If you want all your payroll protection funds forgiven, Self-Employed Business Owners cannot give themselves a raise.
The Federal Government has released the Loan Forgiveness Application and a Business Owner must certify that their pay “does not exceed eight weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $15,385 per individual.”
What determines my 2019 compensation? If you are a self employed business owner with no employees, review your Schedule C on your 2019 Tax Return, Line 31 this is your Net Profit (or loss), divide that number by 52 and multiple by 8, this is your 8 weeks of owner’s pay. If you are a S-Corp with no employees, it will be equivalent to your 2019 W2 wages for those 8 weeks. Owner Distribution will not count towards forgiveness.
In addition to owner’s pay, payroll costs can include employer contributions to health insurance, employer contributions to employee retirement plans, and employer state and local taxes assessed on employee compensation.
Transfer this money from your business to your personal account within 8 weeks (56 days) of the deposited money in your bank account. There is no requirement, but ideally it can be 2 separate payments. Of course, you can pay yourself more, but the amount greater than your 2019 monthly income will not be forgiven.
Regarding non-payroll forgiven expenses, they include business mortgage interest payments, business rent and lease payments, and business utilities. Continue to make these payments from your business account. The good news is that expenses can be incurred or paid during the 8 weeks period, so it may be possible for prepayment of utilities and rent will be forgiven (prepaid interest payments will not) A business owner will be expected to have a copy of either cancelled checks and bank statements to be able to represent the payments.
Lastly, the forgiveness is determined by the bank. So each bank may have a slightly different interpretations of these guidelines. Also you have to request forgiveness from you bank and they will have 60 days to determine the amount they will forgive. The money that is not forgiven is a 2 year loan that has to be repaid at 1% interest.
Link to Forgiveness Application: https://www.sba.gov/sites/default/files/2020-05/3245-0407%20SBA%20Form%203508%20PPP%20Forgiveness%20Application.pdf