Self-Employed Paycheck Protection Program Update

Per guidance released on April 14, 2020, the Small Business Administration (SBA) has provided an update for self-employed individuals that are applying for the Paycheck Protection Program (PPP) loan. It specifies that W2 wages are not necessary to obtain the loan, nor the forgiveness that is associated with the program. Below we provide highlights from the guidance on both the size of the loan that a self-employed individual can obtain, as well as initial guidance on how that loan can be forgiven. The maximum loan amount is determined by the following components:

  • Self-employed income up to $100,000 based on 2019 Sch C net income (Schedule C, line 31);
  • plus, 2019 gross wages and tips paid to your domestic employees (form 941, line 5c, column 1);
  • plus, pre-tax employee contributions for health insurance or other fringe benefits;
  • plus, 2019 employer health insurance contribution (Sch C, line 14);
  • plus, 2019 employer retirement contributions (Sch C, line 19); and
  • plus, State Unemployment Taxes (SUTA)

The sum of these amounts is then divided by twelve to determine the “average monthly amount”, and subsequently multiplied by 2.5 to determine the “loan size.” The guidance then discusses how loan forgiveness, in which the full principal amount of the loan plus accrued interest can be 100% forgiven. The actual amount of loan forgiveness will depend, in part, on the total amount spent over the covered period on:

  • payroll costs including salary, wages, and tips, up to $100,000 of annualized pay per employee (for eight weeks, a maximum of $15,385 per individual), as well as covered benefits for employees (but not owners), including health care expenses, retirement contributions, and state taxes imposed on employee payroll paid by the employer (such as unemployment insurance premiums);
  • owner compensation replacement, calculated based on 2019 net profit, with forgiveness of such amounts limited to eight weeks’ worth (8/52) of 2019 net profit;
  • payments of interest on mortgage obligations on real or personal property incurred before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C (business mortgage payments);
  • rent payments on lease agreements in force before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C (business rent payments); and
  • utility payments under service agreements dated before February 15, 2020 to the extent they are deductible on Form 1040 Schedule C (business utility payments).

It should also be noted, 75 percent of the amount forgiven must be attributable to payroll costs for the reasons specified in the First PPP Interim Final Rule. Other exclusion to forgiveness include, compensation received for qualified sick leave, or equivalent credits, cannot be used for purposes of loan forgiveness.

If you have any questions or need help applying for the loan please feel free to call TRS CPA Group