In a recently released Final Rule, the Treasury made a revision to clarify what amounts shall be eligible for PPP loan forgiveness. This revision also provides clarity for how business owners may compensate themselves during the forgiveness period under the PPP.
The loan forgiveness amount can be up to the full principal amount of the loan plus any accrued interest. The actual amount forgiven will depend on the total amount spent during the 24-week period after the PPP loan is disbursed. The amounts eligible for forgiveness are as follows.
- Payroll costs including wages, tips, and salary, up to $100,000 of annualized pay, per employee. If 24 weeks, there’s a maximum of $46,154 per individual. If 8 weeks, there’s a maximum of $15,385 per individual. Benefits are also covered for employees (not owners), to include health care expenses, state taxes on employee payroll paid by the employer (ex. Unemployment insurance premiums), and retirement contributions.
- Owner compensation replacement is calculated from 2019 net profit with forgiveness amounts limited to eight weeks’ worth (8/52) of 2019 net profit up to $15,385 or 2.5 months’ worth (2.5/12) of 2019 net profit up to $20,833 for a 24-week covered period. This excludes any qualified sick leave amount or qualified family leave.
- Payment on interest for mortgage obligations incurred before February 15, 2020 which are deductible on Form 1040 Schedule C (business mortgage payments).
- Rent payments on lease agreements in force before February 15, 2020 which are deductible on Form 1040 Schedule C (business rent payments).
- Utility payments under service agreements dated before February 15, 2020 which are deductible on Form 1040 Schedule C (business utility payments).
The Treasury also released an EZ Loan Forgiveness Application which requires fewer calculations and less documentation to reduce the bureaucratic burden for smaller recipients. This is a welcomed resource. Please see the Department of the Treasury’s website for the EZ Application and the application’s instructions found under “For Borrowers.”