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It’s easy to find reason behind the Biden administration’s decision to cancel up to $20,000 in federal student loan debt for tens of millions of borrowers.

Indeed, the amount of overall student debt has skyrocketed in recent years, and many individuals and families are paying off amounts of $40,000 or more — and struggling, often mightily — to do so.

Student loan debt has been cited as a reason why many young professionals are unable to buy homes and achieve the lifestyle they had envisioned when they went to college and pursued a career.

But the administration’s plan to simply cancel large swaths of this debt is not the answer to this growing problem. It is costly (we don’t even know how much this is going to cost the taxpayers), arbitrary, and, yes, inherently unfair to those who have already paid off college loans, worked two or three jobs so they wouldn’t have to take on debt, or opted not to go to college because they couldn’t afford it.

But beyond that, this plan to simply take debt off the books is a simplistic approach to a problem that you can equate, in some respects, to a backyard weed. You can cut it down, like the Biden administration is doing by erasing some of this debt, but to really address the problem, you need to get at the roots.

And this will require a solution that is far more complicated than simply forgiving $10,000 or $20,000 in college-loan debt.

The cost of a college education has skyrocketed over the past few decades, far accelerating the pace of inflation. It is these spiraling costs that need to be brought under control.

Increasingly, a college education is necessary to thrive in today’s technology-driven economy. But the cost of that education — at most all institutions, but especially private, four-year colleges and universities — is now more than most individuals and families can handle — unless they assume large amounts of debt to close the gap between the cost and what they can afford.

The challenge for the Biden administration is to tackle this problem at the roots, to somehow control and perhaps even bring down the cost of a college education so that individuals and families don’t have to take on debt. That’s a big challenge and there are no easy answers.

But that answer will be a better, more meaningful solution than waving one’s hand and simply eliminating hundreds of billions of dollars in loan payments at taxpayers’ expense.

That’s because the weed is going to grow back. v

COVID-19

PPP Loan Forgiveness 101

By Jeff Laboe, CPA

Please realize that the information available today is different than it was a four months ago, and will most likely look different two months from now, so keep that in mind while reading this article.

With all the uncertainty these days, the last thing taxpayers should be worrying about is how to complete the application for your Paycheck Protection Program loan forgiveness. The intent of this article is to give taxpayers an idea of the application process and forms that need to be submitted for forgiveness of the PPP loan the business received.

Jeff Laboe

Jeff Laboe

A business of any type (LLC, S-corp, sole proprietor, etc.) that received funds via a PPP loan in 2020 may apply for the forgiveness of repayment of this loan. Taxpayers who received a loan, maintained proper records, followed the Small Business Administration rules and guidelines with respect as to how the loan proceeds were spent, and performed all necessary calculations should qualify for forgiveness on the repayment of the loan or the portion of the loan that qualifies.

There are three different application forms that may have to be completed based upon your individual PPP loan program. You have 10 months from the completion of your loan period to file one of these forgiveness applications. The three forms to be used are Form 3508S, 3508EZ, and Form 3508, or the equivalent forms offered by your bank.

The first is Form 3508S, which can be used only by those who received $50,000 or less in PPP loan proceeds. The application asks taxpayers to provide the forgiveness amount requested and to certify with signatures that all the conditions were met. There are no calculations required on the application and no reductions in forgiveness due to reduced head count or salaries or wages. This form is the most straightforward.

Form 3508EZ may be used by self-employed individuals, independent contractors, or sole proprietors that have no employees and/or wages at the time of the loan-application process.

A business also qualifies to use this form if it received more than $50,000 but less than $150,000 in PPP funds, and met one of two additional scenarios:

• Salary and wages were not reduced by more than 25% during the loan period, and the employee head count was restored by the end of the chosen loan period — essentially, the net head count wasn’t affected; or

• Salary and wages were not reduced by more than 25% during the loan period and you were unable to operate the same level of business due to compliance with requirements to any work or customer safety requirements related to COVID-19. Similar to the 3508S application, there are no calculations required. Taxpayers instead need to confirm and provide support that the loan proceeds were used for eligible costs.

The last form is the standard Form 3508. This application is for all taxpayers who do not meet the thresholds to file one of the previously discussed forms. This standard application is much more detailed and complex, and may require some additional time and supporting documents. Taxpayers might want to seek assistance from their professional advisors.

“With all the uncertainty these days, the last thing taxpayers should be worrying about is how to complete the application for your Paycheck Protection Program loan forgiveness.”

Additionally, if your business also obtained an EIDL advance, that amount needs to be subtracted from the amount of loan proceeds that would otherwise be eligible for forgiveness. This applies for all three loan-forgiveness forms. Legislation has also been introduced (U.S. Senate Bill 4321) that details potential automatic forgiveness for any PPP loan under $150,000 if the debtee “signs and submits to the lender an attestation that the eligible recipient made a good-faith effort to comply with the requirements under section 7(a)(36) of the Small Business Act.” The status of the bill is uncertain at this time.

Once you have submitted your application, the loan provider has 60 days from the date the application was received to issue a decision to the SBA. The SBA then has 90 days to review the application and remit the forgiveness amount to the lender.

When it comes to PPP loan-forgiveness applications, remember the three different levels: less than $50,000, between $50,000 and $150,000, and above $150,000. As of now, taxpayers have to apply for forgiveness within 10 months of the end of the loan period. Be sure you complied with all the rules and guidelines on what the qualified expenses are and kept accurate and complete records. And don’t be overwhelmed by the applications. If you need assistance, there are resources for you.

 

Jeff Laboe is a senior tax associate with MP CPAs; www.thempgroupcpa.com

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