The revised rule allowing practice owners to include up to $20,833 of their compensation towards the PPP loan forgiveness calculation extends to S-Corp owners too. Previously, owner comp was capped at $15,385, which is a max salary of $100k divided by 52 weeks multiplied by 8 for the Covered Period.
Your salary only qualifies for this higher limit if you will base your PPP Loan forgiveness calculation on the 24-week Covered Period per the revised instructions:
Owner Compensation: Enter any amounts paid to owners (owner-employees, a self-employed individual, or general partners). For a 24-week Covered Period, this amount is capped at $20,833 (the 2.5-month equivalent of $100,000 per year) for each individual or the 2.5-month equivalent of their applicable compensation in 2019, whichever is lower. For an 8-week Covered Period, this amount is capped at 8/52 of 2019 compensation (up to $15,385).
But this is for earned income, right? This would not include K-1 passive income. What are your thoughts on this?
Yes, it?s based on earned income only. Partners who get K1s would base on the self-employment income as reflected on the K1. Sole proprietors would base the calculation on their 2019 Schedule C net income.
In the beginning I believe I read the health insurance cost for a Sub S owner/employee was not part of the capped amount. Now I am reading it is included in the capped amount. Is that correct?
Also, I had an employee who worked part time starting in late January of 2020. I let him go when we had to shut down. I had no plans to hire him back. Do I still have to count him in my FTE’s for the covered period? During the covered period I had 2 FTE’s. Including the part time employee, I had 2.4 FTE’s during the 1st Qtr of 2020. He was a .4 FTE. I thought maybe I could use the Feb.15th-June 30th 2019 alternate reference period. I had 3 FTE’s then but one of them was forced to quit in August of 2019. With him quitting would I have to count him as an FTE if I used that reference period? He isn’t even available to work. He is actually in jail. Thank you for any help you could possibly give me. I am so confused.
How did they calculate the $20833? As an owner of a company, I make less than $100,000 and I’m trying to apply the calculation to my 2019 salary so I can enter the correct amount on my forgiveness form. But when I take $100,000 divided by 52 weeks x (2.5 months = 10 weeks) 10 weeks = $19231. I can’t figure out how the SBA comes up with $20833 = 2.5 months of $100,000 salary.
Robin, you can’t combine weeks and months. For owners it is based on months. $100,000 / 12 * 2.5 = $20,833.
For the salaries paid to the business owners, the calculation was changed to $100,000/ 12 months * 2.5 months if that business is choosing to with the 24-week Covered Period. The way the calculation worked when there was only an 8-week Covered Period, a self-employed person with no staff and who didn’t pay any rent would qualify for $20,833 of PPP funds of which only $15,385 would be forgiven. $15,385 is calculated as $100,000 / 52 weeks * 8 weeks. Hope this helps.
So I am a little confused. My husband and I are both 50/50 owners. Our 8 week amount is less than the full loan so we were wanting to do the 24 week. When we do 24 weeks we are at 52k or 26k each which is more than the $20,833. are we not eligible to do 24 weeks because we are over? Or is it that we can only claim $41,666 Max for the two of us (putting this number on line 1 of the 3508EZ??) OR do I take my 24 week amount and divide it by 6 and multiply it by 2.5 to get the amount?? Sorry they worded this really strange and made it confusing. Thanks!
Hi Stephanie, Can you let us know what type of entity you are using for your practice (Schedule C, S-Corp, Partnership, etc). Thanks,
I am a sole proprietorship with no employees. I applied for PPP using form 2483 (where I listed myself as an employee) and received a small PPP loan based on my 2019 schedule C. If I want to take advantage of owner compensation (OCR) forgiveness – becuase I don’t have payroll – what is the required documentation? Just a copy of my 2019 schedule C? I did not submit a copy when I applied – at least I don’t remember doing so. Thanks.
Hi Jason, we recommend you reach out to your Lender (or the Lender who is servicing your loan). They can advice you on the specifics they’ll require from you.
Confused on the K1 for PPP 2.0 for S Corps.
For PPP 2.0, on the Average Monthly Payroll Calculation for S Corps, can you add in K1 amounts up to 100K for owners of 20% or more?
Yes, partners can include their income as reflected on their K1s per page 8 of the instructions available at: https://www.sba.gov/document/support-second-draw-ppp-loans-how-calculate-revenue-reduction-maximum-loan-amounts-including-what
2019 Schedule K-1 (IRS Form 1065) Net earnings from self-employment of individual U.S.-based general partners that are subject to self-employment tax, multiplied by 0.9235,11 up to $100,000 per partner;
• Compute the net earnings from self-employment of individual U.S.-based general partner that are subject to self-employment tax from box 14a of IRS Form 1065 Schedule K-1 and subtract (i) any section 179 expense deduction claimed in box 12; (ii) any unreimbursed partnership expenses claimed; and (iii) any depletion claimed on oil and gas properties.
• if this amount is over $100,000 for a partner, reduce it to $100,000;
Thank you for the clarification. I believe for the PPP we can determine period of loan (vs 8 week or 24 week). If this is true, can we put 11-week period and collect the full 20,833 owners draw?
If owner of S Corp did not have a W-2 for half of 2019 but did have a W-2 in 2020 completely. Is his salary eligible for this second loan as a payroll cost. In the first PPP loan we did not include his weekly check as part of payroll cost. Would that change in this second round?
Hi , I am a self employed and I was granted the full amount of PPP loan for the first draw which is $20,833 but I’m confused on how to pay myself under the 24 weeks coverage , some people are saying 2.5 equal to 10 weeks and other says it’s 11 weeks of pay . Please help how much should pay myself weekly ? Thx
Hello, I recently was awarded a PPP loan as a self-employed individual. I am trying to figure out how to pay myself owner compensation. I want to use 100% of the loan on owners’ compensation, but I am confused about how many weeks I can pay myself. For instance, some youtube videos say 8-weeks. That I must pay myself in 8-weeks, others say 11-weeks and others 10-weeks. This isn’t very clear. Can you please help clear this up? Thank you!.
I would like to know if borrower (S Corp) can claim it’s owner-employee’s share of employer pension plan contributions and employer provided health insurance premiums in addition to cash compensation of $20,833 for PPP loan forgiveness.
If the owner of a small business put the PPP loan aside and paid himself and his employees weekly from the company’s liquid assets, can he claim any Ownership Compensation Replacement?
Hi Judy, Yes, even if you didn’t specifically use the PPP funds you set aside to pay payroll costs as well as your compensation, you can claim those costs towards the PPP loan forgiveness.