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PPP Update: Owner Compensation, Payroll Costs, and Self-Rental Costs

September 24, 2020


The U.S. Small Business Administration (SBA) officially opened the Paycheck Protection Program (PPP) forgiveness application portal to lenders on Aug. 10, 2020. Some banks are accepting applications and borrowers are beginning to prepare loan forgiveness applications. Recent guidance provides significant clarifications regarding owner-compensation limitations, payroll costs, and self-rental costs.

Owner Compensation

The following chart summarizes the owner-compensation limitations:

Chart Graphic of 24 Week Owner Compensation Limitations

Limitation on Prepayment of Payroll Costs

The guidance clarified that a borrower’s group healthcare expenses and retirement benefits may not be accelerated from periods outside the applicable covered period. Therefore, borrowers will not be able to increase the eligible forgiveness costs by prepaying healthcare or retirement benefit costs.

Limitation on Eligible Self-Rental Costs

Any ownership in common between the business and the property owner is considered a related party for PPP purposes. The amount of loan forgiveness for rent or lease payments to a related party is limited to the amount of mortgage interest owed on the property during the covered period that is attributable to the space being rented by the business. Therefore, if the borrower does not have a mortgage on the property, the borrower will not be able to include any rental expense of the self rental. This treatment of self-rental costs is intended to produce equitable treatment between a business owner that holds property in a separate entity and one that holds the property in the same entity as its business operations. An open question remains: Would a 1% common interest preclude a self-rental deduction in its entirety? Additional clarification on this question is still needed.

We’re Here to Help

Katz, Sapper & Miller is here to answer your questions, assist with the calculation of eligible expenses for loan forgiveness, and help prepare the necessary documentation to support your loan forgiveness application. Please reach out to your KSM advisor for help or complete this form.

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