What are considered payroll costs for PPP loan forgiveness?

Eligible Payroll Costs

Eligible payroll costs for PPP include salary, wage, commission, or similar compensation.

We recommend using your 941 form, 940 or 944 form, 1120-S form, 1040 - Schedule C form, or payroll documentation to determine your compensation amount.

Note: Exclude employees earning over $100,000 and non-U.S. employees.

Non-eligible Payroll Costs

• Compensation of employees whose principal place of residence is outside of the U.S
• Any compensation paid to an employee that exceeds an annual salary of $100,000 (as prorated during the payment period or payment obligation period)
• Payments made to independent contractors
• Federal taxes imposed or withheld (including under chapters 21 (FICA), 22 (Railroad Retirement Act), and 24 (employee withholdings) of the IRS code
• Qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act

SBA guidance may provide additional eligible expenses.  All payroll calculations should comply with SBA guidance.

How to calculate PPP payroll costs by business entity type

Determine whether your business classifies as a regular, seasonal, new business, sole proprietorship, or other business with a unique payroll period.  Use the timeframe recommended below to calculate your monthly average payroll costs. 

• U.S. Small Businesses: The applicable period for an established small business is (1) calendar year 2019 or (2) calendar year 2020.  If your business is not self-employed, you may also use the prior 12 months
  • First Draw, New Small Business: Businesses formed after June 30, 2019, that apply for First Draw may use one of the above methods, or Jan 1, 2020, through Feb 29, 2020 (2 months)
  • Second Draw, New Small Business: Businesses not in operation for all of Feb 15, 2019, to Feb 15, 2020, should use all of the months in operation from 2019 through the end of 2020 to determine their average monthly payroll
• Seasonal Employers: The applicable period for a seasonal employer that only operates during certain parts of the year is any 12-week period, at the applicant’s discretion, between Feb 15, 2019, and Feb 15, 2020 (3 months)
• Not an Employer: The applicable period is a full 2019 calendar year unless you are a seasonal employer or new business. The income for sole-proprietors is reported on your Schedule C (line 31). If you have filed a Schedule C and 944 forms, add line 31 from Schedule C to lines 1 and 2 from the 944 form

A few special rules apply to farmers and ranchers, and fishing boat owners.  Please visit the SBA’s PPP page for guidance on those rules if you believe they may apply. 

Totaling average payroll costs

Add all of your eligible payroll costs together over your applicable period and divide them by the applicable period. Of note, Bluevine will do this for you in your PPP application based on your inputs.

Tip: Remember to exclude non-eligible payroll costs including employees earning over $100,000 and non-U.S. employees.

How Bluevine calculates your pre-approved PPP loan

Bluevine calculates your pre-approved PPP loan with a simple equation using the inputs you provided for your average payroll costs in your PPP application. 

• We take your average payroll costs and multiply them by 2.5—or 3.5 for restaurants and hotels applying for Second Draw¹  
• If you file taxes using Schedule C (e.g., sole proprietors and single-member LLCs), you have the option to calculate your loan based on net profit or gross income:
  • Gross Income: You can use gross income only if you’ve applied after Mar 3, 2021. Your eligible PPP loan amount is based on Schedule C, line 7
  • Net Profit: Your eligible PPP loan amount is based on Schedule C, line 31 

Under the rare circumstance that you received an applicable EIDL loan, we then add the current outstanding balance of EIDL.

For more information on how to estimate first draw loan amounts, review the SBA's How to Calculate First Draw PPP Loan Amounts article. 

For more information on how to estimate second draw loan amounts, review the SBA's How to Calculate Revenue Reduction and Maximum Loan Amounts Including What Documentation to Provide article. 

1 The 3.5x multiplier applies only to businesses falling under North American Industry Classification System Code 72.

The information, opinions, and advice in this post are provided for educational purposes only, and do not necessarily state or reflect those of Bluevine and/or its partners, including Celtic Bank. Neither Bluevine nor its partners are responsible for the accuracy of any content provided by author(s) or contributor(s). For information about Bluevine products and services, please visit the Bluevine FAQ page. For information about the Paycheck Protection Program, please visit the SBA’s page.