PPP Loan Basics

The Paycheck Protection Program (PPP) was provided under the CARES Act and implemented by the Small Business Administration. The Program ended on May 31, 2021.

Eligible Use of PPP loan Proceeds

  • Payroll costs (hourly wage, salary, benefit, retirement, bonus…etc.)
  • Rent and utilities
  • Mortgage interest
  • Certain other operation expenses, property damage costs, supplier costs, worker protection expenses.

PPP Loan Forgiveness

  • Borrowers may apply for loan forgiveness once all proceeds which they request forgiveness have been used.
  • Borrower may apply for forgiveness any time up to the maturity date of the loan.
  • At least 60% of the proceeds must be spent on payroll costs during the covered period.
  • Borrowers must maintain employee and payroll levels during the covered period.

Income Tax Treatment

  • Are PPP loan proceeds taxable?
    • Forgiven PPP Loan proceeds are excluded from gross income under Section 1106(c)(i) of the CARES Act.
  • Can borrowers deduct eligible expenses?
    • Initially, eligible expenses paid with PPP loan funds are NOT deductible under IRS Notice 2020-32 (April 30, 2020) and Rev. Rul. 2020-27 (November 18, 2020).
    • However, Congress passed the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA) on December 27, 2020 and reversed the IRS actions above.
    • Under the CRRSAA, PPP loan forgiveness will not cause the amount of expenses to be included in a taxpayer’s gross income, so long as those expenses are otherwise deductible.
    • In other words, ordinary and necessary expenses are now deductible even if they were paid using PPP loan proceeds subsequently forgiven.