PPP - Reduce Salary?

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bkeech17
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Joined: Mon Oct 31, 2011 4:17 pm

PPP - Reduce Salary?

Post by bkeech17 »

Lots of PPP posts with a lot of good info. But couldn't find exactly what I was looking for.

Single owner S-Corp here...just opened it in late 2019, and have been paying myself 2500/week. Since I didn't have a full year of payroll, I used Jan-Feb gross payroll to get my 2.5x amount for the loan application. Applied for and got approved for 21k. Yay.

My work is pretty steady, but there are times throughout the year when it's slow, so I figured the 100k max wouldn't really be an issue. However, after doing some more reading, it seems like they might be looking for that 100k max to be prorated during the 8 week period of using the funds. Meaning, the max I am allowed to pay myself during this 8 week period is 1923/week (100k divided by 52)

1923 x 8 = 15,384...so I'll be short by about 6k. I don't have much else that qualifies for forgiveness. A utility bill, some taxes, but not 6k worth.

So here are my questions...

1. Do I actually need to reduce my salary for the 8 week period?
2. If I opened a i401k after the date that the loan was funded, would contributions qualify as forgivable payroll expenses?

I know I can just re-pay the unused money or treat it as a low interest loan, just trying to stretch it as much as I can.

P.S. I asked my tax accountant these same questions...he seems to think that I don't need to reduce my salary during the 8 week period and I could just reduce it later in the year. I'm not confident that's correct.

Thanks in advance.
dsmil
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Re: PPP - Reduce Salary?

Post by dsmil »

I don't think that you need to reduce your salary for 8 weeks in order to be in compliance with the program, but your qualifying (and forgivable) costs will be limited to that $1,923 per week. So I think you'll have to pay back that $6k eventually.
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MP123
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Re: PPP - Reduce Salary?

Post by MP123 »

bkeech17 wrote: Fri May 08, 2020 12:19 pm
My work is pretty steady, but there are times throughout the year when it's slow, so I figured the 100k max wouldn't really be an issue. However, after doing some more reading, it seems like they might be looking for that 100k max to be prorated during the 8 week period of using the funds. Meaning, the max I am allowed to pay myself during this 8 week period is 1923/week (100k divided by 52)
That's likely the max you could get forgiven, but you could pay yourself more of course.

The guidance that has been provided for sole proprietors so far seems to exclude any i401 contributions from forgiveness. Whether that will carry for S-Corps too remains to be seen. You should open one anyway though, even if you can't use it to increase loan forgiveness.

You can't reduce any employee's salary more than 25% for forgiveness, although that's likely only if they're below the $100k cap. So going from $130k to $100k would likely be ok if you want to, but it might be best to just keep things as they are for now pending additional guidance.
Topic Author
bkeech17
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Re: PPP - Reduce Salary?

Post by bkeech17 »

Thanks guys. I guess I will just keep my salary as it was, and be ready to repay a portion of the loan.
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gasdoc
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Re: PPP - Reduce Salary?

Post by gasdoc »

bkeech17 wrote: Fri May 08, 2020 1:25 pm Thanks guys. I guess I will just keep my salary as it was, and be ready to repay a portion of the loan.
I agree.

gasdoc
Pdxnative
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Re: PPP - Reduce Salary?

Post by Pdxnative »

bkeech17 wrote: Fri May 08, 2020 1:25 pm Thanks guys. I guess I will just keep my salary as it was, and be ready to repay a portion of the loan.
Don’t forget that health insurance costs qualify for forgiveness as well, at least based on what guidance we’ve seen so far. Depending how much cash you have available, the idea of using retirement contributions to maximize forgiveness might make sense. Hopefully there’ll be additional guidance on this soon but if not you can decide whether to gamble on that. Worst case would be paying off a two year loan at 1% on that remaining balance.
BruDude
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Re: PPP - Reduce Salary?

Post by BruDude »

Pdxnative wrote: Fri May 08, 2020 11:22 pm
bkeech17 wrote: Fri May 08, 2020 1:25 pm Thanks guys. I guess I will just keep my salary as it was, and be ready to repay a portion of the loan.
Don’t forget that health insurance costs qualify for forgiveness as well, at least based on what guidance we’ve seen so far. Depending how much cash you have available, the idea of using retirement contributions to maximize forgiveness might make sense. Hopefully there’ll be additional guidance on this soon but if not you can decide whether to gamble on that. Worst case would be paying off a two year loan at 1% on that remaining balance.
Health insurance only can be forgiven if it’s a group health plan
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gasdoc
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Re: PPP - Reduce Salary?

Post by gasdoc »

BruDude wrote: Fri May 08, 2020 11:30 pm
Pdxnative wrote: Fri May 08, 2020 11:22 pm
bkeech17 wrote: Fri May 08, 2020 1:25 pm Thanks guys. I guess I will just keep my salary as it was, and be ready to repay a portion of the loan.
Don’t forget that health insurance costs qualify for forgiveness as well, at least based on what guidance we’ve seen so far. Depending how much cash you have available, the idea of using retirement contributions to maximize forgiveness might make sense. Hopefully there’ll be additional guidance on this soon but if not you can decide whether to gamble on that. Worst case would be paying off a two year loan at 1% on that remaining balance.
Health insurance only can be forgiven if it’s a group health plan
I am sure this is covered in another thread and I've missed it, but if a person tops out at the $100,000 / year cap, can you still add health insurance through a group health plan on top? I am guessing it is just part of the total income that falls under the cap and it can't be added. Your thoughts?

gasdoc
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cowdogman
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Re: PPP - Reduce Salary?

Post by cowdogman »

I agree with all the above. I'm paying myself $3,000/week--round number and over $20,832, just in case the rules change again.

I haven't looked into the rules as they apply to S corps, but assuming you are covered by the April 14 guidance then benefits for employees who are owners are excluded.
Pdxnative
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Re: PPP - Reduce Salary?

Post by Pdxnative »

gasdoc wrote: Sat May 09, 2020 8:43 am
BruDude wrote: Fri May 08, 2020 11:30 pm
Pdxnative wrote: Fri May 08, 2020 11:22 pm
bkeech17 wrote: Fri May 08, 2020 1:25 pm Thanks guys. I guess I will just keep my salary as it was, and be ready to repay a portion of the loan.
Don’t forget that health insurance costs qualify for forgiveness as well, at least based on what guidance we’ve seen so far. Depending how much cash you have available, the idea of using retirement contributions to maximize forgiveness might make sense. Hopefully there’ll be additional guidance on this soon but if not you can decide whether to gamble on that. Worst case would be paying off a two year loan at 1% on that remaining balance.

Health insurance only can be forgiven if it’s a group health plan
I am sure this is covered in another thread and I've missed it, but if a person tops out at the $100,000 / year cap, can you still add health insurance through a group health plan on top? I am guessing it is just part of the total income that falls under the cap and it can't be added. Your thoughts?

gasdoc
I believe current guidance is that the 100k cap applies only to cash compensation/salary; health benefits and retirement can then be added on top. This matches the language of the law but contradicts the confusing/confused initial guidance from SBA, which suggested the cap applied to all payroll costs.
Pdxnative
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Re: PPP - Reduce Salary?

Post by Pdxnative »

cowdogman wrote: Sat May 09, 2020 9:02 am I agree with all the above. I'm paying myself $3,000/week--round number and over $20,832, just in case the rules change again.

I haven't looked into the rules as they apply to S corps, but assuming you are covered by the April 14 guidance then benefits for employees who are owners are excluded.
I haven’t seen the limitation on owner-employee benefits. Was that an SBA doc?
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MP123
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Re: PPP - Reduce Salary?

Post by MP123 »

As mentioned by @cowdogman above, the 4/14 guidance is pretty clear that Schedule C owners can't include benefits for themselves on top of the $100k.
f. What amounts shall be eligible for forgiveness?

The amount of loan forgiveness can be up to the full principal amount of the loan plus
accrued interest. The actual amount of loan forgiveness will depend, in part, on the total
amount spent over the covered period on:
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);
It's not clear yet whether that will also apply to S-Corp owners.

Edit to add: here's a link to the full text https://www.sba.gov/document/policy-gui ... dges-loans
Pdxnative
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Re: PPP - Reduce Salary?

Post by Pdxnative »

MP123 wrote: Sat May 09, 2020 1:04 pm As mentioned by @cowdogman above, the 4/14 guidance is pretty clear that Schedule C owners can't include benefits for themselves on top of the $100k.
f. What amounts shall be eligible for forgiveness?

The amount of loan forgiveness can be up to the full principal amount of the loan plus
accrued interest. The actual amount of loan forgiveness will depend, in part, on the total
amount spent over the covered period on:
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);
It's not clear yet whether that will also apply to S-Corp owners.

Edit to add: here's a link to the full text https://www.sba.gov/document/policy-gui ... dges-loans
Got it, thanks. I’ve been ignoring the schedule c guidance as we’re an s corp, and so far there have been differences in how they’re treated. Yep, we’ll have to wait and see but excluding employee-owner benefits for s corps would depart from early guidance as well as the law.
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