Q&A: Payroll Support to Air Carriers and Contractors

Updated as of December 16, 2020

Following are answers to frequently asked questions regarding the Payroll Support Program under 

Division A, Title IV, Subtitle B of the Coronavirus Aid, Relief, and Economic Security (CARES) 

Act. Applicants to the Payroll Support Program whose applications are approved by the Treasury

Department enter into a Payroll Support Program Agreement (“Agreement”), a form of which is 

available https://home.treasury.gov/system/files/136/Form-of-PSP-Agreement.pdf

1) Are air carriers or contractors subject to a court-supervised bankruptcy proceeding 

eligible to receive assistance under the Payroll Support Program?

Applicants for the Payroll Support Program subject to a court-supervised bankruptcy 

proceeding may be eligible under certain conditions. Such an applicant will be asked to 

provide additional information to enable the Treasury Department to evaluate whether the 

applicant will be able to satisfy its obligations in the program and is eligible as an air carrier or 

contractor under the statutory definitions. Treasury may also request a written statement from 

the applicant regarding its ability to comply with the terms of the program and a reorganization 

plan, if any.

If the Treasury Department determines that an applicant’s bankruptcy does not create a 

material risk that it would be unable to satisfy its obligations in the program or that it would 

cease to be eligible as an air carrier or contractor, the applicant may be approved, subject to 

certain additional conditions. These include requirements that payroll support funds be kept 

in a segregated bank account, that the account receive no more than one-sixth of the total 

awardable amount at any one time, and that certifications of compliance be provided before 

receiving disbursements of payroll support.

2) Is compensation that air carriers and contractors pay to independent contractors eligible 

to be included in the calculation of awardable amounts?

No. For applicants that do not transmit reports to the Department of Transportation under 14 

CFR 241, the CARES Act provides that the calculation of the awardable amount includes only 

the amount of wages,salaries, benefits, and other compensation that the air carrier or contractor 

paid the employees of such air carrier or contractor between April and September 2019. 

Independent contractors are not employees of the company, so amounts paid to independent 

contractors are not eligible for payroll support, and recipients may not use payroll support 

funds to pay independent contractors.

3) Air carrier or contractor applicants that are eligible for payroll support may have 

subsidiaries or be under common ownership with other legal entitiesthat provide services 

to the applicant. May such subsidiaries or affiliated entities receive payroll support or 

be included in the calculation of awardable amounts?
Only legal entities that are individually eligible for payroll support may receive payroll support 

or be included in the calculation of awardable amounts. Each individual legal entity will be 

evaluated for eligibility as an air carrier or contractor, and for applicants that do not transmit 

reports to the Department of Transportation under 14 CFR 241, the awardable amount can only 

include the amount of wages, salaries, benefits and other compensation that an eligible air 

carrier or contractor paid the employees of such air carrier or contractor between April and 

September 2019. Affiliated entities that are not themselves eligible air carriers or contractors, 

as defined in the CARES Act, cannot be included, regardless of whether they are under 

common ownership with, or provide services to, an eligible air carrier or contractor.

4) Does the Agreement prohibit dividends or other capital distributions for the purposes of 

paying tax liabilities of air carrier or contractor recipients that are organized as passthrough entities for tax purposes?

No. A Payroll Support Program participant that is an S-corporation or other tax pass-through 

entity may pay dividends or make distributions to the extent reasonably required to cover its 

owners’ tax obligations in respect of the entity’s earnings. Such distributions must be subject 

to an annual reconciliation, with any surplus or deficiency to be deducted from or added to 

distributions, as applicable, in the following year.

5) Over what time period should the compensation limitations in Section 8 of the Agreement 

be calculated?

Section 8 of the Agreement imposes certain limits on compensation for employees of a Payroll 

Support Program participant whose total compensation exceeded $3 million in 2019. 

Consistent with section 4116(a)(3) of the CARES Act, this limitation applies with respect to 

compensation during any 12 consecutive months during the period beginning March 24, 2020, 

and ending March 24, 2022.

6) Will applications that were submitted after the deadline be considered?

The Treasury Department does not expect to consider applications for the Payroll Support 

Program from passenger air carriers or contractors that were submitted after the April 27, 2020 

deadline, which was set in guidance issued by the Treasury Department on March 30, 2020, 

because available program funds are expected to be exhausted based on applications that were 

submitted before the deadline. However, the Treasury Department may consider applications 

for the Payroll Support Program from cargo air carriers that were submitted after the April 27, 

2020 deadline, due to remaining available funds.

7) The Agreement prohibits Payroll Support Program recipients and their affiliates from 

purchasing an equity security of the recipient or any parent company that is listed on a 

national securities exchange. What is a “parent company” for this purpose?

Under section 4114 of the CARES Act and section 5 of the Agreement, neither a Payroll 

Support Program recipient nor any of its affiliates may, in any transaction, purchase an equity 

security of the recipient or of any direct or indirect parent company of the recipient that, in 

either case, is listed on a national securities exchange. For purposes of this restriction, “parent 

company” means any company that consolidates the recipient for purposes of financial 

reporting, such as under rules of consolidation established by the Securities and Exchange 

Commission or U.S. generally accepted accounting principles.