For an 8- You can grumble about this tweak to the statute. Owners Are any individuals with an ownership stake in a PPP borrower exempt from application of the PPP owner-employee compensation rule when determining the amount of their Loan forgiveness for owner-employee compensation is … As with any owner-employee, the PPP loan and its forgiveness for “compensation” is capped at $15,385 under the eight-week covered period and $20,833 under the 24-week covered period. Only Hard Part of 3508S Application. In that IFR, the SBA confirmed that PPP loans could include “owner compensation replacement.” However, the IFR also included a new cap on forgiveness “calculated based on 2019 net profit * * *, with forgiveness of such amounts limited to eight weeks’ worth (8/52) of 2019 net profit.” For example, total owner compensation is capped at $15,385 (8-week LFCP/APCP) and $20,833 (24-week LFCP/APCP) across all businesses. Yes, owner-employees with less than a 5 percent ownership stake in a C- or S Corporation are not subject to the owner-employee compensation rule. Rather than spending on payroll, self-employed individuals get their compensation reimbursed and forgiven without having to spend it on anything. An owner’s compensation includible in Payroll Costs is the lesser of $15,385 or the 8-week equivalent of their 2019 compensation. 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. The PPP allows loan forgiveness for payroll costs — including salary, wages, and tips — for up to $100,000 annualized per employee, or $15,385 per individual over the eight-week period. It can obtain full forgiveness in 11 weeks using the calculated self-employment income of up to $20,833 for each partner. SBA Revised Owner-Employee Compensation Rule. Your loan amount should be equal to this number times 2.5. PPP Loan Forgiveness: The 24-week extension of the PPP Loan forgiveness period has also increased the maximum forgiveness cap for payroll costs per individual for eligible businesses with employees. The SBA PPP Additional Guidance provides specific rules relating to the eligibility of owner compensation from a sole proprietorship for loan forgiveness (“Owner Compensation Replacement”). For any owner who also owns (under the SBA’s definition of “owner”) another entity which is a PPP loan borrower, the total compensation paid to that employee eligible for forgiveness is $20,833 ($15,385 if the borrower elects an 8-week covered period). 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. Explore. On August 24, 2020, the Small Business Administration (SBA) released a new interim final rule (IFR) regarding permitted forgiveness of loans made under the Paycheck Protection Program (PPP). The maximum amount of loan forgiveness you can claim as compensation per individual owner or partner is $20,833 (which … S Corporations. Tip: You can grab a pdf copy of a filled-out form here: PPP-Loan-Forgiveness-Application-Form-3508S. The current PPP Forgiveness Application asks all borrowers to certify as follows: if a 24-week covered period applies, the forgiveness amount requested does not exceed 2.5 months’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $20,833 per individual; and owner compensation rule for forgiveness purposes and limitations on the eligibility of certain nonpayroll costs for forgiveness. Given the 2.5 multiplier in the calculation of maximum PPP loan amount in SBA Form 2483, this per-individual maximum would only be reached if the borrower had reduced its FTEs but was eligible for an exemption (safe harbor) from the resulting reduction in forgiveness. Changes from the previous PPP forgiveness application include: A generally extended Covered Period, with options depending on when the loan was received; New caps on payroll costs and owner compensation replacement; An adjusted limitation ratio for payroll vs. non-payroll costs The new 24-week limit and other changes to PPP Loans means changes in calculating payroll costs, and thus the amount of loan forgiveness. 24 Week Owner Compensation Replacement Owners (includes “owner-employees, a self-employed individual, or general partners” and is presumed to include C Corp and S Corp shareholders and independent contractors, as well): Prorated portion of $100,000 cash compensation is $20,833 (2.5/12 x 100,000) for a 24-week covered period. Owner-Employee Compensation for C- or S-Corporation Shareholders. The loan forgiveness formula limits owner compensation replacement to 8/52 nd s of what the owner earned in 2019. Limitation on Owner’s Compensation – All eligible wages or self-employed income are limited to an annualized amount of $100,000. ... A concept called owner compensation replacement was introduced to help answer that exact question. if a 24-week Covered Period applies, the forgiveness amount requested does not exceed 2.5 months’ worth of 2019 compensation for any owner-employee … Owner compensation replacement. This new guidance provides relief for corporations with owner-employees who own less than 5 percent of the corporation but restricts forgiveness for certain rent and mortgage interest. This is called “owner compensation replacement.” Previously issued guidance has imposed several limitations on the inclusion of owner-employee compensation in a borrower’s forgiveness application. Owner-Employee Compensation Rules In our prior advisory , we discussed the cap on the ability of borrowers to obtain forgiveness on payments made to “owner-employees”. questions ppp forgiveness about owner compensation limit " Borrowers using 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. Related: Navigating the Twists in PPP’s Loan Forgiveness Rules. As a sole proprietor, your loan is based on your 2019 net profit divided by 12 – this is what gets you to a monthly average net profit. It can obtain full forgiveness in 11 weeks using the calculated self-employment income of up to $20,833 for each partner. Your Guide to PPP Loan Forgiveness. The new interim final rule establishes the 24-week maximum for full loan forgiveness at $46,154 per individual. Reminder . The Forgiveness Application adds another limitation specific to owners. As noted above, we have applied forgiveness caps applicable to individual employee compensation. Four PPP Forgiveness Answers for S-Corp Owner-Employees Tax law definitions do not apply to much of the Payroll Protection Program (PPP), making it new ground for owners of S corporations. Owner Compensation: Enter any amounts paid toowners (owner-employees, aself-employed individual, or general partners). Owner compensation replacement calculations Filing for Forgiveness. The Problem: If your LLC is structured as a corporation and received a PPP loan despite having not paid yourself payroll in 2019, the owner compensation paid during the covered period may not be eligible for forgiveness, based on the definition of owner-employees for C & S Corporations described above. The only hard part of the 3508S application? Here are answers to four questions of concern to many S corporation owners. Reminder. 1. PPP loan forgiveness is pretty easy for self-employed borrowers with no employees. When discussing rehires, there is an exemption to the reduction of PPP forgiveness IF their salary level is restored by June 30th of 2020. There are different caps that apply to owner-employee compensation. Capped the owner payroll to the appropriate limit–probably the lower of either 2.5 months’ of 2019 compensation or $20,833. The SBA issued rules Tuesday night for determining payroll costs and owner compensation in calculating PPP loan forgiveness under the new 24-week covered period. You can use the entirety of your PPP loan proceeds for owner compensation and still qualify for loan forgiveness—as long as your owner compensation doesn’t exceed $20,833 for the 24-week covered period (or $15,385 for the eight-week covered period). The $20,833 cap is based on the maximum defined compensation of $100,000 divided by 12 and then multiplied by 2.5. Self-employed with no employees can spend the full $20,833 as owner compensation replacement and it will be eligible for 100% forgiveness if proper documentation is provided with PPP Forgiveness … As with any owner-employee, the PPP loan and its forgiveness for “compensation” is capped at $15,385 under the eight-week covered period and $20,833 under the 24-week covered period. The current Paycheck Protection Program Forgiveness Application asks all borrowers to certify as follows: if a 24-week Covered Period applies, the forgiveness amount requested does not exceed 2.5 months’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $20,833 per individual; and But how does this impact the way you file for PPP forgiveness? Owner-employees, self-employed individuals and partners are eligible for loan forgiveness on the basis of their 2019 compensation. 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