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PPP loan forgiveness and payroll: Can you give yourself a raise?

Brittany De Lea

Small business owners who received Paycheck Protection Program cash from the federal government have had many questions about the terms of the loans, including whether they can give themselves a raise in order to allocate a larger percentage of the money toward payroll expenses.

While the government is working on potentially making the program’s terms more flexible, the CARES Act stipulated that the loan had to be used within 8 weeks of its deposit – and 75 percent of the cash had to be put toward payroll expenses.

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Those two factors combined posed a challenge for many business owners, some of whom had already laid off employees while others were working at a fraction of normal capacity or were shut down entirely.

“In essence, there’s kind of an inherent math problem,” L.J. Suzuki, the founder of CFOShares.org, told FOX Business.

And in an interim ruling last month, the government implemented a cap on owner and self-employed individuals’ allowable payroll compensation.

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The amount of forgiveness requested cannot exceed the eight-week equivalent of $100,000 per year, which is $15,385, or the eight-week equivalent, about 15.38 percent, of his or her 2019 pay, whichever is lower.

The cap is applied “in total across all businesses.”

Health care expenses and retirement contributions made by Schedule C filers, like general partners and self-employed individuals, and general partners are ineligible for forgiveness since they are paid out of net self-employment income.

A business owner could give employees raises or bonuses, but the forgiveness limit is a maximum of $100,000 per employee on an annualized basis.

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Both houses of Congress have approved legislation that would extend the time that business owners have to use their PPP loans to 24 weeks, from 8 weeks. It would also reduce the amount required to be put toward payroll expenses to 60 percent, from 75 percent. In order to become law, the bill needs President Trump’s signature.

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