Additional Paycheck Protection Program Guidance

Today, the Treasury issued a final interim rule regarding the Paycheck Protection Program. The purpose of this rule is to provide additional guidance concerning the ownership percentage that triggers applicability of the owner compensation rule for forgiveness purposes and limitations on the eligibility for certain nonpayroll costs for forgiveness. 

Below is a summary of the final interim rule:

Owner Employee Compensation

• Owner employees with less than a 5% ownership stake in a C corporation or S corporation are not subject to the owner-employee compensation rule.
• The owner-employee compensation rule caps the amount of payroll compensation attributed to an owner-employee at $100,000 on a prorated basis. Previously, it was thought that all owner employees were subject to an eight week cap of $15,385 for an eight week covered period or a ten week cap of $20,833.
• It was also thought that health insurance and pension payments for all owner employees were not eligible for forgiveness. The new guidance seems to indicate that the payroll of employees owning less than a 5% interest will not be capped at $100,000 and health insurance and pension payments attributable to these owners can be included in the forgiveness computation.

Eligibility of Certain Nonpayroll Costs for Loan Forgiveness

• The amount of loan forgiveness requested for nonpayroll costs may not include any amount attributed to the business operation of a tenant or sub-tenant of the PPP borrower. Examples below illustrate the rule:
• A borrower that sublet a portion of their office building to sub-tenants cannot claim the full amount of the primary rent obligation for forgiveness purposes. Instead, they need to reduce their rent expense by the amount of the sublease. For example, a borrower rents an office for $10,000. They lease out a portion of the space for $2,500. Only $7,500 is eligible for loan forgiveness.
• A borrower has a mortgage on an office building and leases out a portion of the space. The portion of mortgage interest that is eligible for forgiveness is limited to the percent of the fair market value of the property that is not leased out to other businesses. For example, a borrower occupies 75% of the owned premises and leases 25% of the owned premises with total mortgage interest of $100,000. Mortgage interest eligible for forgiveness is limited to $75,000.
• A borrower shares space with another business. In determining the amount that is eligible for forgiveness, the borrower must prorate rent and utilities in the same manner as the borrower prorated rent and utilities on its 2019 tax filings.
• A borrower works out of his or her home. In determining non-payroll costs eligible for forgiveness, the borrower may only include amounts for which they received a deduction on the 2019 tax filings.
• Rent payments to a related party are eligible for forgiveness. The amount of loan forgiveness permitted is no more than the mortgage interest owed on the property during the covered period that is attributable to the space being rented by the business. Any ownership in common between the business and the property is a related party relationship for purposes of this rule.
• Mortgage interest payments to a related party are not eligible for forgiveness.

We are anticipating additional guidance. We will provide updates as new information is released.

Contact your Whittlesey advisor with questions or assistance with determining or filing for PPP forgiveness.