- Learn about the debt forgiveness qualifying criteria and conditions in the Form 3508 instructions.
- Learn how to complete and submit Form 3508 to your lender correctly.
- Understand the documents required to support your application for forgiveness, such as payroll records, rent or mortgage statements, and utility bills.
- Keep track of your PPP loan's covered period and the time limit in which qualified costs can be used to qualify for forgiveness.
- Understand how to calculate your debt forgiveness eligibility based on the eligible costs you incurred and maintained throughout the covered period.
- Understand the importance of maintaining copies of all submitted materials and documents for future reference or possible audits.
The Paycheck Protection Programme (PPP) Loan Forgiveness Application is Form 3508. Borrowers utilize it to request debt forgiveness for monies acquired through the PPP, a government program designed to provide financial relief to companies during the COVID-19 epidemic.
The Importance and Advantages of Filing Form 3508
- Debt Forgiveness: Borrowers who want to request forgiveness of their PPP debt must complete Form 3508. Borrowers can have their loan amount forgiven by filing this form, which means they will not be forced to return the borrowed monies.
- Financial assistance: For firms affected by the COVID-19 outbreak, loan forgiveness can provide considerable financial service. It enables borrowers to have a portion or all of their PPP loan changed into a non-repayable grant, easing financial constraints.
- Employee Retention: PPP debt forgiveness is highly linked to employee headcount and pay. Borrowers can show compliance with the program's standards by correctly completing and submitting Form 3508, possibly motivating them to keep their employment and prevent layoffs.
- Improved Cash Flow: Successful loan forgiveness can boost a company's cash flow by lowering its debt load. This might increase working capital and financial flexibility to support continuing operations or expansion.
Consequences of Failure to File Form 3508:
- Loan Repayment: Failure to complete Form 3508 or receive loan forgiveness implies that borrowers must return the PPP loan by the terms agreed upon with the lender. This can put a further financial burden on firms, particularly those undergoing economic difficulties.
- Interest Accumulation: If the loan is not forgiven, borrowers must return the principal amount of the loan, and interest will accumulate on the outstanding balance according to the conditions of the loan arrangement. This may raise the overall cost of borrowing for the company.
- Missed Opportunity: Failure to file Form 3508 results in losing the possible advantages of debt forgiveness. Businesses may pass up the chance to convert a portion or all of their PPP loan into a grant, which might improve their financial status.
Who needs to file form 3508?
Borrowers who have received cash under the Paycheck Protection Programme (PPP) and desire to seek loan forgiveness often complete Form 3508. Form 3508 may be required for the following entities:
Various business structures are eligible to file Form 3508, including:
- Sole Proprietorships: Single-owner businesses where the individual is personally liable for the business's debts.
- Partnerships: Businesses with multiple owners who share profits and losses.
- Limited Liability Companies (LLCs): Businesses with the advantage of limited liability protection for owners.
- C Corporations: Separate legal entities owned by shareholders.
- S Corporations: Corporations with a pass-through tax structure.
Income Levels and Variables
The following forms of income are eligible for PPP debt forgiveness:
- Salaries, salaries, commissions, gratuities, employee benefits, and state/local taxes on remuneration are all part of the payroll costs.
- Rent and Lease Payments: Rent or lease business space or equipment agreements.
- Mortgage Interest: Payments made on mortgages for commercial property or equipment.
- Utilities are payments for power, gas, water, transit, phone, and internet services. There is no set income range or barrier for submitting Form 3508. The borrower must have obtained a PPP loan and requested forgiveness based on acceptable costs within the covered period.
Types of Businesses and Incomes not included:
While many businesses and revenue kinds are eligible, particular organizations and incomes, such as:
Non-profit organizations: Non-profit organizations have their forgiveness application (Form 3508 EZ or Form 3508S) adapted to their needs.
Non-qualifying charges include Expenses that are not eligible for reimbursement, including payments to independent contractors, taxes levied or withheld, and employee salaries over specific levels.
How do I file form 3508?
To file Form 3508 for PPP debt forgiveness, complete the steps below:
Examine the Instructions: Carefully read the instructions that come with Form 3508. Familiarize yourself with the debt forgiveness requirements, computations, and documents.
Collect paperwork: Gather the paperwork required to support your forgiveness application. Payroll records, tax forms, lease agreements, mortgage statements, utility bills, and other pertinent financial papers may be included.
Section 1 must be completed: Fill out Section 1 of Form 3508, including your business name, address, and SBA loan number, with the borrower's information.
Calculate Payroll expenses: In the instructions, calculate your eligible payroll expenses during the covered time. Wages, tips, employee perks, and some taxes are all included. Fill out the payroll expense calculation worksheet that comes with Form 3508.
Determine Non-Payroll expenditures: During the covered period, calculate your qualifying non-payroll expenditures, such as rent, mortgage interest, and utilities. Document these costs and ensure they fulfill the conditions for forgiveness.
Adjustments (if any): Make appropriate adjustments in forgiveness depending on staff numbers or salary/wage decreases. To determine the reduction amounts, follow the instructions and spreadsheets given.
Complete the Forgiveness Calculation: Using the spreadsheets and instructions, calculate the total eligible forgiveness amount based on your payroll and non-payroll expenditures. Fill out the Forgiveness Amount Calculation form using these figures.
If relevant, include any extra information necessary for specific forgiveness criteria, such as documentation of safe harbor laws or exemptions.
Review and Sign: Go through the information you've provided on the form, ensuring it's accurate and complete. Sign and date the form, attesting that the information provided is correct to the best of your knowledge.
Submit the Form: As directed by your PPP lender, submit the completed Form 3508 and all accompanying paperwork. Keep copies of all papers provided for your records.
Form 3508 instructions
You will require the following information, paperwork, and supporting papers when completing
Form 3508 for PPP debt forgiveness:
- Fundamental Data:
- Legal business name of the borrower
- The business address of the borrower
- Employer Identification Number (EIN) or Social Security Number (SSN) of the borrower SBA PPP loan number
- Data for the Covered Period:
- Beginning and ending dates of the covered period for which you want forgiveness
- Payroll Covered Period Alternate (if applicable)
- Payroll records (for payroll costs):
- Payroll reports, tax forms, or reports from third-party payroll service providers
- Statements of bank accounts
- Payment documents, canceled checks, or account statements proving company payments to employee health and retirement schemes
- Non-payroll Documentation (for out-of-pocket expenses):
- Mortgage statements or amortization schedules from lenders
- Agreements and receipts for rent or lease
- Utility bills and receipts
- FTE documentation (for calculating staff headcount):
- Documentation proving the average number of FTE workers throughout the reference and covered periods.
- Employee pay rates and working hours
- Wage/Salary Reduction Documentation (if necessary):
- Documentation demonstrating that employee salaries or wages were reduced by more than 25% over the covered period compared to the reference period.
- Employee offer letters, job contracts, and other pertinent paperwork
- Worksheet for PPP Schedule A and Schedule A:
- These forms aid in calculating qualifying payroll and non-payroll expenditures and determining forgiveness amounts.
- Certification of the correctness of the information given and compliance with PPP requirements
- Documentation supporting safe harbor provisions or exclusions (if appropriate)
- Additional Information:
- Any additional documents required by your lender or the Small Business Administration (SBA) to support your application for debt relief
Different version 3508 form
For PPP loan forgiveness, several versions of Form 3508 are available, each tailored to fit varied borrower conditions and streamline the application procedure. Here are the many forms of Form 3508:
- Form 3508: The standard form of Form 3508 is utilized by borrowers who do not qualify for the simplified versions (Form 3508EZ or Form 3508S). It necessitates more precise computations and documentation.
- Form 3508EZ: This is a simplified form of Form 3508 with less documentation required. Borrowers that match one of the following conditions may utilize Form 3508EZ:
- They are self-employed and do not employ anyone.
- They did not cut employee hours or salaries/wages by more than 25% compared to the reference period, nor did they lower the number of employees or average paid hours.
- They did not lower employee salaries/wages by more than 25% compared to the reference period. They could operate at a different level of business activity owing to compliance with COVID-19 health and safety criteria.
- Form 3508S is the simplest and quickest PPP loan forgiveness form available. Borrowers with a PPP loan of less than $150,000 can utilize Form 3508S. There are fewer computations and documentation requirements. Borrowers must, however, continue to supply information on loan amounts, covered periods, and certificates.
Form 3508 (Paycheck Protection Programme Loan Forgiveness Application) submission timeframes might vary depending on circumstances. The following are general filing deadline guidelines:
The covered period is when qualified costs may be used to qualify for forgiveness. The covered period for most borrowers begins when the loan is disbursed and ends either eight or 24 weeks afterward. The application for debt forgiveness can be made at any point within the covered period or up to the loan maturity date, which is usually two or five years following loan origination. Borrowers have up to ten months from the end of their covered term to submit a forgiveness application. During this period, however, interest is accruing on the unforgiven portion of the debt.
Loan Repayment Deadline: Borrowers must begin repaying the loan if they do not ask for forgiveness within ten months of the end of their covered term. The conditions of the loan determine the payback duration.
No filing fee is associated with Form 3508 or any other PPP loan forgiveness application as of September 2021. Please keep in mind, however, that specific restrictions and standards may change over time. To get up-to-date and right information on filing fees or any other part of Form 3508 or PPP debt forgiveness, it's always a good idea to check official sources such as the Small Business Administration (SBA) or a skilled accountant.
3508 tax form: tips for startups
In case you are a new business and need to file Form 3508, the Paycheck Protection Programme (PPP) Loan Forgiveness Application, here are some pointers to help you:
- Recognize the PPP loan forgiveness requirements: Familiarize yourself with the Small Business Administration's (SBA) PPP loan forgiveness criteria and conditions. This will help you in assessing whether your startup is eligible for debt forgiveness and what evidence you will need to furnish.
- Maintain accurate records: Keep meticulous records of your salary costs, rent/mortgage payments, utility bills, and any other qualified expenses that may be forgiven. This paperwork is required for completing Form 3508.
- Determine your covered period by doing the following: The covered period is the period in which you must spend the PPP money to be eligible for forgiveness. It typically takes 8 to 24 weeks from the date of loan disbursement. Choose the time best for your startup's payroll cycle and cash flow requirements.
- Correctly calculate payroll costs: Ensure you accurately compute payroll expenses within the covered period. Include pay, wages, gratuities, and employee perks as acceptable costs. Keep in mind the SBA's payroll expense constraints and limitations.
- Non-payroll costs: Gather supporting evidence, such as lease agreements, utility bills, and mortgage statements, to claim forgiveness for non-payroll expenses such as rent, utilities, and mortgage interest.
Finally, if you are a new firm and must file Form 3508 for PPP loan forgiveness, you must familiarize yourself with the Small Firm Administration's (SBA) standards and rules. Maintain accurate records of your payroll and non-payroll costs, and ensure you have the appropriate evidence to support your request for forgiveness. Take the time to carefully assess payroll expenditures, considering any SBA ceilings or limitations. Understand your covered time and select the term that best meets the demands of your startup. It is critical to complete Form 3508 and attach any needed paperwork correctly.
We can help!
At Levy, we help early-stage founders streamline and automate regulatory and legal ops, HR, and finance so you can focus on what matters most — your business.
Like our content?
Subscribe to our blog to stay updated on new posts. Our blog covers advice, inspiration, and practical guides for early-stage founders navigating their start-up journeys.
Note: Our content is for general information purposes only. Levy does not provide legal, accounting, or certified expert advice. Consult a lawyer, CPA, or other professional for such services.