On June 16, 2020, the SBA released the new simplified 3508EZ Forgiveness Application. The EZ application is a short three pages as compared to the five-page full application. To qualify for the EZ application the employer must attest:

The Borrower did not reduce annual salaries, or hourly wages, of any employee by more than 25 percent during the Covered Period, when compared to the period between January 1, 2020 and March 31, 2020 (not including employees who earned more than $100,000 during 2019).


The Borrower did not reduce the number of employees or the average paid hours of the employees between January 1, 2020 and the end of the Covered Period. The Borrower can ignore reductions that arose from an inability to rehire individuals who were employees on February 15, 2020 if the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020.  Also, the Borrower may ignore reductions in an employee’s hours if the Borrower offered to restore employment and the employee refused.

On the surface, the EZ application looks very straight forward. It simply asks for payroll and non-payroll costs. Caution, while this seems easy enough, there are areas the Borrower needs to be aware of.  

Owner Compensation Recap (based on 24-week election):

C Corporation (C Corp) Owners – Compensation is limited to 2.5 months based on 2019 cash compensation; total wages are capped at $20,833.  Also, state and local taxes, employer contributions for health insurance, and employer contributions for retirement plans (capped at 2.5 months of 2019 amounts) are considered allowable costs.

S Corporation (S Corp) Owners – S-Corp owners are treated the same as C-Corp owners; however, employer contributions for owner health insurance are not allowable costs.

Self-Employed Schedule C (Sole Proprietor) or Schedule F (Agricultural Sole Proprietor) filers – Compensation is limited to 2.5 months of the 2019 net profit as reported on IRS Form 1040, Schedule C line 31 or Schedule F line 34. State and local tax payments, employer paid health insurance and retirement contributions are not eligible costs. Also, the business is required to submit the 2019 IRS Form 1040, Schedule C or F, if it was not submitted with the initial application.

Partnerships – Compensation is limited to 2.5 months based on 2019 net earnings from self-employment, which is calculated using the 2019 IRS Form 1065, Schedule K-1 box 14a (reduced by box 12, section 179 expense deduction, unreimbursed partnership expenses deducted on their IRS Form 1040 Schedule SE, and depletion on oil and gas properties) multiplied by 0.9235. Compensation must be paid during the coverage period. Separate payments for health insurance, retirement, or state and local taxes are not eligible for additional loan forgiveness. 2019 IRS Form 1065 K-1s are required at the time of the forgiveness application if not submitted during the initial application.

LLC Owners – LLC owners must follow the instructions that apply to how their business was organized for tax filing purposes for tax year 2019, or if a new business, the expected tax filing situation for 2020. 

Non-owner Compensation– For all non-owner employees, cash compensation is limited to either $15,385 if the 8-week coverage period is elected, or $46,154 if the 24-week coverage period is elected. There are no limits on state and local taxes, employer paid retirement plan contributions or health insurance contributions that were paid during the covered period.

Full-time Equivalent (FTE) Employee Head Counts– To qualify for the EZ application the Borrower must not have reduced the number of employees or the average paid hours of employees during the covered period as compared to the comparative period. Because of this requirement, the FTE reduction calculation becomes very important.  It is interesting that there is no specific area to include the calculated FTE employee counts on the EZ); however, there is still a requirement to calculate whether FTE employees had been reduced.  Also, the application line requesting number of employees at time of loan application/forgiveness application should be total employees, not FTE employees.

To calculate the reduction in FTE’s you may need to perform multiple calculations for the various comparative periods. The possible comparative periods include January 1, 2020 through February 28, 2020, and February 15, 2019 through June 30, 2019.   Or if you are a seasonal employer, the SBA allows the use of whichever comparative period during 2019 yields the greatest forgiveness for the Borrower. In addition, there are two different methods you can use to calculate your company’s FTE figures. One method is calculating part time employees based on their average hours worked compared to a 40-hour employee. The second method is to calculate each part-time employee equal to a ½ employee. For these reasons, the business could be required to run several FTE calculations to ensure maximum forgiveness.

Borrowers should make sure to read the instructions to either the 3508EZ or full 3508 applications before completing. Also, continue to pay attention to upcoming legislation and KT updates as we learn more regarding the final rules and regulations for the forgiveness application.

For questions or assistance with the forgiveness application, please reach out to Austin Eichacker at [email protected].