaneously with the loan forgiveness application for your Second Draw PPP Loan, even if the calculated amount of forgiveness on your First Draw PPP Loan is zero.
- The checklist of qualifications for the EZ form no longer includes being a self-employed individual, independent contractor or self-employed individual with no employees. These borrowers will now use the Form 3508S.
- The other EZ criteria have been modified as needed to account for the change in timing of loans issued after December 31, 2020 (e.g., the wage rate comparison period is now the last full quarter before the Covered Period).
- 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 to comply with 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.
- The instructions regarding required supporting documents have been updated to include the documents required to support the new categories of expenses described above.
- There is no change in the document retention period. Borrowers filing for forgiveness using Form 3508 are required to maintain their documents for six years.
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
