After nearly two weeks without new guidance on PPP loan forgiveness, the SBA released a new interim final rule on August 24. This includes three important points pertaining to owners and forgiveness of certain nonpayroll costs.
Key Points: PPP Interim Final Rule
1. Owners exempt from the PPP owner-employee compensation rule
As seen in previous guidance, wages paid to owner-employees are limited to a lesser amount than non-owner employees. For example, the $20,833 wage cap towards forgiveness rather than $46,154 if using the full 24-week covered period.
Under the new interim final rule, owner-employees with less than 5% ownership are no longer subject to this rule. Per SBA, this change is designed to cover owner-employees with no influence over loan proceed allocation.
2. Pro-rating certain nonpayroll costs for forgiveness
For nonpayroll costs, a borrower must prorate expenses that count towards forgiveness if space is shared with another business, sub-tenant of the borrower, or for a home-based business.
For example, if a borrower rents an office building for $10,000 per month but subleases a portion of the space to other businesses for $2,500 per month. In this case, only $7,500 per month is eligible for loan forgiveness.
Similarly, if a borrower works out of his or her home, they may only include the share of covered expenses that were deductible on the borrower’s 2019 tax filings, or if a new business, the borrower’s expected 2020 tax filings.
3. Rent payments to a related party
Rent payments to a related party may be eligible for loan forgiveness as long as:
- The amount of loan forgiveness requested for rent or lease payments to the 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
- Both the lease and mortgage were entered into prior to February 15, 2020.
As long as rent or lease payments to a related party meet these criteria, they may be considered eligible expenses. However, mortgage interest payments to a related party are not eligible for forgiveness.
You can find more information on the interim final rule on the SBA website here. For more COVID-19 business support, be sure to check out our COVID-19 Resources Hub and Return to Work Plus package. And don’t forget to follow us out on Facebook, Twitter, and LinkedIn for even more business tips & tricks!