Last week we posted information about how the PPP loan forgiveness calculation works at: https://schwartzaccountants.com/2020/05/ppp-forgiveness-guidelines-finally-issued.
Included in that post was the following vague guidance from the SBA about how certain employee benefits factor into the forgiveness calculation. The line numbers below refer to the applicable line on the Paycheck Protection Program Loan Forgiveness Application.
- Line 6: Enter the total amount paid by the Borrower for 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.
- Line 7: Enter the total amount paid by the Borrower for employer contributions to employee retirement plans, excluding any pre-tax or after-tax contributions by employees.
- Line 8: Enter the total amount paid by the Borrower for employer state and local taxes assessed on employee compensation (e.g., state unemployment insurance tax); do not list any taxes withheld from employee earnings.
Benefits for Practice Owners?
There is still quite a bit of confusion regarding which of these employee benefits paid on behalf of practice owners will count toward the forgiveness calculation. It seems that the online consensus feels that while S-Corps can include health insurance premiums and retirement plan contributions for their owner-employees over and above their salaries capped at $15,385 for the 8-week Covered Period, the same doesn?t apply to self-proprietors.
Assuming that?s the case, please pay the health insurance premiums for you and other covered staff during the 8-week Covered Period. And for your retirement plan contributions, according to Alex Oliver, CFP, CRPS (https://www.fncadvisor.com/team/alex-e-oliver):
As a fiduciary to many retirement plans at First National Corporation, we have received many questions about which expenses qualify for forgiveness within the Paycheck Protection Program (PPP) loans. [It?s our understanding that] the IRS has confirmed in their Frequently Asked Questions installments that ?payment of any retirement benefit? will qualify.
This would include a match, profit sharing contribution, or cash balance plan contribution. This provides a great opportunity for business owners with sufficient cash flow to make partial payments of 2020 contributions during the 8-week period after you received your loan. Keep in mind that PPP forgiveness requires that 75% of the loan be used on payroll costs and retirement plan contributions do fall within this bucket.
Please also note that the terms of the PPP loans have continued to be a moving target. Thus, we encourage you to evaluate your cash flow closely when determining your partial payment amount.
Sooner or later the SBA should provide us with more specific guidelines about how to factor these employee benefits into your loan forgiveness calculation. Stay tuned?.
Does the 2019 profit sharing contribution paid in June 2020 (within our six week period) Qualify for loan forgiveness. Is it $$$ divided by 12 times 2.5?
Thank you so much.
Hi Jo Anne,
The SBA has confirmed in their Frequently Asked Questions installments that ?payment of any retirement benefit? will qualify for forgiveness within the Paycheck Protection Program (PPP) loans. This would include a match, profit sharing contribution, or cash balance plan contribution.
This provides a great opportunity for business owners with sufficient cash flow to make partial payments of 2020 contributions during the 8 week period after you received your loan. Keep in mind that PPP forgiveness requires that 75% of the loan be used on payroll costs and retirement plan contributions do fall within this bucket.
Please also note that the terms of the PPP loans have continued to be a moving target. Thus, we encourage you to evaluate your cash flow closely when determining your partial payment amount
In an LLC, are partner/owner (receive a K1)healthcare benefits a “forgivable” payroll expense or is it only limited to employees who receive a W2? Same question for retirement plan contributions? Thanks.
According to the PPP Loan Forgiveness guidance, healthcare and retirement plan benefits are only considered forgivable if paid for by the borrower on behalf of an employee (W-2 employee). As an owner, unless you are on payroll and considered a W-2 employee, unfortunately these amounts will not be considered forgivable. The silver lining to this is that the new PPP Loan Forgiveness legislation (Paycheck Protection Program Flexibility Act) that was signed into law extends the covered period from 8 weeks to 24 weeks, and reduces the requirement for the percentage of money to be spent on payroll costs from 75% to 60%. These significant changes will allow most companies to get most, if not all of their PPP loans forgiven.
Are PPP funds eligible for forgiveness if they are used for health plan costs for furloughed employees?
It?s our understanding that employers can use the health plan costs paid on behalf of furloughed employees. According to the revised rules:
The total amount paid by the Borrower for employer contributions for employee health insurance and employer-sponsored group health plans excluding any pre-tax or after-tax contributions by employees are considered payroll costs that qualify for forgiveness . It is important to note that these payments are subject to limitation of $100,000 of annualized pay per employee, which equates to $15,385 per individual during the eight-week covered period (if elected), and $46,154 per individual under the new 24-week covered period.
It is also important to note that the amount forgiven may be less depending on whether the Borrower?s average weekly number of full-time equivalent employees during the covered period or the alternative payroll covered period was less than the Borrower?s chosen reference period. (See PPP Schedule A). Keep in mind, however, that there are now 2 safe harbors available to help out businesses that were forced to close temporarily.
Our company pays the healthcare premiums for a company sponsored plan. The company pays the premiums directly to Covered-California/Kaiser. Can we include this cost? If So, what line do we use on the Calculation Section?
Does the amount only included what the company contributes on the employees behalf or the total bill paid to the group coverage? Also is it for all health benefits or just medical? As in dental and vision too?
Hi Maureen, Benefits for paid for staff count towards the PPP Loan Forgiveness calculation. For practice owners, whether these employee benefits count is determined by the entity type as follows:
According to the SBA on Page 4 of the information available at: https://home.treasury.gov/system/files/136/PPP–IFR–Revisions-to-Loan-Forgiveness-Interim-Final-Rule-and-SBA-Loan-Review-Procedures-Interim-Final-Rule.pdf:
S-corporation owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement contributions made on their behalf, but employer health insurance contributions made on their behalf cannot be separately added because those payments are already included in their employee cash compensation.
Schedule C filers are capped by the amount of their owner compensation replacement, calculated based on 2019 net profit. For self-employed individuals, including Schedule C filers and general partners (see below), retirement and health insurance contributions are included in their net self-employment income and therefore cannot be separately added to their payroll calculation.
General partners are capped by the amount of their 2019 net earnings from self-employment reduced by claimed section 179 expense deduction and unreimbursed partnership expenses.
For PPP loan forgiveness, if the payroll costs from compensation already exceed the loan amount, then do we need to report the employer contribution to health insurance?
I know non-payroll costs do not need to be reported but wasn’t sure about employer’s share of the health insurance costs.