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Why Waiting Might be the Best Policy for PPP Forgiveness (see update)

Updated to reflect Changes Enacted on 3/4/2021 for Schedule C filers and to reflect clarification from the IRS via Notice 2021-20. 

As of March 3, 2021, there were two cases related to PPP loans where you needed to delay filing :

1. Forgiveness Applications for Employers (Updated)

If you have an existing PPP Loan, you may feel inclined to apply for forgiveness as soon as possible. 

Resist the urge to be forgiven early.  In today's ever-changing tax environment, filing too soon may cost you money. Recent changes in the availability of a new employer payroll credit called the Employee Retention Credit (ERC) made it available to those who also applied for a PPP loan.  You will need to carefully consider the allocation of payroll expenses between the two programs. 

Wages paid during 2020 can be used for both PPP forgiveness and the Employee Retention Credit. It is important that you use as little payroll as possible on the PPP forgiveness application so you can make use of the ERC credit if you qualify. You can also include other non wage figures in payroll for purposes of PPP forgiveness  without impacting your ERC eligibility.  You will also want to identify any other non payroll expenses on the face of the application.

If you have already filed your PPP forgiveness application, but haven't received forgiveness, you may be able to rescind your application from your lender. 

The interplay between PPP Loans and ERC Credit  has now been addressed in IRS Notice 2021-20. 


"Question 48 : May an employer that received a PPP loan be eligible for the employee retention credit?

Answer 49: Yes. An employer that received a PPP loan may claim the employee retention credit for any qualified wages paid to employees if the employer is
an eligible employer that meets the requirements for the credit. 

However, qualified wages for which the employer claims the employee retention credit are excluded from payroll costs paid during the covered period (payroll costs) that qualify for forgiveness under the PPP.

However, an eligible employer that received a PPP loan is deemed to have made the election under section 2301(g)(1) of the CARES Act for those
qualified wages included in the amount reported as payroll costs on a Paycheck Protection Program Loan Forgiveness Application (PPP Loan Forgiveness Application).

Specifically, the amount for which the eligible employer is deemed to have made the election is the amount of qualified wages included in the payroll costs reported on the PPP Loan Forgiveness Application up to (but not exceeding) the minimum amount of payroll costs, together with any other eligible expenses reported on the PPP Loan Forgiveness Application, sufficient to support the amount of the PPP loan that is forgiven.

The employee retention credit does not apply to the qualified wages for which the election or deemed election is made."

There are additional complexities involved in allocating the wages between the two programs. Please consult your tax advisor to optimize your available credits when filing the PPP forgiveness application. 

2.      This section has been updated. Schedule C filers can now file for loans using Gross Receipts as the basis for the PPP loan. 

New PPP Loan Calculation for Sole Proprietors, Independent Contractors, and Self-Employeds  - either first or second draw 

President Biden announced plans on 2/22 to change the basis of PPP loan amounts for sole proprietors from SCH C Net Income to Gross Receipts.  This represents a substantial increase in eligible loan amounts for those who qualify. 

The rules have not been clarified and Lender application forms have NOT been modified to reflect this change.

If you are impacted, it makes sense to wait and apply file once  further details are provided. 

UPDATE: 3/4/2021  the new calculations have been finalized and a new form 2483-C is available for SCH C filers who elect to use gross income as the basis of a new PPP loan.   
Most lenders have now updated their systems for these new rules. 


According to the SBA, "Loans submitted prior to the official rule changes are subject to the rules in effect at the time of application."

Please consult your tax advisor for assistance in maximizing your benefits across these multiple relief provisions.