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Federal Register / Vol. 86, No. 43 / Monday, March 8, 2021 / Rules and Regulations
II. Comments and Immediate Effective Date This interim final rule is being issued without advance notice and public comment because section 1114 of the CARES Act and section 303 of the Economic Aid Act authorize SBA to issue regulations to implement the Paycheck Protection Program without regard to notice requirements. In addition, this rule is being issued to allow for immediate implementation of these changes. The intent of both the CARES Act and the Economic Aid Act is that SBA provide relief to Americas small businesses expeditiously. Given the urgent need to provide borrowers with timely relief and the short period of time before the program ends on March 31, 2021, SBA in consultation with Treasury has determined that it is impractical and not in the public interest to provide a 30-day delayed effective date. An immediate effective date will allow SBA to give small businesses affected by this interim final rule the maximum amount of time to apply for loans and lenders the maximum amount of time to process applications before the program ends.
This good cause justification also supports waiver of the 60-day delayed effective date for major rules under the Congressional Review Act at 5 U.S.C.
8082. Although this interim final rule is effective immediately, comments are solicited from interested members of the public on all aspects of the interim final rule.
These comments must be submitted on or before April 7, 2021. SBA will consider these comments and the need for making any revisions as a result of these comments.

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III. Paycheck Protection Program Revisions to Rules Implementing the Economic Aid Act 1. Gross Income The statutory definition of payroll costs applicable to sole proprietors and independent contractors refers to a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $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. 3 Previously, PPP rules defined payroll costs for individuals who file an IRS Form 1040, Schedule C as payroll costs if employees exist plus net profits, which is net earnings from self-employment.
SBA is aware of significant concerns 3 15

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with this definition, because it does not take into account fixed and other business expenses that a small business must cover to stay in operation and therefore keep the owner employed.
Thus, the support for employment for sole proprietors includes covering business expenses as well as net profits.
This change would affect many sole proprietors who have been effectively excluded from the PPP, especially those with very little or negative net profit, many of which are located in underserved communities. Businesses that file Schedule C have higher concentrations of ownership by members of underserved groups. An analysis by the SBA Office of Advocacy of Census data found that firms with no employees are 70 percent owned by women and minorities, compared to 40
percent for businesses with employees.4
SBA has determined that changing the calculation for sole proprietors, independent contractors, and selfemployed individuals will reduce barriers to accessing the PPP and expand funding among the smallest businesses.
Based on the statutory language of the CARES Act, SBA, in consultation with Treasury, has determined that SBA has discretion to establish an alternative calculation methodology for payroll costs for sole proprietors and independent contractors. For these borrowers, the statutory definition of payroll costs includes both income as well as net earnings from selfemployment. The inclusion of both these terms in the statutory language indicates that they may have different meanings. Therefore, the term income as used in the definition of payroll costs for sole proprietors and independent contractors may be construed broadly to encompass a borrowers net income and a borrowers gross income.
Defining income to include gross income is consistent with Congresss intent that the PPP provide broad relief to small businesses and keep individuals employed, and that the PPP
prioritize loans to, among others, small business concerns and entities in underserved markets, and small business concerns owned and controlled by socially and economically disadvantaged individuals and women.5
As described above, under the prior rules, many of these borrowers may not have received meaningful amounts from the PPP to support their own employment due to having small net 4 See A Look at Nonemployer Businesses, SBA
Office of Advocacy, August, 2018, A Look at Nonemployer Businesses sba.gov.
5 See 15 U.S.C. 636a36Piv.

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profits. Allowing a borrower to receive a loan amount based on their gross business income will provide the borrower a loan amount that is sufficient to meet the borrowers fixed expenses that are necessary to stay in business and keep the owner employed.
SBA is implementing this change with respect to PPP loans that are approved after the effective date of this rule. A
borrower whose PPP loan has already been approved as of the effective date of this rule cannot increase its PPP loan amount based on the new calculation methodology.
Therefore, SBA, in consultation with Treasury, has determined that a Schedule C filer may elect to calculate the owner compensation share of its payroll coststhat is, the share of its payroll costs that represents compensation of the ownerbased on either i net profit or ii gross income, as calculated under the rule below.6
Gross income is the amount the borrower reports on line 7 of Schedule C. If a Schedule C filer has no employees, the borrower may elect simply to calculate its loan amount based on either net profit or gross income. If a Schedule C filer has employees, the borrower may elect to calculate the owner compensation share of its payroll costs based on either i net profit or ii gross income minus expenses reported on lines 14
employee benefit programs, 19
pension and profit-sharing plans, and 26 wages less employment credits of IRS Form 1040, Schedule C. Expenses reported on lines 14, 19, and 26 of the IRS Form 1040, Schedule C represent employee payroll costs and are subtracted from the owner compensation share of payroll costs if the owner uses gross income to calculate its loan amount in order to avoid double-counting these costs.7 In the context of determining a borrowers eligible expenses and forgiveness amount, this interim final rule refers to the owner compensation share of a Schedule C filers loan amount as proprietor expenses. Proprietor expenses encompass an owners business expenses and own compensation but do not include employee payroll costs. This proprietor expenses calculation limits a Schedule 6 For a Schedule C filer without employees, owner compensation is the only component of the borrowers payroll costs. For a Schedule C filer with employees, owner compensation is added to employee payroll costs to determine the borrowers total payroll costs.
7 This is consistent with the approach for calculating payroll costs for farmers and ranchers in subsection B.4.d. of the consolidated interim final rule implementing updates to the PPP.

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