Last week the SBA issued additional guidance regarding who is considered an owner for purposes of determining compensation that is eligible for forgiveness as well as the types of rent that are considered qualifying nonpayroll costs.
Owners
Owners of C or S Corporations with less than a 5% interest will be exempt from the owner-employee compensation rule when determining the amount of compensation eligible for forgiveness.
The significance of this update allows less than 5% owners of Corporations to increase their forgivable payroll costs to $46,154 from $20,833.
In addition less than 5% owners of S Corporations can also increase their forgivable payroll costs by the cost of health insurance while both types of entities with less than 5% owners can increase their forgivable compensation in the event their 2019 compensation was less than $100,000 if it increased in 2020.
One should note that the guidance is silent as it relates to partners in this regard, so one can not assume that the 5% threshold applies to partnerships.
Qualifying Rent Costs
Although the SBA relaxed the eligibility rules for less than 5% owners they tightened the rules regarding eligible rent costs as follows.
In situations where a Company has a subtenant, only the portion of the square footage that is not subleased is considered an eligible cost.
If a Company leases it premises from a related party that owns the property, the eligible rent costs are limited to the interest costs of the mortgage on the underlying property where the Company is using the property.
In situations where someone is working out of their home, the amount of nonpayroll costs eligible for forgiveness is limited to the share of covered expenses that were deductible on the 2019 tax filings, or if it is a new business, the amount that is expected to be deducted on the 2020 tax filings.