It’s time for a new Paycheck Protection Program update courtesy of the SBA.
On August 24, 2020, the U.S. Small Business Administration (SBA) and the U.S. Department of the Treasury issued a new interim final rule pertaining to owner-employee compensation and the eligibility of non-payroll expenses.
The new guidelines state that an owner-employee in a C- or S-corporation who has less than a 5% ownership stake will not be subject to the owner-employee compensation rule, which caps the amount of loan forgiveness on owner-employee compensation.
Prior to the change, the owner-employee compensation rule stated that anyone with a stake in a company—no matter how small—that took out a PPP loan was eligible for forgiveness of the lesser of $20,833 or 20.833% of their 2019 compensation or $15,385 or 15.385% if the borrower elected to use an eight-week covered period.
The updated guidance means that if you have an equity stake under 5% in your company, you are now eligible for more salary forgiveness—up to $46,154 per individual over 24 weeks. In addition, covered benefits like health care expenses, retirement contributions and state taxes imposed on employee payroll and paid by the employer would also be eligible for forgiveness.
With respect to non-payroll costs, and their eligibility for coverage under the PPP, the SBA and Treasury have made two decisions, promulgated in this new interim final rule (does anyone beside myself think “interim final rule” sounds funny at this point?).
Non-payroll costs may not include any expenses attributable to the business of a tenant or sub-tenant of the borrower. The new guidance illustrates this with four different examples:
Note that, to be eligible as a PPP-covered expense, lease, rental, or mortgage payments must be incurred under a lease or mortgage entered into prior to February 15, 2020.
This decision pertains to “relative-party” lease or rental payments and mortgage interest payments:
Two proposals which would impact PPP loan forgiveness, and the application process, are being considered in Congress:
In our considered opinion, since the deadline to apply for PPP loan forgiveness extends 10 months from the end of the 24-week covered period, which for many borrowers has not yet concluded, it makes little sense to rush to apply for that forgiveness according to guidance which may well prove obsolete before year-end.
As has been said, the only certain thing about the PPP, since its enactment, has been the uncertainty surrounding its provisions.
Stay tuned – more PPP updates will be coming – that’s one thing we can be certain of.
If you have questions on the PPP, please click here to email us directly – we are here to help.
Until next Wednesday –