On April 14, 2020, the Treasury Department issued its third formal Interim Final Rule related to the Paycheck Protection Program (PPP).
Major items that have been clarified in this notice are detailed below:
- Self-employed individuals who file a Schedule C for their business as part of their individual income tax return will base their compensation on the net profit reported on their 2019 Schedule C, capped at $100,000 per year. A Schedule C borrower with no employees that earns in excess of $100,000 will be eligible for a PPP loan of $20,833 (2.5 x $100,000/12).
- The $100,000 per employee cap on compensation for the computation of forgiveness during the eight-week benefit period is specifically calculated at 8/52 of $100,000. An employee earning more than $100,000 per year will be limited to $15,385 of eligible compensation when computing the amount of PPP loan eligible for forgiveness.
- Home office-related expenses do not qualify for forgiveness. Only qualified business rent, interest on mortgages and utility costs, if any, specific to the business and deducted on the Schedule C or business tax return and paid during the eight-week period are eligible for forgiveness.
- Partners in a partnership whose income is categorized as self-employment income on their Schedule K-1 may not submit a separate PPP loan application as a self-employed individual. Instead, the self-employment income of active partners may be included as a payroll cost, up to $100,000 annualized limit, on the PPP loan application of the partnership.
Many businesses have already received approval and funding. Unless Congress acts soon, the funds allocated to this program will not last much longer. If you have already submitted PPP loan applications, you must carefully weigh the risks of updating the application versus the additional dollars that these changes may offer.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
