Partners’ Self-Employment Income Now Qualifies as “Payroll Costs” for PPP Loans

The Small Business Administration issued additional guidance on April 14th, titled Interim Final Rule – Additional Eligibility Criteria and Requirements for Certain Pledges of Loans.  Included in this guidance is the expansion of the term “payroll costs” for the purposes of calculating the loan amount of Paycheck Protection Program (PPP).  “Payroll costs” for a partnership now include the self-employment income of general active partners up to $100,000 annualized ($8,333 maximum for average monthly comp).  Prior to this guidance it appeared that there would be an inequity in how partners in a partnership would be treated compared to shareholders of a corporation, sole proprietors and independent contractors, as the CARES Act and Interim Final Guidance did not include a partner’s self-employment income or guaranteed payments in the definition of “payroll costs”.  While this guidance does now allow for partnerships to include these amounts in average monthly “payroll costs”, it may have been issued too late as many partnerships have already filed their PPP applications.