Forgiveness Rules for SBA PPP Loans

Forgiveness Rules for SBA PPP Loans

Ross Williams


Dear Treasurers, Finance Chairs and Pastors,

The following "Frequently Asked Questions" summarize which categories of expenses may be forgivable as part of a Payroll Protection Loan based on current guidance from the Small Business Administration and the Department of Treasury.   

Q1: Our church received PPP loan proceeds from our bank. Can the loan be forgiven?

A1: Yes. According to SBA regulations the amount of forgiveness can be up to the full amount of the loan and any accrued interest, if the borrower uses all of the loan proceeds for “forgivable purposes” and employee and compensation levels are maintained.

Q2: Which costs qualify for “forgivable purposes”? 

A2: The following costs incurred during the eight-week period following the date the loan is deposited into the church's bank account qualify for loan forgiveness:

  • Total amount of payroll costs (see "Payroll Costs" below)
  • Payments of interest on mortgage obligations signed prior to February 15, 2020.
  • Rent payments on lease agreements signed prior to February 15, 2020.
  • Utility payments under service agreements dated prior to February 15, 2020.  Utilities are defined as electricity, gas, water, telephone and internet access.

However, no more than 25% of the loan forgiveness amount can be non-Payroll Costs.

Q3: What constitutes Payroll Costs that are eligible for loan forgiveness?

A3: Payroll Costs eligible for loan forgiveness include:

  • Compensation (salary, wages, commissions or similar compensation) to employees whose principal place of residence is the United States
  • Cash tips or the equivalent
  • Vacation, parental, family, medical or sick leave payments
  • Severance or separation pay
  • Payments for employee benefits consisting of group health care coverage and retirement benefits
  • Payment of state and local taxes assessed on compensation of employees

Payroll Costs do not include:

  • Employer’s share of Social Security taxes (FICA)
  • Compensation in excess of an annual salary of $100,000 paid to any employee
  • Compensation of any employee whose principal residence is outside the U.S.
  • Qualified sick and family leave wages covered by tax credits under the Families First Coronavirus Response Act (FFCRA)

Q4: Are clergy housing allowance costs included in Payroll Costs (i.e., eligible for loan forgiveness)?

A4: Yes. The Department of Treasury recently clarified that a housing stipend or allowance provided to an employee counts toward payroll costs.

Q5: Are the following expenses included in Payroll Costs and eligible for loan forgiveness:

  • Comprehensive Protection Plan (CPP) premiums?
  • Employer-paid premiums for other welfare benefits, such as life insurance or disability income insurance 

A5: No.  These costs are not eligible for loan forgiveness. Payroll Costs include only group health plan costs and retirement plan contributions.  Premiums for welfare plan benefits, like CPP or UMLifeOptions, are neither retirement nor group health benefits. 

Q6: Can churches include Payroll Costs that are incurred “with respect to” the eight-week forgiveness period but not yet paid?  For example, would accrued costs for employee benefits (such as retirement plan contributions) be eligible Payroll Costs if they are accrued during the eight-week forgiveness period but not remitted until later in the year, after the eight-week forgiveness period ends (e.g., at the end of a month, quarter or year)?

A6: The answer is unclear at this time. We are awaiting additional guidance on forgiveness from the SBA and expect it to be published soon.

Q7: Can a church choose to defer the Health and Pension waivers issued by the Conference to a later date (e.g., after our eight-week period) to maximize the loan forgiveness amount?

A7: Yes. Contact Jasmine Albert ( if you wish to do so.  Keep in mind that the waivers were for the months of April and May.  Depending upon the date you received your PPP proceeds you will likely want to retain the April waiver and defer the May waiver to a month beyond your eight week period.    

Q8: Are moving expense reimbursements considered eligible Payroll Costs? 

A8: The answer is unclear at this time.  Moving expense reimbursements are not explicitly included in the definitions of Payroll Costs.  However the Treasury’s answer to the housing allowance question seems to support treating moving expense reimbursements as Payroll Costs as that answer indicates that Payroll Costs include “all cash compensation paid to employees, subject to the $100,000 annual compensation per employee limitation.” 

Q9: If we segregate PPP loan proceeds in a separate bank account for tracking purposes, could we continue to have run disbursements through our normal operating account? (because, for example, vendors’ contracts, account links and checks are already set up for that account)

A9: The account in which the dollars are kept and used to fulfill payroll is less relevant than the accounting process to demonstrate that the funds ultimately are used for Payroll Costs.  In either case, the church should maintain meticulous records of how the loan proceeds are used to support their request for forgiveness.  I personally believe that the establishment of a separate account is unnecessary and only adds to the church's bank and audit complexities.

Q10: Can the government audit a church or other organization that receives PPP loan funds?

A10: Probably.  The SBA’s PPP guidance so far has been silent about the question of audits; and mainly has allowed lenders to rely on certification by, and financial information from, borrowers, without requiring the lenders to do significant examination or independent underwriting or verification.  That being said, the SBA most likely has a right to audit.

Q11:  If I spend PPP funds within the allowed categories is forgiveness automatic?

A11:  No.  You should contact your bank as soon as possible to understand their procedures for forgiveness and the documentation they will require.  You should start to accumulate such documentation immediately.

Q12:  What happens if my church cannot demonstrate that the loan proceeds were used in accordance with the forgiveness rules?

A12:  Any amount not forgiven converts into a two year loan at an interest rate of 1%.  There are no pre-payment penalties.

Q13: Will the loan forgiveness amount be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?

A13: No.  The SBA intends to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the loan forgiveness reduction calculation.  The rule will specify that to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower.  Employees should be aware that those who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.

Q14: Are there situations where forgiveness will be partial vs. "all or nothing"?

A14:  Yes, forgiveness will be reduced if less than 75% of the loan is used for Payroll Costs or if full-time headcount declines, or if salaries and wages decrease.

For additional information about PPP loans for churches: 

• Application form and guidance - Click here 

• CARES Act summary (see pp. 11-13 for PPP info) - Click here

We continue to closely monitor developments related to the pandemic.  Please check these web-pages for periodic updates:

• General Council on Finance and Administration - Click here

• Wespath Benefits and Investments - Click here

The information above should not be considered legal or tax advice. Churches should consult with counsel in considering the application of this program to their individual circumstances, if necessary.