Owners of 5 percent or more of an S corporation who are also employees are eligible for Payroll Protection Plan (PPP) loan forgiveness of up to 20.83% of their employee cash compensation (capped at $20,833; maximum salary of $100,000 times 20.83%), with cash compensation defined as it is for all other employees (Box 1 on the W-2).
For these owner-employees, on top of the $20,833, the S corporation is also eligible for loan forgiveness for payments of state and local payroll taxes, and employer retirement contributions, capped at 20.83% of employer retirement contributions on behalf of the owner-employee.
The S corporation’s payment for health insurance is not eligible for additional forgiveness for S corporation employees who have a 2 percent or more stake in the business (including for employees who are family members of an owner of 2 percent or more of the business, under the family attribution rules of the tax code),5 because those contributions are included in cash compensation (Box 1 of the W-2).
Example. John, the sole owner and worker, operates his business as an S corporation. His 2019 W-2 shows $140,000 in Box 1 of his W-2, of which $20,000 is for health insurance. In addition, the S corporation pays state unemployment taxes of $500 on John’s income and contributes $20,000 to his pension plan.
Based on the facts in the example, the corporation is eligible for up to $25,000 of PPP loan forgiveness, as follows:
The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.