AICPA PPP Recommendations

AICPA Recommendations How to Receive Loan Forgiveness Under Payroll Protection Program

The SBA Payroll Protection Program (PPP) has many moving parts and some details keep getting tweaked. The primary benefit for many small business owners is to obtain loan forgiveness, but this is also the complicated part of the program.

Don’t Miss

To help small business owners, the American Institute of CPAs (AICPA) released recommendations on the appropriate documents and calculations that small businesses should use to qualify for loan forgiveness under PPP.

The recommendations were made in consultation with an AICPA-led small business funding coalition, CPA firms and other key stakeholders. They build on previous guidelines the AICPA has provided to help bring clarity to the implementation of the PPP.

AICPA Suggestion Include

  • The 8-week covered period under PPP should align with the beginning of a pay period, not the date loan proceeds are received
  • The 8-week period should commence once local stay-at-home restrictions are lifted, not when loan proceeds are received, so small businesses have adequate funds to ramp up operations
  • Full-time job equivalents (FTEs) can be calculated using a simple wage-based proxy when hours worked are not tracked by the employer
  • Payroll reduction calculations should be based on small businesses’ average payroll per week, not total compensation per employee

“Loan forgiveness is a key element of the Paycheck Protection Program, and the steps for qualification should be simple, straightforward and designed to help small businesses succeed. Our goal is to continue to work with our coalition and other stakeholders to help drive consistency and a standard approach for the smaller entities that are now applying.”


Mark Koziel, the AICPA’s executive vice president for firm services

Those recommendations that apply directly to loan forgiveness are as follows:

Loan Forgiveness Documentation for Employers

  1. Payroll tax reports: 2020 IRS Forms 941, state income and unemployment tax returns that include the 8-week covered period. (See recommendation below regarding 8-week covered period.) If your organization contracts with a payroll provider or Professional Employer Organization (PEO) you can supply other documents, such as reports reflecting employment tax returns filed.
  2. Compensation and FTEs: In general, payroll reports which will include the following:
    • Gross wages for each employee for the following:
      • During the 8-week covered period.
      • During the most recent full quarter before the 8-week covered period.
    • Identifying employees who during any period in 2019, received an annualized pay of more than $100k and also employees whose principal place of residence is outside the U.S.
    • State and local employer taxes assessed on an employee’s compensation (i.e., SUTA) during the 8-week covered period.
    • The average number of full-time equivalents (FTEs) per month for the following (borrower elects which period, ii or iii, to compare to i):
      • (i) During the 8-week covered period
      • (ii) February 15 through June 30, 2019
      • (iii) January 1 through February 29, 2020
    • For seasonal businesses, use the average number of FTEs per month during the period February 15, 2019 through June 30, 2019.
  3. Group health care benefits: Documentation showing total costs paid for all health care benefits, including insurance premiums paid by the organization under a group health plan.
    • Include all employees and company owners.
    • Do not include employee withholdings for their portion of contributions to the plan.
  4. Retirement plan benefits: Documentation showing the sum of all retirement plan funding costs paid by the organization.
    • Include funding for all employees and the company owners.
    • Do not include employee withholdings for their portion of contributions to the plan.
  5. Other documentation: Canceled checks, receipts, account statements or other documentation of payment for other eligible costs incurred and paid during the covered period such as mortgage interest, lease payments, utility payments.

For Sole Proprietors, Independent Contractors and Self-Employed Individuals

    1. The 2019 Form 1040 Schedule C to verify net income (line 31) for owner income replacement calculation.
    2. If you have employees, provide payroll documentation as outlined above, including documentation of healthcare and retirement benefits costs. Exclude owner from healthcare and retirement costs.
    3. Canceled checks, receipts, account statements or other documentation of payment for other eligible costs incurred and paid during the covered period such as mortgage interest, lease payments, utility payments.Note: These types of expenses must have been deducted on the 2019 Form 1040 Schedule C to be eligible for forgiveness.

Forgiveness Recommendations

The following four broad recommendations are provided to encourage a consistent and efficient approach to loan forgiveness that aligns with borrower operations and the intent of the PPP.

  • Recommendation: Align the beginning of the 8-week covered period with the beginning of a pay period, rather than the date loan proceeds are received.
    • AICPA recommends beginning the calculation of the 8-week covered period as the date of either the beginning of the payroll period during which funding was received or the beginning of the next payroll period, at the borrower’s discretion.
    • For example, if funding is received on April 10 and the borrower’s normal pay cycle is semi-monthly, the borrower could elect to start the 8-week covered period on April 1 or April 16.
    • Using this approach, rather than beginning the covered period when funding is received, will provide borrowers more opportunity to use the PPP funds for their primary purpose – keeping employees on the payroll.
    • Additionally, using an approach that aligns to the borrower’s operations will result in a more efficient, consistent approach.
  • Recommendation: Begin the 8-week covered period when operating restrictions are lifted, rather than the date loan proceeds are received.
    • If a borrower receives PPP funding while its operations are shut down due to shelter-in-place orders or essential business restrictions, etc., AICPA recommends the start of the 8-week covered period to be based on when the restrictions are lifted and the borrower is allowed to operate – using either the beginning of the payroll period during which operating restrictions were lifted or the beginning of the next payroll period, at the borrower’s discretion.
    • This allows funding to be used to quickly get the borrower back up and running, rather than limiting the use of the funds to a time period when they are not permitted to operate.
  • Recommendation: Defining Full-time Equivalents
    • Because the CARES Act does not define how to calculate a full-time equivalent (FTE), AICPA recommends following the definition under the Affordable Care Act (ACA) of 30 hours.
    • Also, because hours are not always collected for certain types of employees (e.g., salaried workers or those paid by piecework), AICPA recommends using a wage-based proxy for determining FTEs.
      • If hours worked are not available, employees would be deemed an FTE if earnings are over $217.50 – the Federal minimum wage x 30 hours a week [$7.25 x 30 = $217.50]. Employees earning less than $217.50 /week would be considered a pro-rated FTE; e.g., an employee that earns $200/week would count as 0.92 of an FTE ($200/$217.5 = 0.92).
      • This approach allows for a straightforward calculation that consistently measures the number of FTEs based on the Federal minimum wage and a standard definition of the number of hours worked to be considered an FTE.
      • It’s important to recognize that any measure used to determine FTEs will work since it is not the measure, but the comparison of measured results from the two periods that will result in potentially reduced forgiveness. Consequently, selecting a measure that is simple, consistent and able to easily be applied across all employee types and all time periods is paramount.
      • AICPA strongly believes this recommendation meets that goal by being very straightforward. Any decrease in compensation does not factor into this data point. Therefore, this simple approach leads to a result that identifies any reduction in employee headcount when consistently applied to the various time periods.
  • Recommendation: Payroll reduction calculation should be done based on the average payroll per employee per week rather than the total compensation per employee in an 8-week period versus the prior quarter.
    • The CARES Act includes a provision for a reduction in loan forgiveness for any employee whose compensation decreased by more than 25% from the 12-week quarter and the 8-week covered period. However, 8 weeks will naturally have 33% less payroll due to the fewer number of weeks in the time period.
    • Additionally, individuals who were employed during the most recent full quarter may be unable or unwilling to return to work.
    • AICPA strongly recommends using an average payroll per employee per week comparison as that approach is in line with the intent of the CARES Act and provides a clear indication if an employee’s wages have been decreased.
    • AICPA also strongly recommends that this calculation excludes employees who are not active employees throughout the covered period. For example, if someone worked January 1 through March 31 and changed jobs in April, their pay during the covered period would appear to have been reduced by well over 25% compared to the base period. Any reduction in headcount is measured separately; therefore, AICPA recommends only including employees who were active through the entire 8-week covered period.

NOTE: AICPA has requested further clarification on how reductions in forgiveness are to be applied.

  • Clarity needed regarding how reductions in forgiveness are to be applied.
    • Some of the forgiveness requirements cause a dollar reduction, while others produce a percentage reduction. The order in which these are applied can have a significant impact on the forgiveness amount.
    • Clarification is necessary to know if the Act lists forgiveness reductions in the intended order of application.

AICPA PDF Resources

  • The full set of the AICPA’s recommendations, including those that apply to the application process, can be found here.
  • The AICPA also has a resource page to assist CPA firms on PPP issues.


Connect with us: Head over to our Facebook Group for Small Business Sellers and interact with other small business owners.

Follow us on FacebookTwitter, or LinkedIn to stay up to date with relevant news and business insights for your online business.

Subscribe to Our Newsletter

Business Insights for Your Online Business Presented with a Dash of Humor

We do not share your information and you can unsubscribe anytime.

Editorial Note: This post is from a Company Press Release and may have been modified for clarity.

Leave a Reply

Your email address will not be published. Required fields are marked *