PPP loans offer a potential for the entire loan to be forgiven, tax-free. “It’s hard as a business owner to make those adjustments,” he said. John owns 2% or more of ABC LLC and earns $98,000 a year in salary. Checklist 2020 Planning Follow Through: You Have More Work To Do. . The cap on your combined S corporation and proprietorship loan forgiveness attributable to (a) your employment in the S corporation and (b) your profits from the proprietorship is $20,833. This language also provides a good review of the rules that are discussed above: Employee Benefits: The total amount paid by the Borrower for: This above underlined language is not included in the main Loan Forgiveness Application, and we know of no reason why, unless it is a drafting error to include it in the EZ Application, or it was an error not to include it in the non-EZ Application. The stock basis would be increased by the portion of the loan that was forgiven, and that increase would flow through to the shareholders. Time any 2019 Pension Contributions. 3. If you operate your business as a partnership or an S or C corporation, you face entity-specific Payroll Protection Program (PPP) loan forgiveness rules that apply to you as an owner-worker in the business. Employer state and local taxes paid by the borrower and assessed on employee compensation (e.g., state unemployment insurance tax), excluding any taxes withheld from employee earnings. Assuming that the company had significant other payroll so that it’s PPP loan was much more than $100,000, one would have assumed that either 8/52nds or 20.833% (2.5 divided by 12) of John’s entire $100,000 amount would count as forgiveness, but the new modified interim rules indicate that such forgiveness will be limited to not exceed a pro-rata portion of his 2019 earnings. The government puts you, as owner-worker, in a separate “owner-employee” category to limit your business’s PPP benefits. Business Owners Who Took PPP Will Get to Deduct Expenses After All On Dec. 21, Congress finally delivered the news that struggling business owners were waiting for: … Please feel free to send questions on this topic to agassman@gassmanpa.com and put “Those Dang Employee-Owner Rules” in the subject line so that we can either answer you directly or cover your questions in our free webinar. This can be interpreted to mean that at least 8/52, or 24/52 (as applicable), of the 2020 annual pension costs can be considered as paid toward forgiveness, whether paid or not during the 8-week or 24-week period, since the expense was incurred during that period but would likely have to be paid in the normal course prior to filing the Loan Forgiveness Application to get credit for such costs. F. ORGIVENESS . Q) Can an owner of S Corp increase salary to maximize forgiveness? I write about tax, estate and legal strategies and opportunities. I am a board-certified estate planning and trust lawyer who practices at Gassman, Crotty & Denicolo in Clearwater, Florida. I have an LL.M. Copyright © 2002-2020 Barefoot Accounting, PA. All Rights Reserved. The SBA could have required employers to measure how much of each retirement plan contribution for 2019 was attributable to salaries above the $100,000 annualized limit, but this would have been extremely complicated and would have significantly lowered the PPP loans going to many companies who are already struggling to maintain their pension benefits, let alone keeping the same number of workers on the payroll. S Corp owner comp forgiveness. Specifically, the interim final rule establishes that owner-employees with less than a 5% stake in a C or S corporation are exempted from the PPP owner … S Corp owner comp forgiveness. $15,385 for borrowers who received a PPP loan before June 5, 2020, and elected to use an eight-week covered period. I am a board-certified estate planning and trust lawyer who practices at Gassman, Crotty & Denicolo in Clearwater, Florida. Spouse Owns S Corporation. Practitioners have asked whether tax-exempt cancellation of debt income from a PPP loan increases basis. As with all owner-employees, the PPP loan and its forgiveness for “compensation” are capped at $15,835 under the eight-week covered period and $20,833 under the 24-week covered period. If you pay … Many Loan Applications were filed to include health insurance costs above the limit on cash compensation, and now such borrowers may have a mismatch between what loan amount they received and the amount that can be forgiven. SBA revised the PPP’s owner-employee compensation rule addressing the amount eligible for forgiveness to exempt employees who own less than 5% of a C-corp or S-corp borrower, determining that owner-employees at this threshold cannot meaningfully influence decisions about the use of PPP loan proceeds. Government Clarifies PPP Loan Forgiveness for the Self-Employed, Thinking of Moving to a Lower-Tax State? 11. For purposes of health insurance in an S corporation, however, the attribution rules apply to employees who are related to owner-employees who have more than a 2 percent stake in the business. I have an LL.M. The rules provide no hint as to what an “owner-employee” is, but we can assume that this is any person who has an ownership interest in the borrower company of any size, and that this will not include the spouse or another family member of the owner who might work for the company. If a 24-month testing period applies, then the total combined wages and health insurance allowable for an employee shareholder will be $20,833, and excess insurance costs will not be counted towards forgiveness. We are presenting a free 30 minute webinar on “PPP Loan Forgiveness Issues for Owner-Employees of S and C Corporations” on Tuesday, June 23 at 10:30 AM EDT. This may be confusing because when you applied for the PPP loan, S-Corp owner/employees were allowed to include this in their calculations for loan, but not on the forgiveness … A borrower entered into a five-year lease for its retail space in March 2015. The PPP guidance does … SBA Form 3508S (10/20) Page 1 . S Corporations: The employee cash compensation of an S-corporation owner-employee, defined as an owner who is also an employee, is eligible for loan forgiveness up to the amount of 2.5/12 of their 2019 employee cash compensation, with cash compensation defined as it is for all other employees. What Is An Owner-Employee and What Can Be Done to Avoid this Limitation? One unanswered question is whether or not this limitation applies to spouses or other relatives of the owner. Employer contributions for employee health insurance, including employer contributions to a self-insured, employer-sponsored group health plan, but excluding any pre-tax or after-tax contributions by employees. Significance of “$100k” Cap in PPP Loan Application and Forgiveness Calculations. Reminder: The $20,833 cap is based on the maximum defined compensation of $100,000 divided by 12 and then multiplied by 2.5. “That PPP money — I still haven’t received anything about forgiveness. The loan forgiveness application incorporates the 8/52 limitation described in the April 20 IFR in line 9 of the PPP Schedule A. , as owner-worker, in a separate “ owner-employee ” subject to PPP. Reminder: the $ 20,833 cap is based on 2019 net profit line of... Bank Account for my business as an owner ’ s PPP benefits Corporations? puts... 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