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PPP Loan Forgiveness How To Use Owner Compensation Replacement

August 6, 2020

If you’re a sole proprietor, independent 1099 contractor, or gig worker who received a PPP loan it’s possible that 100% of your loan can be forgiven.  Here’s how.

PPP Loan Forgiveness Owner Compensation Replacement Video Transcript

hey everyone rodney goldston here and in

today’s video we’re going to be discussing

owner compensation replacement and full

ppp loan forgiveness

welcome to insights for impact this is a

place for entrepreneurs and people

looking to pick themselves to do work


matters for people who care now

let’s jump right into the owner

compensation replacement issues

so if you are a self-employed person or

a 1099 contractor

you now have the ability to use your pp

to get a ppp

loan and to use a portion of the


as a replacement for loss profit

using a concept called owner

compensation replacement

now when the loan first came out and

many people

still think of the loan as having to use


to pay salaries to keep your employees

on staff or employee however what


if you are a entrepreneur or solopreneur

or a sole proprietor what the government

has rolled out in april is this concept

called owner compensation replacement

now in light of the new ppp guidelines

what’s really interesting is that you

you may be able now to get the entire


folks the entire loan forgiven


without even having to anything with the

money other than leave it in your bank


where it landed the first time so let’s

dig in

owner compensation replacement what is


and how did it come to be so back in

april the u.s

treasury in the sba introduced this new

concept called

owner compensation replacement and the

reason they did it is because

we as self-employed people we don’t pay

ourselves to payroll

we don’t typically have employees we use

freelancers and

things like that 1099 contractors and

what this concept

allows the independent contractor or the

sole proprietor

to do is to simplify

and claim a portion of the loan

to make up for the lost income due to

covet 19.

so what you can do is you can use a

portion or all of the loan and i’ll

show you that later as income

replacement rather than to pay salaries

due to losses incurred through covet 19.

who can claim owner compensation


so it turns out that anyone who files a


schedule c qualifies to

file for owner compensation replacement

or ocr and it doesn’t matter folks

whether you have

employees or not how much

can you claim well

the ppp loans have a coverage period of

24 weeks

now over the 24 weeks you can claim two

and a half

months of your net profit for 2019 so

what you’re going to do

is you would look on your schedule c on

line 31

and that is your net profit reported on

the schedule c now assuming

uh your ppp loan did not include any

payroll expenses this will be equal to

the entire

ppp loan amount now the maximum

that you can get in a ppp loan is twenty


eight hundred and thirty three dollars

now if you receive the loan prior to

june 5th here’s the caveat if you

receive the loan prior to june

5th 2020 you can choose an eight-week

coverage period

if you receive the loan after june 5th

you have to use the 24 week

coverage period but my understanding is

that if you received it

prior to june 5th you can request


to use the 24-week coverage period if

that benefits you

so the way this works out is that you

can claim eight weeks worth

of uh 2019 net profit under

the eight week program and 10 weeks

net profit under the 24 week program

how do you claim owner compensation


so folks there’s no special conditions

for you to claim this you simply need to

transfer the money

out of your business account into your

personal account and i’ve even read some

things online

on some cpa websites that suggest you

don’t even have to transfer the money


you can just leave it there and fill out

the appropriate

easy forgiveness application to claim


owner compensation replacement benefit


be sure to check out my video when i

as i walk through completing the easy

application form to claim

the owner compensation replacement

benefit is owner compensation


free money yes essentially it is you can

treat the owner compensation replacement

as a grant or as personal income

and use it however you want now with the

updated guidelines as i’ve mentioned

early earlier it’s only allowing for

two and a half months worth of net


for the ocr so that means that your


ppp loan could be used for personal

purposes essentially it’s free money

how does owner compensation replacement

work with

pua or unemployment benefits

so because of the way these programs

were rolled out

and there are three main programs that

the government’s rolled out there’s uh


idol program e-i-d-l which you can check

out my video on that as well

there is uh pua or unemployment

for self-employed people and this ppp

loan or paycheck protection loan

but because of the way these are rolled

out in the guidelines things were kind

of murky

and you may have applied for

unemployment and got it

and then later applied for the ppp loan


the money ran out the first time really

quick and so you went ahead and applied

for unemployment

but now you’ve applied for the ppp loan

and you’ve got and

and it’s been granted to you so can you

have both the unemployment and the ppp

the ppp loan going on at the same time

and the

answer is yes you can

however you need to report

anything that you receive from the

paycheck protection

program to your state’s

unemployment office and they will

probably just

compensate or deduct from your


accordingly is owner compensation


taxable income so uh that’s a tough one

so and i’m going to read something here

this says while the cares act indicates

that forgiven ppp amounts are taxed

and can be treated like a tax-free grant

we believe this doesn’t clearly account

for the ocr or owner compensation


and is and its purpose as a substitute


actual income so until further guidance

is published we recommend working under

the assumption

that you will need to report the claimed


or owner compensation replacement as

personal income

on your 2020 tax return so

folks just be prepared because the the

sba and treasury

have not come out with a very clear


on how the ocr or owner compensation


will be considered is it considered

income for us or is it considered a loan

so if it’s considered income for the

sole proprietor or entrepreneur or


then you’re going to need to set aside

money to pay taxes in 2020

on your ppp loan

can you pay yourself a bonus to and the

answer to that question is

no you cannot pay yourself a bonus also

you’re going to be limited to just the

owner compensation replacement

up to the one hundred thousand dollar


salary cap now if you have already

completed your ppp loan and the funds

have been dispersed

and you’re looking to fill out the


application form be sure to check out my

video as i take you step

by step and free in uh fulfill for


out the ppp loan forgiveness form

and if you haven’t already don’t forget

to subscribe to the channel and if you

got anything out of this video please

give it a thumbs up if you didn’t go

ahead and give it a thumbs down

and let me know in the comments section

if this video was helpful how does

the owner compensation replacement work

with idle or the e-i-e-i-d-l

disaster loan one thousand dollar grant

so many of you may have applied for the

eidl disaster loan and the one thousand

dollar grant if you haven’t already you

can check out my video on how to do that

and i explain that program and go ahead

and let me know in the comments section

right now

if you applied for the eidl

a one thousand dollar grant yes or no

did you apply for or didn’t you now if

you happen to

have applied for this is going to be

very very important and you got it

this is very very important the one

thousand dollar grant

will be deducted from the amount of

money that you received in your pp

loan as forgivable so here’s what i mean

by that

if you apply for the ppp loan the

paycheck protection program

loan program and let’s say you were

granted twenty thousand.

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