The SBA has published a couple of new loan forgiveness applications the long form and the EZ form. Along with those applications came instructions and it’s there that we will find some new information that is worth discussing.
The applications both say that the health insurance contributions for owner-employees, Sch C, partners should not be included in the payroll cost calculation. It also says that the retirement plan contributions for that same group of folks should not be included in the payroll costs. This has been an area where better guidance has been needed because of conflicting information. It seems this would settle it once and for all, that they won’t be included.
Another area of interest is how much payroll cost could an owner-employee, Sch C, partners include with the change from 8 weeks to a 24 week covered period. It seems we now have the answer. For the 8 week period those folks are limited to $15,385 or 8 weeks worth of their 2019 compensation, whichever is lower. If they are using the 24 week period they are limited to $20,833 or 2.5 months worth of their 2019 compensation, whichever is lower. It might seem like limit is too tight on the 24 week period, but the logic does make sense for the owner-employee to be more limited than an employee would be.
The employees are limited to $46,154 which is $100k pro rated to 24 weeks of pay. For the owner-employees the restriction is tighter because the purpose of the PPP was to keep the employees on payroll, not to pay the owners more. The PPP loan was based on 2.5 months of payroll for that owner so they are only going to let you count 2.5 months worth to make sure the spirit of the law is followed. Based on the $100k maximum the math works out to be the $20,833 limit for 2.5 months of payroll.
There are a lot of other changes in the loan forgiveness applications, but they are otherwise more in the category of updates than changes. There are updates for the 24 week covered period. There are updates for the new safe harbor provisions that came out regarding the FTE reduction limitation. In general it seems everything is coming together finally. I expect to see more FAQs come out, but with these new loan forgiveness applications I think we are on track with understanding most of the questions that can arise to help taxpayers get towards achieving 100% loan forgiveness.
For more guidance and information, please contact any our Leadership Team.