On Tuesday, April 14, 2020, the U.S. Small Business Administration issued an Interim Final Rule that provides much needed guidance to the self-employed with regard to Paycheck Protection Program loans.

The new guidance addresses PPP loan amounts and loan forgiveness calculations for individuals with self-employment income, both with and without employees.

  • Individuals with Schedule C income are eligible for PPP loans if they meet the general criteria:
    • Were in operation February 15, 2020
    • Earn self-employment income
    • Principal place of residence is in the United States
    • Filed a Form 1040 Schedule C for 2019
      • The SBA has identified that there will be additional guidance issued for self-employed individuals who were not in operation in 2019 but who were in operation on February 15, 2020, and will file a Form 1040 Schedule C for 2020.
  • Partners in a partnership
    • May not submit a PPP loan application separate from the partnership
    • Income of "general active partners" is included on the application of the partnership as a payroll cost up to $100,000 per partner annualized

Calculating Available Loan Balance

How you calculate your maximum available loan balance depends on whether you have employees or not:

  • No employees
    • Take your 2019 Form 1040 Schedule C Line 31 net profit amount up to $100,000 (you may estimate if 2019 has not yet been filed)
    • Calculate the average monthly net profit (divide by 12)
    • Multiply by 2.5
    • Add outstanding amount of any Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 that you want to refinance into the PPP
  • With employees
    • Take your 2019 Form 1040 Schedule C Line 31 net profit amount up to $100,000 (you may estimate if 2019 has not yet been filed)
    • Add 2019 gross wages and tips paid to employees whose principal place of residence is in the U.S. using Form 941 Medicare wages and tips
    • Add 2019 employer health insurance contributions, retirement contributions, and state and local taxes assessed on employee compensation (SUTA)
    • Calculate the average monthly net profit (divide by 12)
    • Multiply by 2.5
    • Add outstanding EIDL loan made between January 31, 2020 and April 3, 2020 that you want to refinance into the PPP

The proceeds from the PPP loan may be used to provide for the following business expenses:

  • Owner compensation as calculated above
  • Employee payroll costs for employees whose principal place of residence is in the U.S.
  • Mortgage interest payments on any business real or personal property
  • Rent
  • Utilities
  • Interest payments on debt obligations incurred before February 15, 2020
  • Refinancing an SBA EIDL loan from January 31, 2020 through April 3, 2020

At least 75% of the loan proceeds MUST be used for payroll costs.

Loan Forgiveness

  • Loan forgiveness can be up to the full principal amount of the loan plus accrued interest.
  • 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 healthcare expenses, retirement contributions, and state taxes imposed on employee payroll paid by the employer (SUTA);
    • Owner compensation replacement, calculated based on 2019 net profit limited to eight weeks’ worth (8/52) of 2019 net profit, but excluding any qualified sick leave equivalent amount for which a credit is claimed under section 7002 of the Families First Coronavirus Response Act (FFCRA) (Public Law 116-127) or qualified family leave equivalent amount for which a credit is claimed under section 7004 of FFCRA;
    • 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).

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We at Delap want to know: What questions do you have? Ask us your questions related to COVID-19 and your business, taxes, or other topics, and we’ll answer them on our blog in the near future.

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