The Small Business Administration has released additional guidance for self-employed individuals seeking relief through the new Payroll Protection Program loan, addressing eligibility and documentation requirements for individuals who file Form 1040 Schedule C and partners in a partnership.
SELF-EMPLOYED INDIVIDUALS WHO FILE FORM 1040 SCHEDULE C
- You are eligible for a PPP loan if (i) you were in operation on February 15, 2020 (ii) you are a self-employed individual, such as an independent contractor or sole proprietor (iii) your principal place of residence is with in the United States, and (iv) you filed, or will file, a Form 1040 Schedule C for 2019
- You will be asked to provide the following documentation with your PPP loan application:
- 2019 Form 1040 Schedule C
- 2019 1099-MISC reporting nonemployee compensation received, invoice, bank statement or book of record establishing self-employment
- Form 941 and state unemployment tax reporting forms for each quarter of 2019
- Evidence of employer health insurance and retirement contributions
- 2020 Invoice, bank statement, or book of record establishing existing operations on or around February 15, 2020
- Payroll statement for the period including February 15, 2020
- If you have no employees, your maximum loan amount is calculated as follows:
- Step 1: Calculate your 2019 net profit- If you have filed your 2019 Form 1040 Schedule C, your net profit can be found online 31. If you have not filed your 2019 tax return, you will need to complete Schedule C to calculate your 2019 net profit. If your net profit is less than zero, you are ineligible for a PPP loan.
- Step 2: Calculate your average monthly net profit- If your net profit on your Schedule C is more than $100,000, reduce to $100,000. Divide the lesser of your net profit on your Schedule C and $100,000 by 12.
- Step 3: Multiply your average monthly net profit from step 2 by 2.5.
- Step 4: Add the outstanding amount of any Economic Injury Disaster Loan received between January 30, 2020, and April 3, 2020, that you seek to refinance, less the amount received as an advance.
- If you have employees, your maximum loan amount is calculated as follows:
- Step 1: Calculate your 2019 Payroll Expense
- If you have filed your 2019 Form 1040 Schedule C, your net profit can be found online 31. If you have not filed your 2019 tax return, you will need to complete Schedule C to calculate your 2019 net profit. If your net profit is more than $100,000, reduce to $100,000. If your net profit is less than zero, set this amount at zero.
- Add the 2019 taxable Medicare wages & tips paid to your employees whose principal place of residence is within the United States, plus any pre-tax employee contributions for health insurance and any excluded fringe benefits, less any amounts paid to an individual employee in excess of $100,000.
- Add employer health insurance contributions, retirement contributions and state and local taxes assessed on employee compensation (SUTA)
- Step 2: Calculate your average monthly payroll expense by dividing the amount from step 1 by 12.
- Step 3: Multiply your average monthly payroll expense from step 2 by 2.5.
- Step 4: Add the outstanding amount of any Economic Injury Disaster Loan received between January 30, 2020, and April 3, 2020, that you seek to refinance, less the amount received as an advance.
- The proceeds from a PPP loan can be used for the following expenses to be eligible for forgiveness:
- Owner compensation replacement (calculated based on 2019 net profit)
- Interest expense on any business mortgage obligation or vehicle loan
- If you did not claim or are not entitled to claim, the above expense on your 2019 Schedule C, you cannot use PPP loan proceeds.
- When requesting loan forgiveness, you will need to provide payroll records and evidence of approved business expenses paid for during the covered period with loan proceeds.
PARTNERS IN A PARTNERSHIP
- The self-employment income of general active partners should be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by the partnership, limiting the partnership and its partners to one PPP Loan.
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