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Federal Register / Vol. 86, No. 43 / Monday, March 8, 2021 / Rules and Regulations
any amounts paid to any individual employee in excess of $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred, and any amounts paid to any employee whose principal place of residence is outside the United States; and c. 2019 or 2020 employer contributions to employee group health, life, disability, vision and dental insurance portion of IRS Form 1040, Schedule C line 14 attributable to those contributions; retirement contributions IRS Form 1040, Schedule C, line 19;
and state and local taxes assessed on employee compensation primarily under state laws commonly referred to as the State Unemployment Tax Act or SUTA from state quarterly wage reporting forms.
ii. Step 2: Calculate the average monthly amount divide the amount from Step 1 by 12.
iii. Step 3: Multiply the average monthly amount from Step 2 by 2.5.
iv. Step 4: Add the outstanding amount of any EIDL made between January 31, 2020 and April 3, 2020 that you seek to refinance. Do not include the amount of any advance under an EIDL COVID19 loan because it does not have to be repaid.
You must supply your 2019 or 2020
whichever you used to calculate your loan amount IRS Form 1040, Schedule C; Form 941 or other tax forms or equivalent payroll processor records containing similar information; and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 whichever you used to calculate your loan amount or equivalent payroll processor records, along with evidence of any retirement and health insurance contributions, if applicable. A payroll statement or similar documentation from the pay period that covered February 15, 2020
must be provided to establish you were in operation on February 15, 2020.
b. Subsection B.11.b of the consolidated interim final rule implementing updates to the PPP 86 FR
3692, 3704 is revised to read as follows footnotes are not restated:
b. How can PPP loans be used by individuals with income from selfemployment who file an IRS Form 1040, Schedule C? 80
The proceeds of a PPP loan are to be used for the following:
i. For borrowers that use net profit to calculate loan amount, owner 80 This subsection was originally published at 85
FR 21747, subsection III.1.d. April 20, 2020 and has been modified to conform to the Economic Aid Act.

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compensation replacement, calculated based on 2019 or 2020 using the same year that was used to calculate the loan amount net profit as described in subsection B.4.b. For borrowers that use gross income to calculate loan amount, proprietor expenses business expenses plus owner compensation, calculated based on 2019 or 2020 using the same year that was used to calculate the loan amount gross income as described in subsection B.4.b this amount cannot exceed $20,833. For borrowers who used gross income to calculate the loan amount and have no employees, proprietor expenses equal gross income.
For borrowers who used gross income to calculate the loan amount and have employees, proprietor expenses equal the difference between gross income and employee payroll costs.
ii. Employee payroll costs as defined in subsection B.4.g. of the consolidated interim final rule implementing updates to the PPP for employees whose principal place of residence is in the United States, if you have employees.
iii. Mortgage interest payments but not mortgage prepayments or principal payments on any business mortgage obligation on real or personal property e.g., the interest on your mortgage for the warehouse you purchased to store business equipment or the interest on an auto loan for a vehicle you use to perform your business, business rent payments e.g., the warehouse where you store business equipment or the vehicle you use to perform your business, and business utility payments e.g., the cost of electricity in the warehouse you rent or gas you use driving your business vehicle. You must have claimed or be entitled to claim a deduction for such expenses on your 2019 or 2020 whichever you used to calculate loan amount IRS Form 1040, Schedule C for them to be a permissible use. For example, if you did not claim or are not entitled to claim utilities expenses on your 2019 or 2020
IRS Form 1040, Schedule C, you cannot use the proceeds for utilities.
iv. Interest payments on any other debt obligations that were incurred before February 15, 2020 such amounts are not eligible for PPP loan forgiveness.
v. Refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020 maturity will be reset to PPPs maturity of two years for PPP
loans made before June 5, 2020 unless the borrower and lender mutually agree to extend the maturity of such loans to five years, or PPPs maturity of five
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years for PPP loans made on or after June 5.81
vi. Covered operations expenditures, as defined in section 7Aa of the Small Business Act, to the extent they are deductible on IRS Form 1040, Schedule C.
vii. Covered property damage costs, as defined in section 7Aa of the Small Business Act, to the extent they are deductible on IRS Form 1040, Schedule C.
viii. Covered supplier costs, as defined in section 7Aa of the Small Business Act, to the extent they are deductible on IRS Form 1040, Schedule C.
ix. Covered worker protection expenditures, as defined in section 7Aa of the Small Business Act, to the extent they are deductible on Form IRS
1040, Schedule C.82
c. Subsection B.13 of the consolidated interim final rule implementing updates to the PPP 86 FR 3692, 3706 is revised to read as follows:
13. Limited safe harbor with respect to certification concerning need for PPP
loan request.87
The CARES Act requires each applicant applying for a PPP loan to certify in good faith that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing obligations of the applicant. SBA, in consultation with Treasury, issued additional guidance concerning how SBA will review the required good-faith certification. See FAQ 46 as originally posted May 13, 2020. This guidance included a safe harbor providing that any PPP borrower, together with its affiliates, that received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith. In light of the additional flexibility being provided to certain borrowers to use their gross income amount, as reported on line 7 of IRS Form 1040, Schedule C, borrowers that elect to use gross income to calculate their maximum loan amount 81 Under section 7a36Q of the Small Business Act, as amended by section 341 of the Economic Aid Act, an EIDL loan used for purposes other than paying payroll costs and other eligible PPP
expenditures is not considered a duplication of the assistance available under the PPP.
82 Items vi. through ix. were added to conform to section 304 of the Economic Aid Act. These provisions are effective as if included in the CARES
Act and apply to any loan made before, on, or after December 27, 2020, including forgiveness of such loan, unless SBA has remitted a loan forgiveness payment to the lender on the PPP loan.
87 This subsection has been added to codify the safe harbor contained in FAQ 46 posted May 13, 2020.

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