Owner employee wages from PPP forgiven loan

[jsbaruck]

does the owner employee of an S corporation who is paid a salary from a forgiven PPP loan receive a W-2 which is taxable to the owner employee stockholder??

[Lion]

Yes. The owner received his wages, so he receives Form W-2 and pays taxes on those wages. The S corporation paid those wages out of a non-taxable PPP loan, so the S-corporation will not deduct that amount on its Form 1120-S.

[BOB W]

Why can't I just create an account "PPP loan forgiven"?

[Lion]

I'm creating an Other Expense contra-account with a name something like PPP Loan Forgiven, so the net expenses come out correct on the P&L and on the tax returns, such as an 1120-S. I won't be taking this $ amount out of payroll and that $ amount out of rent, etc. That way, for instance, payroll on the P&L and the income tax return will tie out to Forms 941, W-2, etc., but the net tax-deductible expense will be the correct total for the tax return.

[TAXNJ]

I'm creating an Other Expense contra-account with a name something like PPP Loan Forgiven, so the net expenses come out correct on the P&L and on the tax returns, such as an 1120-S. I won't be taking this $ amount out of payroll and that $ amount out of rent, etc. That way, for instance, payroll on the P&L and the income tax return will tie out to Forms 941, W-2, etc., but the net tax-deductible expense will be the correct total for the tax return.

Would it help to show what your debit and credit entries are?

[Lion]

I have no idea (I don't think anyone does) what entries/what detail the IRS will want to see on the income tax returns for forgiven PPP loans. There's still lots of discussion re loan periods that span two fiscal years.

But the OP asked about issuing a W-2, and that answer is Yes.

If you're asking about the bookkeeping entries, you can make them as detailed as you &/or your client need to track their actual expenses and from which funds they were paid.

If you're asking about applying for forgiveness with the lender, follow their instructions for reporting.

[ATSMAN]

I have no idea (I don't think anyone does) what entries/what detail the IRS will want to see on the income tax returns for forgiven PPP loans. There's still lots of discussion re loan periods that span two fiscal years.

But the OP asked about issuing a W-2, and that answer is Yes.

If you're asking about the bookkeeping entries, you can make them as detailed as you &/or your client need to track their actual expenses and from which funds they were paid.

If you're asking about applying for forgiveness with the lender, follow their instructions for reporting.

I agree that IRS will only require the details if the return is audited. I am also creating a notes section for my clients that got PPP to document what expenses were paid out of those proceeds. That way if the loan is forgiven, it will not be deducted as expense on the tax return. I already alerted my clients what expenses may be paid with PPP loan but there is a good chance they did not pay any attention!

[BOB W]

Would it help to show what your debit and credit entries are?

Debit "PPP Loan Payable- Credit "PPP Loan Forgiven"