24 Jun 2020 PPP Loan Forgiveness Updates
On June 17, the SBA released a new EZ version of the PPP forgiveness application. The EZ application requires fewer calculations and less documentation for eligible borrowers. View the EZ application.
In addition, they recently clarified limitations for owner’s compensation allowed in the forgiveness calculation.
Owner Income Limitations for PPP Loan Forgiveness
The SBA has clarified caps on the amount of PPP loan forgiveness available for owner-employees and self-employed individuals’ own payroll compensation. “Owner-employees” includes shareholders in any corporation (C or S). Owner-compensation is now limited to 2.5 months of 2019 owner wages or net profit (up to $20,833) for the 24-week covered period. Fringe benefits, such as retirement and health insurance contributions, are also limited by the overall cap – see below for an explanation of the cap depending on the type of entity. For a sole proprietor with no employees, the income replacement would now be equal to the loan amount, allowing for 100% forgiveness of the loan.
The rule reads as follows:
Are there caps on the amount of loan forgiveness available for owner-employees and self-employed individuals’ own payroll compensation?
Yes. For borrowers that received a PPP loan before June 5, 2020 and elect to use an eight-week covered period, the amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation is capped at eight weeks’ worth (8/52) of 2019 compensation (i.e., approximately 15.38 percent of 2019 compensation) or $15,385 per individual, whichever is less, in total across all businesses. For all other borrowers, the amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation is capped at 2.5 months’ worth (2.5/12) of 2019 compensation (i.e., approximately 20.83 percent of 2019 compensation) or $20,833 per individual, whichever is less, in total across all businesses.
In particular, C-corporation owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement and health insurance contributions made on their behalf. S-corporation owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement contributions made on their behalf, but employer health insurance contributions made on their behalf cannot be separately added because those payments are already included in their employee cash compensation. Schedule C or F filers are capped by the amount of their owner compensation replacement, calculated based on 2019 net profit. General partners are capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235. For self-employed individuals, including Schedule C or F filers and general partners, retirement and health insurance contributions are included in their net self-employment income and therefore cannot be separately added to their payroll calculation. Learn more.