Owner Compensation Replacement and Full PPP Forgiveness

Editor’s note: On February 22, President Biden announced changes to the Paycheck Protection Program. One change allows the self-employed to apply using gross income so long as they file a Schedule C. Check out our video below for an overview and read our guide on How to Calculate Gross Income for the PPP.



If you’re self-employed and have a PPP loan, you can automatically claim a portion of the loan as a replacement for lost profit using a concept called Owner Compensation Replacement.

In light of new PPP guidelines, you may now be able to get the entire loan forgiven automatically. Here are the details on full loan forgiveness for self-employed folks.

Owner Compensation Replacement

In April 2020, the Treasury and the SBA introduced the concept of the Owner Compensation Replacement. Because self-employed individuals such as independent contractors and gig workers don’t pay themselves through payroll, this concept allowed them to simply claim a portion of their loan to make up for lost income due to COVID-19.

For loans approved after March 3, 2021 based on gross income, the portion you are allowed to take is called “owner compensation share” or “proprietor costs.”

Who can claim an Owner Compensation Replacement?

Anyone who files with a Form 1040 Schedule C can claim the OCR. It does not matter if you have employees or not.

Those who file with a Schedule F also qualify.

How much can I claim?

PPP loans have a covered period of up to 24 weeks. If you use a covered period of at least 11 weeks, you can claim 2.5 months’ worth of your 2019 or 2020 net profit, as reported on line 31 of your Schedule C. Assuming your PPP loan did not include other payroll expenses, this amount would be equal to your entire PPP loan.

For loans received in 2021 using gross income without payroll costs, you can take 2.5 months’ worth of your 2019 or 2020 gross income as reported on line 7 of your Schedule C. To do so, you must use a coverage period of at least 11 weeks.

For loans received in 2021 using gross income with payroll costs, you can take 2.5 months’ worth of your 2019 or 2020 gross income minus any payroll costs as reported on a Schedule C. You can find this by taking your gross income on line 7 and subtracting the payroll costs reported on lines 14, 19, and 26.

The maximum amount you can take for all calculation methods is $20,833.

How do I claim my Owner Compensation Replacement?

There are no special conditions to follow. You can simply transfer the appropriate amount to your personal bank account.

If your loan amount is $150,000 or less, you can use form 3508S to apply for forgiveness. You will only be required to certify you used the loan for OCR. Otherwise, include your OCR as “Payroll Costs” on line 1 of form 3508EZ or form 3508.

Is Owner Compensation Replacement free money?

Yes, essentially! You can treat the Owner Compensation Replacement as personal income and use it however you want. With guidance allowing for 2.5 months’ worth of net or gross profit as OCR, that means your entire PPP loan could be used for personal purposes.

However, depending on your business structure, you may be required to pay income tax on your OCR distributions.

How does Owner Compensation Replacement work with PUA or unemployment benefits?

The Owner Compensation Replacement will be considered to be income, so it’s not compatible with unemployment benefits or the PUA.

You will need to report your OCR over the entire covered period. If you’re claiming 2.5 months of OCR, that means you will need to report 2.5 months’ worth of net or gross income over a covered period of at least 11 weeks. If you want to claim your entire OCR, we do not expect you’ll be able to apply for forgiveness early (in other words, you’ll have to wait out a covered period of at least 11 weeks before applying).

After your PPP covered period, you can resume collecting unemployment benefits.

Further reading: How the PPP, EIDL, and PUA Work Together

Is Owner Compensation Replacement taxable income?

While the CARES Act indicates that forgiven PPP amounts aren’t taxed and can be treated like a tax-free grant, your OCR may be taxed as self-employment income. Consult with your CPA or tax professional before filing your taxes if you took OCR in 2020.

Can I pay myself a bonus too?

No. You are limited to just the Owner Compensation Replacement, up to the $100,000 annualized salary cap.

What if I have more than one business?

The Treasury has clarified that the compensation cap will apply across all businesses you have an ownership stake in. For example, if you received PPP loans for your sole proprietorship (where you claim OCR) and your S-Corp (where you are paid through payroll), your combined compensation cannot exceed $20,833.

The Treasury allows you to choose how to allocate the compensation amount among your businesses.

Additional PPP Resources

What’s Bench?

We’re an online bookkeeping service powered by real humans. With Bench, you get a dedicated bookkeeper and powerful reporting software for a crystal clear view of your financial health. All of our services are eligible expenses for PPP forgiveness, and we’ll even provide support in applying for the PPP (or getting that loan forgiven). Whatever happens next, we’re right there with you. Get started on a free trial today.


This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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