Load Forgiveness

By: John K. McGill, CPA, MBA, JD

The Paycheck Protection Program (PPP) got off to an astonishing start, with the initial round of funding exhausted within 10 business days. However, demand for PPP loans in the second round slowed to a trickle, due to the uncertainties and complexities involved in determining how much of the loan would be forgiven. Now, new legislation promises increased flexibility in utilizing PPP funds, as well as a much easier path to full forgiveness, as explained below.

New PPP Law

On May 28, 2020, the House of Representatives passed H.R. 7010, the Paycheck Protection Program Flexibility Act of 2020 (PPPFA), by a vote of 417-1, and the Senate approved the measure on June 5. Provided you properly account for and document your PPP expenditures, the new law will allow most doctors to receive 100% loan forgiveness. Changes contained in the new law include:

  • Reduces the amount of the PPP loan that must be spent on payroll-related costs from 75% to 60%, thus increasing the amount available to be spent on rent, utilities, and interest from 25% to 40%.
  • Allows you to elect to triple the time period you have to utilize the PPP funds from 8 weeks to 24 weeks. This time period extension is not automatic, so make sure you elect to use the 24-week period when you file your application for PPP loan forgiveness.
  • Extends the time period from June 30 to December 31, 2020 for rehiring all staff to avoid a reduction in loan forgiveness. Furthermore, you will not be penalized for any reduction in staff if you can document either of the following as of December 31, 2020: (1) that you were unable to rehire your staff previously employed by you on February 15, 2020, but were later laid off or furloughed, or hire similarly qualified workers as replacements; or (2) that you were unable to return to the same level of business activity (compared to February 15, 2020) due to compliance with governmental requirements or guidance related to social distancing, sanitation standards, or any other COVID-19 related worker or customer safety requirements.

While any amounts not forgiven still have to be repaid, the new law extends the time period before repayments have to begin from 6 months to 1 year. Furthermore, the time period over which any PPP loan amount must be repaid in full is extended from 2 years to at least 5 years for new PPP loans taken out after the date of enactment.

Under existing law, you weren’t eligible to defer payment of payroll taxes if you received a PPP loan. The new law reverses this, allowing you to defer payments of payroll taxes otherwise due in 2020, by paying 50% by December 31, 2020 and the remaining 50% by December 31, 2022, even if you receive a PPP loan.

Revised Loan Forgiveness Application and Rules


While these relaxed rules will allow most doctors to qualify for 100% loan forgiveness, you must still “touch all the bases” to achieve this result. It requires filing a complete and accurate loan forgiveness application along with all required documentation.

On June 16, 2020, the SBA released revised application forms for PPP loan forgiveness (Form 3508 and new Form 3508EZ). In connection therewith, the SBA also issued some new rules for determining loan forgiveness.

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The major surprise was the change in the maximum amount of wages eligible for PPP loan forgiveness. Under the original rules, the maximum wages eligible for forgiveness over the 8-week payment period was capped at $15,385 (8 weeks ÷ 52 weeks × $100,000), which applied to all employees (doctors and staff). When the new law increased the payment period from 8 weeks to 24 weeks, most assumed the cap on wages eligible for forgiveness would triple to $46,155 as well. That’s the case for all non- owner employees (associates and staff) under the new rules. However, the new limit for owner-employee wages eligible for forgiveness has been increased from $15,385 to only $20,833 by the SBA, “in order to maintain the intent of Congress.”

Moreover, under the revised rules, group health insurance premiums paid on behalf of self-employed (Schedule C) doctors, those operating in a partnership (Form 1065), and owner-employees operating as an S corporation (Form 1120S) are not eligible to be included in the loan forgiveness amount.

Normally, these detrimental changes would make it difficult to achieve 100% loan forgiveness. However, if you elect to increase the time period over which you spend the PPP funds from 8 weeks to 24 weeks as we recommend, achieving full loan forgiveness should not be a problem. Under the new rules, up to 40% of PPP funds can be spent on rent, utilities, and mortgage interest (non- payroll costs). While the amount of PPP funds that can be spent on owner wages and health insurance has been limited, the remaining PPP funds can be spent on staff payroll costs over the expanded 24-week period to achieve full loan forgiveness.


John K. McGill

John K. McGill, CPA, MBA, JD

John is a nationally prominent tax attorney and CPA who has specialized in dealing exclusively with the dental profession for more than 30 years. He is President of John K. McGill & Company, Inc., Editor of The McGill Advisory newsletter and shareholder in the law firm of McGill and Hassan, P.A. He graduated with honors from Erskine College and holds both a Master of Business Administration and law degree from the University of North Carolina at Chapel Hill. He formerly worked with the Office of Chief Counsel, the legal branch of the Internal Revenue Service, in Washington, DC. He is a member of the American Bar Association and the American Institute of Certified Public Accountants.

"This article was reprinted with permission from The McGill Advisory, a monthly newsletter with online resources devoted to tax, financial planning, investments, and practice management matters exclusively for dentists and specialists, published by John K. McGill & Company, Inc. (a member of The McGill & Hill Group LLC). Visit www.mcgilladvisory.com or call 888.249.7537 for further information."

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