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PPP Loans: What Is Owner Compensation Replacement & How Does It Work?

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Chris Motola

Chris Motola

Finance Writer at Merchant Maverick
Chris Motola is a writer, programmer, game designer, and product of NY. These days he's mostly writing about financial products, but in a past life he wrote about health care and business. He's a graduate of the University of Central Florida.
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6 Comments

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    Sheree Saleem

    If I am self employed with no employees do I pay myself or not

      Jessica Dinsmore

      Hi Sheree,

      Yep! The short answer is:

      “…your 2019 net profit is used to determine your monthly average net profit. The Owner Compensation Replacement rule allows you to allocate 2.5 monthsโ€™ worth of net profit to personal compensation.

      This amount is considered forgivable, meaning you wonโ€™t be expected to pay it back. Better yet, there are no restrictions on how you can spend that portion of your funds.”

      But please refer back to the article for more specifics and calculations.

        Christine

        Do I have to pay income tax on the Owner compensation Replacement?

          Erica Seppala

          Hi Christine!

          PPP loans that are used for eligible purposes and are forgiven are not taxable. This includes Owner Compensation Replacement.

            Diana

            So, if you are the owner and you have employees that work for you and they get W2s, that means you are not a sole propieter. So, therefore, you cant use ppp loan to compensate. CORRECT????

              Jessica Dinsmore

              Hi Diana,

              The term sole proprietor really just refers to the business structure, meaning that there is one sole owner who is the responsible party. A sole proprietorship can have employees, and the owner can receive compensation as well. We breakdown the payroll calculation in this post on PPP Loans For Sole Proprietors. Does that help? I hope so!

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