With the Small Business Administration’s (SBA) May 15 release of the new Payroll Protection Plan (PPP) Loan Forgiveness Application and Guidance, many of the questions surrounding which expenditures can be forgiven and how small businesses can maximize loan forgiveness have been clarified. For small business owners who pay themselves, as well as for sole proprietors, however, there are some additional nuances that require explanation in order to ensure eligibility for forgiveness of loan monies directed to these expenditures.

The basic guidelines for owner-employees

If you are an owner-employee or self-employed individual paying yourself less than $100,000 annually, you are eligible for forgiveness of an amount equal to eight weeks’ worth of your 2019 compensation. To determine this amount, you would multiple your 2019 wages as reported on your W2 by 8/52. Using this formula, the forgivable amount for owner-employee payroll is capped at $15,385 per person.

Key clarifications for maximum PPP loan forgiveness

The SBA’s Application certification specifies that the amount for which loan forgiveness is requested can “not exceed eight weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner…” This is a critical qualification that limits owner-employees to requesting forgiveness of loan monies spent on payroll for themselves to the level at which they paid themselves in 2019. In other words, owner-employees and sole proprietors who paid themselves $60,000 in 2019 cannot up it to $99,999 now to access a larger sum of forgivable PPP funding.

A further point of clarification for owner-employees and self-employed individuals is that only their payroll compensation is eligible for forgiveness—not their health insurance premiums, retirement contributions, or distributions of any kind. If your business is a sole proprietorship, please note that your 2019 compensation for the purposes of the PPP program is your Schedule C income.

All of these factors come into play as well when ensuring that you meet the required threshold of 75% of requested funds going towards payroll costs in order to be eligible for forgiveness.

As new information is released and new clarifications made, small business owners can keep up to date and ensure that they are maximizing the opportunities to access relief and be forgiven for PPP loans by referencing reliable sources and consulting with their trusted CPA firm.

As always, please feel free to use the Contact Us link below to reach out if you have any questions. We are always happy to help. Thank you, and have a restful holiday weekend.

Best regards,

Matt Brady, CPA
President

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