PPP Money: You Got It? Here's How To Make It Forgivable!

Hopefully by now you have applied for the Paycheck Protection Program Loan (PPP) and the funds are on their way to your bank account! This much needed relief is coming at a great time and the fact that it could be Totally Forgivable is even better!

But! It is very important that you use the money exactly as required so that you don’t have to pay any of it back (plus 1% interest). The PPP loan is meant to cover 2 months of payroll expenses, so the total loan amount is divided in two to provide a monthly budget. Follow the guidelines below to ensure you use it correctly and get to keep this money!

For Self Employed Individuals

Open a new business (or personal if you are not incorporated) checking account and deposit the full amount of the PPP loan into it. This money can not intermingle with any other existing business money. Then follow this budget:

1. Take your total loan amount and divide it in half. That is your monthly budget (as the loan is supposed to last 2 months).

2. At least 75% of that monthly budget will be your payroll. Or you may count the monthly payroll as your average monthly payroll per your Schedule C net income. You will transfer this amount to your personal account every month with a memo that says “payroll”.

3. The remaining 25% can be paid to rent, mortgage interest, or utilities to the extent of the office percentage indicated on the Schedule C form in your 2019 tax return.

Example: You receive a PPP loan in the amount of $8,000 on May 1st, making your monthly budget $4,000. You use 25% of your home as the home office. Your monthly utility bill is $100 and rent is $2,000. From the PPP bank account, you will pay $500 for rent (in the memo of the check/epay write “25% May rent”). Pay $25 for the utility bill (in the memo of the check/epay write “25% May utility”), and the remaining $3,475 you will transfer to your personal account and in the memo write “May Salary”. You will repeat the same process in June.

For Corporations

Open a new business checking account and deposit the full amount of the PPP loan into it. This money can not intermingle with any other existing business money. Then follow this budget:

1. Take your total loan amount and divide it in half. That is your monthly budget (as the loan is supposed to last 2 months).

2. At least 75% of that monthly budget will be your payroll.

3. The remaining 25% can be paid to rent, mortgage interest, or utilities.

Example: You receive a PPP loan in the amount of $8,000 on May 1st, making your monthly budget $4,000. Your monthly office rent is $1500. In this case, $3,000 will be taken as monthly wages (75%) where the Federal Withholding Tax is $700, the State Withholding is $300, and employer FICA is $200. The $700 FTD tax and $300 State tax will be paid from the PPP account. The employer FICA portion of $200 will be paid from the company’s regular checking account. With the remaining $1,000 you will pay a portion of your rent directly from the PPP account and the remaining $500 will be paid from the regular business checking account. You will repeat the same process in June.

Remember that EVERY transaction from this PPP bank account needs to be substantiated so make sure you put memos in all of the charges. Keep invoices/bills when possible. If you are paying office rent or utilities, keep the monthly statements. After 2 months you will have to put together a package to present to the bank along with your request for loan forgiveness. Make sure you explain every charge and attach the invoice for it.