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New PPP Guidance and Next Steps

Filed under:

Tax Advisory: U.S. Federal

August was another very busy month in the world of PPP loan forgiveness.  This is the timeline of the information provided by the Department of the Treasury and the SBA.

8/11/20: New and updated PPP loan frequently asked questions were published.

8/11/20: All new frequently asked questions on PPP loan forgiveness were published.

8/11/20: The SBA provided an interim rule on the appeals of the SBA loan review decisions. 

8/24/20: The SBA provided an interim rule on treatment of owners and forgiveness of certain non-payroll costs.

This was a significant amount of new information and below is a summary of the most important and relevant topics to your business and the PPP loan forgiveness process.

Health Insurance

  • Eligible health insurance benefits only include employer-paid amounts. This does not include health insurance paid for by employees, either pre-tax or after-tax payroll deduction.
  • Eligible insurance costs are only for the premiums paid or incurred during the applicable period, or paid by the next premium due date if after the covered period ends.  This means, a borrower can not accelerate future monthly premiums.

Retirement Plan Benefits

  • Eligible retirement plan benefits includes employer-paid amounts. 
  • Like health insurance, this does not include retirement plan benefits accelerated from periods outside the applicable covered period.
    • For example, if a borrower pays a 2019 retirement contribution during the covered period (or alternative payroll covered period), it’s eligible for forgiveness as long as the payment was funded in a similar time period in the prior year. However, if a borrower pays a 2020 retirement contribution during the covered period (or alternative payroll covered period) that wouldn’t normally be funded until 2021, then that expense wouldn’t be eligible for forgiveness.

Owner Compensation

  • An owner-employee is defined as someone who has 5% or more ownership stake in an S or C corporation.  Owner-employees are subject to the limits described below.
  • Eligible owner compensation is calculated differently than the eligible compensation for a non-owner employee.  The maximum amount of compensation for an owner is capped at $15,385 when using the 8-week covered period and $20,833 when using the 24-week covered period.
  • Reminder, a borrower can choose their covered period period if their loan was issued prior to June 5, 2020, but for loans after that date, the 24-week covered period is used.
  • The owner compensation maximum includes compensation, health insurance, retirement benefits and other payroll costs.  Non-owner employees to do not have the same limits.  See previous article for information about the employee limits.

Summary of Owner Compensation by Tax Entity Type

Entity TypeEligible Compensation
C CorporationEqual to 2.5/12 of the owner’s 2019 cash compensation, and capped at either $15,385 or $20,833 (depends on covered period).
S CorporationEqual to 2.5/12 of the owner’s 2019 cash compensation, subject to the appropriate $15,385 or $20,833 cap. 2% or greater S corporation owner not eligible to use health insurance since included in Form W-2. this treatment extends to the shareholder’s family members who are also employees (spouse, children, grandchildren and parents).
General PartnerEqual to 2.5/12 of their 2019 net earnings from self-employment and capped at either $15,385 or $20,833 (depends on covered period). The compensation must actually have been paid to the general partner.
Schedule C or FSole proprietors, self-employed individuals and independent contractors have eligible compensation limited to 2.5/12 of 2019 net profit as reported on Form 1040 Schedule C line 31 (or net farm profit on 2019 Form 1040 Schedule F line 34).
  • Owners do not include family members (spouse, son, daughter, sibling, etc.) if that family member does not directly own at least 5% of the entity stock, units, interest, etc.

Non-Payroll Costs

  • Eligible rent includes gross rent paid less any amount of sublease income received.
  • Eligible mortgage interest is also limited if a portion is subleased.  The limitation is based on percent share of the fair market value of the space that is occupied versus part of a sublease.
  •  Rent payments to related parties are eligible for loan forgiveness, but limited to the amount of interest paid during the covered period.

What do we still need to know?

  • Will there be a de minimis loan amount that is automatically forgiven? There is proposed legislation that has been introduced, but little movement so far.
  • Will deductions related to the PPP forgiveness be allowed? Current law does not allow the deductions related to the PPP loan proceeds that are forgiven.


Putting together a loan forgiveness application with all of the appropriate treatment and documentation can be an overwhelming process. But luckily, the American Institute of CPAs (AICPA) has published a free resource to assist small business owners and their CPAs in automating the loan forgiveness application process.

Borrowers can use this PPP Forgiveness Tool to fill out their PPP loan forgiveness application online, receive an automatic eligibility calculation and be provided with all the government-mandated forms needed to submit for lender forgiveness. We suggest that you watch the 4-minute PPP Forgiveness Tool Video Tutorial prior to starting this process.

The PPP program continues to be fluid and the longer you wait to apply for forgiveness the more answers we should have.  We also recommend that you consult with your tax advisor in regard to the impact of the new guidance from August.  

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