Paycheck Protection Program Loan Forgiveness: Treatment of Owners and Certain Nonpayroll Costs

New guidance has been issued by the US Small Business Administration (SBA) and Treasury Department regarding Paycheck Protection Program (PPP) loan forgiveness of owner-employee compensation and the eligibility of nonpayroll costs.

ppp loan forgivenessThe guidance states that owner-employees with less than a 5% ownership stake in a C- or S-corporation are not subject to the owner-employee compensation rule in calculating the amount of their compensation for loan forgiveness. This exemption is intended to cover owner-employees who have no meaningful ability to influence decisions over how loan proceeds are allocated.

In addition, the amount of loan forgiveness requested for nonpayroll costs may not include any amount attributable to the business operation of a tenant or sub-tenant of the PPP 6 borrower or, for home-based businesses, household expenses.

Rent or lease payments to a related party are eligible for PPP loan forgiveness if:

  • the amount of loan forgiveness requested for rent or lease payments to a related party is no more than the amount of mortgage interest owed on the property during the Covered Period that is attributable to the space being rented by the business, and
  • the lease and the mortgage were entered into prior to February 15, 2020.

However, mortgage interest payments to a related party are not eligible for forgiveness.

View the interim final rule on treatment of owners and forgiveness of certain nonpayroll costs.

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