Using Partner Income for PPP Loan Forgiveness

We applied for, were approved and received the funds for our PPP loan all before the clarification came out to allow the inclusion of partner income. However, thinking ahead to loan forgiveness our employee payroll has decreased from our 2019 average due to several employees quitting in Feb. Is it kosher to include partner income in the loan forgiveness calculations even if they weren’t included in the application calculations? If we include partner income in the loan forgiveness we would have 100% of the funds being used for payroll and if we included the partners in the count of employees should have no problem meeting criteria for 100% forgiveness. (partners were not included in the employee count in the application because their income also was not included).

following with the same exact situation/question!!

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We too have had the same situation. Legal at our bank is supposedly looking into it. If I hear back I will let you know.

If I’m reading this right, you may have been able to take a larger loan if you included the partner compensation- which is separate from figuring out the forgiveness…depending on how your partnership is set up, you should be able to have up to $8,333 per month forgiven for the partners payroll cost. That is the cap of $100k per year prorated.

The monkey wrench is if the partners are paid distributions versus payroll- which your accountant would have to advise you on…

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Yes - had we waited to apply until the clarification of the rule we could have applied for more money. We made a calculated decision to apply before that clarification about partner income fearing that the money for the program would run out before the clarification happened. BUT, now that we know partner distributions (not payroll) can be included, my question is can we include partner distributions in the calculations used to determine loan forgiveness, even though they weren’t included in the calculations for the application. If so it should easily put us over the threshold for 100% loan forgiveness.

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There are some other things to consider on this…the 75% of FTE retained…remember, it is not just about gross wages (under $100k), the practice needs to retain at least 75% of employees to be eligible for full forgiveness. Depending on your company structure (S/C Corp, LLC, etc) there are different ways this can go.

Thanks Paulie - that’s actually part of my question too. We did not include partners in the calculation of number of employees when we applied. Can we count them now when we apply for loan forgiveness? We’re working on filling the open positions we have but if I can add our 7 partners in the employee count we’ll have more “employees” than what we listed when we applied. It doesn’t feel “right” to me that we could do that but the flip side is that it would give us a way to benefit from the rules change that happened mid-stream. Had the rule been clear on day one we would have qualified for a far larger dollar amount and probably would have had an even larger amount forgiven in the end.

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The FTE calculation is based on a comparison of the number of employees in the past and as of the end of the eight-week period. So, including physicians for the purposes of FTE count will help drive the denominator on the math on both numbers…the only issues I see impacted by the physicians not being included is the loan amount. The FTE and gross wages comparisons has not effect. This is really a nuanced thing that we are recommending getting with your accountant on as the business type alone has many variables that throw numbers around.

Hi Paulie,
question about that FTE calculation with the PPP funds:
we’ve temporarily cut employee hours across the board but plan to gradually resume the prior FTEs. When do we need to bring employee hours back to full time to comply with the forgiveness? Does that need to start now , or can we wait the 8 weeks , or somewhere in between once office visits pick up? thanks !

It is a tricky question…one of the issues is the average number of hours worked during the 8-week period as the comparison. Further complicating the issue is whether they are going to follow the SBA’s definition of full time of 30 hours per week or go with 40. I’m still rooting through some regulations and will update this evening during the webinar.

I am sorry I can not figure out how to ask a new question.
We have 2 employees whose doctors have given them notes that state they should not come to work until the crisis is over because they are immunosupressed and at risk. One worked 30 hours per week and another worked 20 hours.A third employee is pregnant and has been cut back to 20 hours from 30 because she is having complications. Another part time is working a little more to help us. We did not cut anyone’s hours. How will this affect us with our PPP money. We have notes from all the employees’ Physicians.

I think there is a provision that if people are out on FMLA or FFCRA, you may be able to use those hours. I’ve not seen any specific guidance on that but your accountant may have access to better information on this. Let me see what we can dig up and post.

An update to the original post: We initially did not request PPP for partnership income per our bank. We received the loan last month. We re-applied last week for the increased amount to include the partnership income, and received approval this week. For those of you who did not initially apply for PPP for K1 income, you might want to reconsider this path, assuming funds still exist.

Did you have to return the original funds in order to re-apply or were you just approved for the difference once your re-application was approved?

We did not return any funds. It appears that we will be funded the difference, although that is getting clarified and will be more clear when the money gets funded. You can re-apply without returning any funds.