Loan Forgiveness Income Tax

Loan Forgiveness Income Tax

The U.S. Small Business Administration has released a 1-page form that makes it easier to apply for the cancellation of Paycheck Protection Program loans. The form is also updated with new forms to comply with the most recent stimulus law. 

Congress approved the COVID-19 relief plan last month, which provided $284 billion of funding for small-scale businesses who needed loans. This money was used to mitigate the economic effects of the coronavirus outbreak. It included a requirement for the SBA to issue simplified forms within the first 24 hours of the legislation being approved by the lawmaker to streamline the procedure of applying for forgiveness. The legislation also contained conditions designed to facilitate more loans from community banks, particularly for minority-owned businesses that were unable to obtain loans last year.

Loan Forgiveness Income Tax

“The Small Business Administration met the requirements to release the single-page form for PPP loan forgiveness by 24 days after the date of enactment of the Consolidated Appropriations Act, 2021,” wrote Ed Zollars who is a partner of Thomas, Zollars & Lynch CPAs on his Current Federal Tax Developments blog for Kaplan Financial Education. “The agency also released new forms.”

First Draw PPP Loan forgiveness terms

Loan Forgiveness Income Tax – For those who qualify, First Draw PPP loans are suitable for loan forgiveness. This is when the loan payment is made within an 8 to 24 week period.

  • The levels of compensation and employee pay are kept at a constant level.
  • The loan proceeds are spent on payroll costs as well as other expenses eligible for reimbursement; and
  • A minimum of 60% of the proceeds are spent on payroll costs

Second Draw PPP Loan Forgiveness The terms

Second Draw PPP loans given to eligible borrowers qualify for total loan forgiveness if they do so during the 8to 24-week duration following loan disbursement:

  • The First Draw PPP loan requires that the compensation and employee levels be maintained in the exactly the same manner.
  • The loan proceeds are used on payroll and other expenses that are eligible and
  • At least 60% of the proceeds are used for the cost of payroll
  • How to request loan forgiveness and the time to apply

A borrower can apply for forgiveness only after all loan proceeds to which the borrower has applied for forgiveness have been utilized. Borrowers may apply for forgiveness at any time until the loan’s maturity date. If borrowers do not apply for forgiveness within 10 years of the date of expiration of the covered period the PPP loan payments can not deferred any longer, and borrowers will begin making monthly payments to their PPP lender.

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