PPP loan forgiveness app Sch A line 9

Does line 9 on Sch A include s corp shareholder/employee wages?

Yes. It says owner-employees.

I'm not sure I agree. The Instructions for PPP Schedule A Line 9 references Interim Final Rule on Additional Eligibility Criteria and Requirements for Certain Pledges of Loans posted on April 14, 2020 (85 FR 21747, 21749).

https://www.govinfo.gov/content/pkg/FR-2020-04-20/pdf/2020-08257.pdf

This interim final rule supplements the First PPP Interim Final Rule with guidance for individuals with self-employment income who file a Form 1040, Schedule C. This rule also addresses eligibility issues for certain business concerns and requirements for certain pledges of PPP loans. This interim final rule supplements SBA’s implementation of sections 1102 and 1106 of the Act and requests public comment.

It is in this Rule that the reference to 8/52 of 2019 payroll limitation for "owner employee" as well as not including health insurance and retirement plan contributions is found. This entire document is directed towards Schedule C applicants and partners. Anywhere that the term "employee" is used, never is there a statement to not include corporate owner/employees.

This is an important distinction. I hope Night snorkeler is right.

I just read some other commentary that seems to indicate that line 9 -"owner-employees" include S corp owner employees.

It would be nice to have a clear direction on this issue (don't know why they couldn't spell this out in the instructions).

Line 9: Enter any amounts paid to owners (owner-employees, a self-employed individual, or general partners). This amount is capped at $15,385 (the eight-week equivalent of $100,000 per year) for each individual or the eight-week equivalent of their applicable compensation in 2019, whichever is lower. See Interim Final Rule on Additional Eligibility Criteria and Requirements for Certain Pledges of Loans posted on April 14, 2020 for more information (85 FR 21747, 21749).

That first sentence seems clear.

I just read some other commentary that seems to indicate that line 9 -"owner-employees" include S corp owner employees.

I was quite certain this was correct with my tax hat on. But people in the banking field with their banker hat on are quite certain it is the opposite.

Why can't they just say what they mean?

Line 9: Enter any amounts paid to owners (owner-employees, a self-employed individual, or general partners). This amount is capped at $15,385 (the eight-week equivalent of $100,000 per year) for each individual or the eight-week equivalent of their applicable compensation in 2019, whichever is lower. See Interim Final Rule on Additional Eligibility Criteria and Requirements for Certain Pledges of Loans posted on April 14, 2020 for more information (85 FR 21747, 21749).

That first sentence seems clear.

It would seem so, but... §401(3)(c)

Owner-employee. --The term “owner-employee” means an employee who--

(A)  owns the entire interest in an unincorporated trade or business, or

(B)  in the case of a partnership, is a partner who owns more than 10 percent of either the capital interest or the profits interest in such partnership.

To the extent provided in regulations prescribed by the Secretary, such term also means an individual who has been an owner-employee within the meaning of the preceding sentence.

But again... the above is limited

"--For purposes of this section--"

What was once very clear is now not so clear... to me.

Also, look at the referenced SBA guidance. The first guidance issued on 4/2 addressed businesses except for Schedule C owners' compensation and partners' compensation. Nowhere in here was there a limitation on wages based on comparison to 2019, nor was there any mention of health and retirement plan expenses for "owners".

https://www.govinfo.gov/content/pkg/FR-2020-04-15/pdf/2020-07672.pdf

Then came the guidance on 4/14 which is directly related to Schedule C income and partner income. This is where the 2019 limitation is found, as well as the disallowance of health and retirement for owners...in the description of owner compensation replacement (Schedule C profit, for example):

https://www.govinfo.gov/content/pkg/FR-2020-04-20/pdf/2020-08257.pdf

i. Payroll costs including salary, wages, and tips, up to $100,000 of annualized pay per employee (for eight weeks, a maximum of $15,385 per individual), as well as covered benefits for employees (but not owners), including health care expenses, retirement contributions, and state taxes imposed on employee payroll paid by the employer (such as unemployment insurance premiums);
ii. owner compensation replacement, calculated based on 2019 net profit as described in Paragraph 1.b. above, with forgiveness of such amounts limited to eight weeks’ worth (8/52) of 2019 net profit,

This guidance is directed specifically at non-employees.

I am definitely not 100% positive that I am correct here...however I do believe that I am, and will not be surprised if further clarification comes out supporting this.

Concerning The SBA Form 3508 . Why can't a more simple and direct form be issued by the SBA. Looks like form 3508 was written by a Math PHD-LOL

See 3c beginning on page 11. It appears that line 9 schedule A would include S corp shareholder employees.
https://home.treasury.gov/system/files/ ... veness.pdf

Work the form, clearly yes.

It appears that line 9 schedule A would include S corp shareholder employees

From 3c:

Code: Select all

In particular, owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement and health care contributions made on their behalf.

So according to this if an employee owns ANY portion of the company they work for, they are now "owner-employees"? No 2% floor? No exclusion for employees who received .000001% of C-Corp stock?

I still don't even see where they are coming up with this limitation from the official guidance they released earlier. What about a salesman who was hired in January 2020 to replace one who retired in 2019. As part of their sign-on they received a .00001% share of stock in the company. According to this Q&A this employee's wages would not count?

What is the significance of whether line 9 on Sch A include s corp shareholder/employee wages or not?

Sorry if this is a dumb question. I have not started looking into these PPP regulations until a client asked me questions about it lately.

Go here and search for shareholder or stockholder: https://www.govinfo.gov/content/pkg/FR- ... -08257.pdf
I couldn't find anything relevant. This document only seems to be referring to Sched C and Partnership owners.

Also, read (copied below) irc section 401(c)(3):
(3)Owner-employee The term “owner-employee” means an employee who—
(A)owns the entire interest in an unincorporated trade or business, or
(B)in the case of a partnership, is a partner who owns more than 10 percent of either the capital interest or the profits interest in such partnership.
To the extent provided in regulations prescribed by the Secretary, such term also means an individual who has been an owner-employee within the meaning of the preceding sentence.

Doesn't seem S-Corp shareholders (owners) who receive a w-2 would be put on line 9 or be limited to 8 weeks worth of 2019 compensation.

BTW - what is 2019 compensation? W-2 box 1? 3? 5? What about Sched 1125-E where column f is titled compensation, yet includes cash compensation (box 5) PLUS taxable fringe benefits like established health plan premiums (effectively box 1)?

What is the significance of whether line 9 on Sch A include s corp shareholder/employee wages or not?

I think because if you add them to line 9, their PPP forgiveness amount would be limited to " eight weeks’ worth of 2019 compensation". However, I argued in my prior post they might not be on line 9, but on line 1, instead.

This ↑

What is the significance of whether line 9 on Sch A include s corp shareholder/employee wages or not?

I think because if you add them to line 9, their PPP forgiveness amount would be limited to " eight weeks’ worth of 2019 compensation". However, I argued in my prior post they might not be on line 9, but on line 1, instead.

If this is the case, why is there a differentiation between owner-employees and Schedule C filers and general partners in the recent guidance as far as retirement contributions and health insurance goes?

In particular, owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement and health care contributions made on their behalf. Schedule C filers are capped by the amount of their owner compensation replacement, calculated based on 2019 net profit. General partners are capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235. No additional forgiveness is provided for retirement or health insurance contributions for self-employed individuals, including Schedule C filers and general partners, as such expenses are paid out of their net self-employment income.

This feels like Kramer on Movie-phone.... "Why don't you just tell us what an owner-employee is?"....

I think you're right, but I've read the tea leaves wrong so many times on this deal that I'm going to keep having my owners pay themselves up to the 100K prorated limit until I'm told otherwise. We can always scale back their salaries the rest of the year, so we're just paying some FICA tax earlier than usual.

This quote is from https://www.govinfo.gov/content/pkg/FR-2020-04-20/pdf/2020-08257.pdf. It is the first time that the 8/52 rule came up, and is specifically directed at self-employed individuals. Nowhere else is the 8/52 rule mentioned, until the SBA put out the loan forgiveness application and included the term "owner-employee", with no explanation as to what that term includes. Somebody somewhere connected two dots that weren't supposed to be connected is what I believe. I've still not seen anyone provide a source that this rule applies to shareholder-employees, other than instructions...and when do we ever rely on those?

The Administrator, in consultation with the Secretary, has determined that it is appropriate to limit the forgiveness of owner compensation replacement for individuals with self-employment income who file a Schedule C to eight weeks’ worth (8/52) of 2019 net profit. This is most consistent with the structure of the Act and its overarching focus on keeping workers paid, and will prevent windfalls that Congress did not intend. Congress determined that the maximum loan amount is based on 2.5 months of the borrower’s payroll during the one-year period preceding the loan. Congress also determined that the maximum amount of loan forgiveness is based on the borrower’s eligible payments—i.e., the sum of payroll costs and certain overhead expenses—over the eight-week period following the date of loan disbursement. For individuals with self-employment income who file a Schedule C, the Administrator, in consultation with the Secretary, has determined that it is appropriate to limit loan forgiveness to a proportionate eight-week share of 2019 net profit, as reflected in the individual’s 2019 Form 1040 Schedule C. This is because many self-employed individuals have few of the overhead expenses that qualify for forgiveness under the Act. For example, many such individuals operate out of either their homes, vehicles, or sheds and thus do not incur qualifying mortgage interest, rent, or utility payments. As a result, most of their receipts will constitute net income. Allowing such a self-employed individual to treat the full amount of a PPP loan as net income would result in a windfall. The entire amount of the PPP loan (a maximum of 2.5 times monthly payroll costs) would be forgiven even though Congress designed this program to limit forgiveness to certain eligible expenses incurred in an eight-week covered period. Limiting forgiveness to eight weeks of net profit from the owner’s 2019 Form 1040 Schedule C is consistent with the structure of the Act, which provides for loan forgiveness based on eight weeks of expenditures. This limitation will also help to ensure that the finite appropriations are directed toward payroll protection, consistent with the Act’s central objective. Finally, 75 percent of the amount forgiven must be attributable to payroll costs for the reasons specified in the First PPP Interim Final Rule.

"Why don't you just tell us what an owner-employee is?"....


Maybe we don't want to know. Let's just keep it mystery. We completed the loan application and received funding using 2.5x SH/EE wages capped at $100K + health + retirement. We will keep it consistent when we apply for forgiveness.