Businesses Be Aware of Covered Period Rules Regarding PPP Loan Forgiveness

Wednesday, March 24th, 2021 -- 12:00 PM

If you received a PPP loan after December 27th of last year and you file your business tax return using Schedule C, it is important to be aware of the covered period rules regarding PPP loan forgiveness. 

According to the Wisconsin Small Business Development Center, for PPP Loans after December 27th, the rules state that you can elect a covered period between 8 and 24 weeks. (PPP loans issued last year provided you could elect a covered period of 8 or 24 weeks.)

Therefore, for PPP loans after December 27, 2020, you can elect a covered period of 10 weeks, 13 weeks, etc.  This is relevant because, on March 3rd, the SBA clarified the process to calculate PPP loans based on gross Income for Schedule C filers.

Also, on March 3, for Schedule C filers using the gross income method to calculate their PPP loan, the SBA clarified how to calculate the amount of loan forgiveness available for Schedule C filers own compensation.

The guidance provides the following formula to be used on owner compensation: “The covered period weeks you elect to use divided by 52 weeks times the gross income amount used to calculate your PPP loan amount.”

If you elect too short of a covered period, you may not have all of the loan portion for your own compensation forgiven.  In summary, when you seek forgiveness of your PPP loan at your bank, if your bank tells you not all the loan is forgiven you may want to verify the covered period weeks used by the bank to calculate the loan forgiveness and elect a longer covered period.

Feel free to contact us with questions and/or comments.