PPP Forgiveness FAQ

You can apply for PPP loan forgiveness on or before the maturity date of the loan (which is 2 or 5 years from the date your loan was originated). We’ll send you an email and Square Dashboard notification with your forgiveness application when it’s ready.

Getting your final decision from the SBA will likely take some time, as thousands of businesses will be applying at once. It could take up to 60 days for us to review your complete application and decide your forgiveness amount. We will then submit the forgiveness amount and your application to the SBA for final review. It could take up to 90 days for the SBA to make their final decision. We will keep you updated by email throughout the entire process. You will not be responsible for repaying your loan while the loan forgiveness decision is pending.

The SBA has issued three distinct forms: Simplified forgiveness application (Form 3508S), EZ forgiveness application (Form 3508EZ) or the full application (Form 3508). We will ask you a few questions to figure out which form you’re eligible to use.

You can edit your application before submitting it for Square Capital’s review. Once your application is submitted, you may be able to edit your application by contacting our support team. Once your application has been reviewed by Square Capital, you will no longer be able to edit it.

You can cancel your application any time before it’s been reviewed by Square Capital—just contact our support team. However, you can no longer cancel your application once it has been reviewed by Square Capital.

What are qualifying payroll costs?

Salary, wages, tips, commissions, vacation, family or sick leave, employer contributions to employee retirement plans, employer contributions to employee health insurance, and employer state and local payroll taxes are qualifying payroll costs. Note that wages for independent contractors do not qualify.

What are qualifying non-payroll costs?

Business mortgage interest, business rent, business utilities, operations costs (software or cloud computing service), property damage caused by public disturbances in 2020, supplier costs, and worker protection expenses (masks, plexiglass shields, gloves, and more) are qualifying non-payroll costs.

• If you received a PPP loan in 2020, you have a Round 1 PPP loan.
• If you received a PPP loan in 2021, you have a Round 2 PPP loan.
• If you received two PPP loans, your first loan is referred to as a “first draw” PPP loan, and second loan is referred to as a “second draw” PPP loan.

The only difference is that for the PPP Second Draw loan forgiveness application, you may need to provide additional revenue reduction documentation. This documentation must establish that your business had a 25% or greater decrease in revenue between 2019 and 2020, or a quarter of 2019 compared to a quarter of 2020. Keep in mind, you are required to maintain documentation showing you used loan funds for eligible purposes for up to four years after you submit your forgiveness application.

Please note: If you have received a first and second draw PPP loan, you will need to apply for each one individually. You can check to see if your loan forgiveness applications are ready in your Square Dashboard.

If you are eligible to use Form 3508S (meaning your PPP loan is $150,000 or less), you won’t need to submit documents showing your eligibility for forgiveness with your forgiveness application. For second draw PPP loans, you may need to provide documentation showing that your business had a 25% or greater decrease in revenue between 2019 and 2020, or any quarter of 2019 compared to the same quarter of 2020. Please note, you are required to maintain documentation showing you used loan funds for eligible purposes for up to four years after you submit your forgiveness application.

If you are not eligible to use Form 3508S (meaning your PPP loan is greater than $150,000), you will apply for forgiveness using Form 3508EZ or Form 3508. Form 3508 EZ and Form 3508 will require you to submit certain documents to verify how you used the PPP loan.

To verify payroll costs, you may submit:

• Bank account statements or third-party payroll service provider reports
• Payroll tax forms such as IRS payroll tax filings, state quarterly business and employee wage reporting, and unemployment insurance tax filings
• Payroll reports, payment receipts, cancelled checks, or account statements documenting employer contributions to employee health and retirement plans

To verify non-payroll costs, you may submit:

• Receipts, canceled checks, or account statements
• Business mortgage interest: Lender amortization schedule or lender account statements from February 2020 and each month in the covered period
• Business rent/ lease: Current lease agreement or lessor account statements from February 2020 and each month in the covered period
• Business utility: Invoices from February 2020 and each month of your covered period
• Covered operations expenditures: Copy of invoices, orders, or purchase orders paid during the covered period, plus receipts, canceled checks, or account statements verifying those eligible payments.
• Covered property damage costs: Copy of invoices, orders, or purchase orders paid during the covered period, plus receipts, canceled checks, or account statements verifying those eligible payments. You’ll also need documentation that the costs related to property damage, vandalism, and/or looting due to public disturbances in 2020 were not covered by insurance or other compensation.
• Covered supplier costs: Copy of contracts, orders, or purchase orders in effect at any time before the covered period (except for perishable goods). Copy of invoices, orders, or purchase orders paid during the covered period, plus receipts, canceled checks, or account statements verifying those eligible payments.
• Covered worker protection expenditures: Copy of invoices, orders, or purchase orders paid during the covered period, plus receipts, canceled checks, or account statements verifying those eligible payments. You’ll also need documentation that the expenditures were used to comply with applicable COVID-19 guidance during the covered period.

To verify revenue reduction you may submit: Documentation showing that your business had a 25% or greater decrease in revenue between 2019 and 2020, or any quarter of 2019 compared to the same quarter of 2020. In order for us to verify this information, you will have to submit supporting documentation such as:

• Annual statements: 2019 Form 944 and 2020 Form 944; OR 2019 Schedule C and 2020 Schedule C (Form 1040)
• Quarterly statements: Form 941s from 2019 and 2020 (preferred), quarterly financial statements or bank statements

As part of your application, you will be asked to report payroll and non-payroll costs paid or incurred by your business during your covered period. Based on these, we will let you know if you’re eligible for partial or full forgiveness. If you don’t qualify for full forgiveness yet, you may want to wait until you’ve accumulated more eligible expenses during your covered period in order to maximize your forgiveness amount.

Once your application has been reviewed by Square Capital, an updated verified forgiveness amount will be communicated to the SBA for final review. After their review has concluded, you will be informed of your final forgiveness amount.

Both Square Capital and the SBA will conduct a review of your qualifying payroll and non-payroll costs. These qualifying costs may get adjusted based on the review of documents you provided in your forgiveness application, if any. Consequently, it is possible that Square Capital or the SBA is only able to verify a subset of the qualifying costs you indicated having been paid or incurred in your application. To minimize the chance that your forgiveness amount gets reduced, make sure to report the exact costs paid or incurred by following directions outlined in your application. Also be sure to provide the required documents confirming these costs. You will be updated throughout the review process and made aware of your verified forgiveness amount.

If your loan is only partially forgiven, repayment of the remaining balance will begin as early as 15 days after you receive your final forgiveness decision from the SBA. We’ll let you know by email and in your Square Dashboard if you have a remaining balance and loan repayment schedule. Generally, repayment of a Round 2 PPP loan begins about 16 months after you received your loan funds.

You must adjust your requested loan forgiveness amount if you had reductions in either full-time equivalent employees, or employee salary and wages, and:

• Your PPP loan was above $50,000; or
• Your loan is over $150,000, but you don’t qualify to use Form 3508EZ; or
• Your PPP loan was $50,000 or less, but with your affiliates you received first or second PPP loans totalling $2 million or more

You’re not subject to any reductions if you or an authorized representative can attest:

• If you restored salary/hourly wage levels by the end of your covered period, you may be eligible for elimination of the salary/hourly wage reduction amount. See the safe harbor calculation under step 2 below; or
• You 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 either
• You 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 either
• You were unable to operate during the covered period at the same level of business activity as before February 15, 2020, due to compliance with pandemic-related guidance issued March 1 to December 31, 2020 (or March 1, 2020 and the last day of the covered period for PPP loans made on or after December 27, 2020), by the Health and Human Services (HHS), the Centers for Disease Control and Prevention (CDC), or the Occupational Safety and Health Administration (OSHA).

If you do not satisfy these requirements, and are potentially subject to forgiveness reductions, you must follow the SBA Form 3508 instructions to calculate your requested loan forgiveness amount.

If you are completing the form 3508S, you will not be required to submit any related documentation with your forgiveness, but the SBA may request information and documents to review those calculations during an audit.

How to calculate wage reduction for each employee

Your loan forgiveness amount may be reduced, depending on whether the salary or hourly wages of certain employees during your selected covered period were less than 75% of what they were the most recent full quarter before your selected covered period. If you restored wage levels, you may be eligible for elimination of the reduction amount.

Follow these steps for each employee separately and add the information to the PPP Forgiveness Form 3508 Schedule A worksheet:

STEP 1

See if pay was reduced by more than 25%:

Divide the employee’s average annual salary/hourly wage during your covered period by what it was during the most recent full quarter before your covered period. If the number is .75 or more, then no reduction is applied. If the number is less than .75, continue to step 2.

STEP 2

Determine if safe harbor is met

If the employee’s average annual salary/hourly wage was reduced by more than 25%, you can see if the requirements are met for the safe harbor. If so, no reduction is applied.

Safe harbor met if:

The average annual salary/hourly wage from Feb 15–Apr 26, 2020 was greater than or equal to what it was on Feb 15, 2020 OR the average annual salary/hourly wage as of December 31, 2020 (for loans made before December 27, 2020) or the last day of your covered period (for loans made after December 27, 2020) is greater than or equal to what it was on Feb 15, 2020.

Safe harbor not met if:

The average annual salary/hourly wage from Feb 15–Apr 26, 2020 was less than what it was on Feb 15, 2020 OR the average annual salary/hourly wage as of December 31, 2020 (for loans made before December 27, 2020) or the last day of your covered period (for loans made after December 27, 2020) is less than what it was on Feb 15, 2020.

If safe harbor is not met, continue to step 3.

STEP 3

Calculate the hourly wage reduction

If the salary was reduced by more than 25% and safe harbor was not met, you need to calculate the wage reduction amount.

1. Multiply the employee’s average annual salary/hourly wage during the most recent full quarter before your covered period by 0.75.
2. Take that total and subtract the employee’s average salary/hourly wage from your selected covered period.
3. For hourly employees:

Multiply that total by the average number of hours worked by the employee during the most recent full quarter before your covered period. Then multiply that number by the number of weeks in your covered period.

For salaried employees:

Multiply the amount in part 2 of step 3 by the number of covered period weeks and then divide that number by 52.

STEP 4

Add up the reduction amounts

Fill in the PPP Forgiveness Form 3508 Schedule A worksheet with the wage reduction amount for each individual employee and add up the total. Enter the total wage reduction (Box 3) in the Schedule A form field.

Full-time equivalency (FTE) safe harbors

If you fall into any of the three following categories, you do not need to reduce your forgiveness amount by the FTE reduction:

• No reduction in employees or average paid hours: If you have not reduced the number of employees or the average paid hours of your employees between January 1, 2020 and the end of your covered period.
• FTE reduction safe harbor 1: If you were unable to operate between February 15, 2020, and the end of your covered period at the same level of business activity as before February 15, 2020 due to compliance with pandemic-related guidance issued March 1 to December 31, 2020 for loans issued in 2020 or March 1, 2020 to the end of your covered period for PPP loans issued in 2021, by the Health and Human Services (HHS), the Centers for Disease Control and Prevention (CDC), or the Occupational Safety and Health Administration (OSHA).
• FTE reduction safe harbor 2: If you satisfy FTE reduction safe harbor 2 (see below).

Full-time equivalency (FTE) exceptions

You do not need to include an individual in your FTE reduction calculation if:

1. They were an employee on February 15, 2020, whose employment was subsequently terminated;
   • You made a good-faith, written offer to rehire the individual; and
   • You were unable to hire similarly qualified employees for unfilled positions before (a) December 31, 2020 if you received your PPP loans in 2020, or (b) the last day of your covered period, if you received your loan in 2021;
2. Any employees for which you made a good-faith, written offer to restore any reduction in hours, at the same salary or wages, during your covered period and the employee rejected the offer;
3. Any employees who during your covered period:
   • Were fired for cause;
   • Voluntarily resigned; or
   • Voluntarily requested and received a reduction of their hours.

In all of these cases, only exclude these employees from the FTE reduction calculation if the position was not filled by a new employee.

How to calculate full-time equivalency (FTE)

FTE is a representation of the average hours worked per week by each employee. Make sure you use the same method for all employees.

The simple method

Enter 1.0 for full-time employees and 0.5 for part-time employees.

• 40+ hours/week 1.0 FTE
• Less than 40 hours/week 0.5 FTE

The rounded method

Divide the average number of hours worked per week by 40 and round to the nearest 10th. The maximum for an individual is 1.0 FTE.

Examples

• 40+ hours/week 1.0 FTE
• 30 hours/week 0.8 FTE
• 15 hours/week 0.4 FTE

How to calculate your FTE reduction

Your loan forgiveness amount may be reduced if your FTE was reduced during your covered period as compared to your chosen reference period.

Choose a reference period:

• February 15, 2019 to June 30, 2019

• January 1, 2020 to February 29, 2020; or

• If you are a seasonal employer, any consecutive 12-week period between : February 15, 2019 and February 15, 2020

Compare your FTE during your reference period and your covered period

1. Using the simple or rounded method, add up your Average FTE during your reference period.
2. Using the simple or rounded method, add your average FTE during yourcovered period.
3. Divide your average FTE during your covered period by your average FTE during your reference period. This value (should be less than 1) is your FTE reduction quotient.
4. You must multiply the amount you are applying for forgiveness by your FTE reduction quotient, unless you fall into one of the FTE reduction safe harbors listed above

FTE reduction safe harbor 2

1. Calculate your average FTE between February 15, 2020 and April 26, 2020
2. Calculate your FTE for the pay period that included February 15, 2020
3. If your FTE for the pay period including February 15, 2020 was greater than your average FTE between Feb 15–Apr 26, 2020 keep going. If not, you’re ineligible for this FTE reduction safe harbor.
4. Calculate your total FTE as of December 31, 2020 (if you received your loan during 2020) or as of the end of your covered period (if you received your loan in 2021)
5. If your FTE in step 4 is greater than or equal to step 2, you qualify for the FTE reduction safe harbor 2, and you do not need to reduce your forgiveness amount by the FTE reduction quotient. If your FTE in step 4 is less than step 2, you do not qualify for the FTE reduction safe harbor 2, and you must reduce your forgiveness amount by the FTE reduction quotient as described above.