Is A Forgiven Loan Taxable Income

The U.S. Small Business Administration has released a form of one page that makes it easier to apply for forgiveness of Paycheck Protection Program loans. It also includes newly revised forms that comply with the latest stimulus legislation. 

The COVID-19 aid package Congress approved last month renewed the PPP with $284 billion in funding for small businesses seeking forgiveness loans to help them deal with the financial fallout from the coronavirus pandemic. It included a requirement for the SBA to issue simplified forms within 24 days of the bill being approved by the lawmaker to streamline the procedure of applying for forgiveness, along with conditions that aim to increase the number of bank loans by community banks, particularly for minority-owned businesses who struggled to get loans last year.

Is A Forgiven Loan Taxable Income

Ed Zollars, a partner with Thomas, Zollars & Lynch CPAs and stated that the Small Business Administration fulfilled the obligation to issue the one-page form for PPP loan forgiveness within the first 24 hours of the date of the enactment of the Consolidated Appropriations Act, 20,21. The article was posted on the Current Federal Tax Developments blog of Kaplan Financial Education. “The agency also released additional updated forms.”

First Draw PPP Conditions for loan forgiveness

Is A Forgiven Loan Taxable Income – First Draw PPP loans made to eligible borrowers qualify for complete loan forgiveness if they do so within the 8-to 24 week period that follows the loan’s disbursement

  • This is also true for pay and benefits for employees.
  • The proceeds from the loan may be used to pay for payroll costs or other eligible expenses.
  • Minimum 60% of funds go to payroll costs

Second Draw PPP Conditions for loan forgiveness

Second Draw PPP loans to qualified borrowers are qualified for loan forgiveness when the loan is paid within an 8 24 week period.

  • The levels of compensation and employee pay are maintained in the same way as is required for the First Draw PPP loan
  • The loan proceeds are spent on payroll expenses and other eligible expenses; and
  • At least 60% of profits go towards the cost of payroll
  • How and when to apply for loan forgiveness?

When all of the loan’s proceeds have been used The borrower may apply for forgiveness. Borrowers can apply for forgiveness at any time prior to the maturity date of the loan. Borrowers who don’t request forgiveness within 10 months after the date they will be able to repay the loan will be able to receive payment from their PPP lender.

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