Last week we posted information about how the PPP loan forgiveness calculation works at: https://www.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….