owner employee compensation
The following individuals should use the owner-employee regulations to calculate their eligible payroll costs for forgiveness. This includes
- Independent contractors
- Self-employed individuals
- Sole proprietors
- Farmers and ranchers
- Owners who owned 5% or more of a S-Corp or C-Corp
The eligible payroll costs are the lessor of:
- Owner-employee cap of $20,833
- $100,000 prorated over the Covered Period
- 2019 or 2020 salary prorated over the Covered Period
- Compensation costs during the Covered Period
Owners should not be included in the calculated of employee cash compensation even if they are paid through payroll. Owner-employee compensation is capped based on the same year (2019 or 2020) that was used to calculate the PPP loan amount.
If a business is a startup and was in business on or before February 15, 2020 the owner’s compensation can be based on net income earned for January and February 2020, or the entire calendar year of 2020.
The following table provides the type of form that should be used to calculate owner replacement compensation for each type of legal entity as well as whether or not you can include the owner-employee’s employer-paid benefits and retirement contributions.
|Legal Entity||Form||Line||Employee-Paid Insurance||Employer-Paid Retirement|
|Independent contractors||Schedule C||Line 31||No||No|
|Self-employed Individual||Schedule C||Line 31||No||No|
|Sole proprietors||Schedule C||Line 31||No||No|
|Partnerships||Form K-1||Line 12/14/18||No||No|
|Farmers and Ranchers||Schedule F||Line 34||No||No|
|S-Corp||Form W-2||Line 1||No||Yes|
|C-Corp||Form W-2||Line 1||Yes||Yes|
Partnership owner-employee compensation includes Line 14 Self-employment earnings less Line 12 Section 179 deduction less Line 18 Nondeductible expense.