Covid- Self-Employed PPP
It covers three main topics on payroll calculations and info on forgiveness calculations:
Self-employed individuals - no employees
How to calculate "payroll" for the PPP application :
Step 1: Find your 2019 IRS Form 1040 Schedule C line 31 net profit amount (if you have not yet filed a 2019 return, fill it out and compute the value). If this
amount is over $100,000, reduce it to $100,000.
If this amount is zero or less,you are not eligible for a PPP loan.
Step 2: Calculate the average monthly net profit amount (divide the amount from Step 1 by 12).
Step 3: Multiply the average monthly net profit amount from Step 2 by 2.5.
Step 4: Add the outstanding amount of any Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 that you seek to
refinance, less the amount of any advance under an EIDL COVID-19 loan (because it does not have to be repaid).
Info to Provide with Application
Regardless of whether you have filed a 2019 tax return with the IRS, you must provide the 2019 Form 1040 Schedule C with your PPP loan application to substantiate the
applied-for PPP loan amount and a 2019 IRS Form 1099-MISC detailing nonemployee compensation received (box 7), invoice, bank statement, or book of record that establishes you are self-employed.
You must provide a 2020 invoice, bank statement, or book of record to establish you were in operation on or around February 15, 2020.
Self-employed individuals - with employees ( Replace Step 1 above with the following)
Step 1: Compute 2019 payroll by adding the following:
Your 2019 Form 1040 Schedule C line 31 net profit amount (if you have not yet filed a 2019 return, fill it out and compute the value), up to $100,000
annualized, if this amount is over $100,000, reduce it to $100,000, if this amount is less than zero, set this amount at zero
2019 gross wages and tips paid to your employees whose principal place of residence is in the United States computed using 2019 IRS Form 941 Taxable
Medicare wages & tips (line 5c- column 1) from each quarter plus any pre-tax employee contributions for health insurance or other fringe benefits excluded
from Taxable Medicare wages & tips
subtract any amounts paid to any individual employee in excess of $100,000 annualized and any amounts paid to any employee whose principal place of residence is outside the United States;
2019 employer health insurance contributions (health insurance component of Form 1040 Schedule C line 14),
retirement contributions (Form 1040 Schedule C line 19),
state and local taxes assessed on employee (for CA this includes Unemployment Insurance (UI) + Employment Training Tax (ETT), Employer Pays 3.4% and 1.0%, respectively)
Partners in Partnerships receiving Self-Employment earnings on a K-1
"However, if you are a partner in a partnership, you may NOT submit a separate PPP loan application for yourself as a self-employed individual."
"Instead, the self-employment income of general active partners may be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by or on behalf of the partnership. Partnerships are eligible for PPP loans under the Act, and the Administrator has determined, in consultation with the Secretary of the Treasury (Secretary), that limiting a partnership and its partners (and an LLC filing taxes as a partnership) to one PPP loan is necessary to help ensure that as many eligible borrowers as possible obtain PPP loans before the statutory deadline of June 30, 2020."
"This limitation will allow lenders to more quickly process applications and lower the burdens of applying for partnerships/partners. The Administrator has further determined that permitting partners to apply as self-employed individuals would create unnecessary confusion regarding which entity, the partner or the partnership, applies for partner and LLC member income, and would generate loan proceeds use coordination and allocation issues. Rent, mortgage interest, utilities, and other debt service are generally incurred at the partnership level, not partner level, so it is most natural to provide the funds for these expenses to the partnership, not individual partners."
LOAN FORGIVENESS - SE
How can PPP loans be used by individuals with income from self-employment who file a 2019 Form 1040, Schedule C?
The proceeds of a PPP loan are to be used for the following:
Owner compensation replacement, calculated based on 2019 net profit as described above.
Employee payroll costs (as defined in the First PPP Interim Final Rule) for employees whose principal place of residence is in the United States, if you have employees.
Mortgage interest payments (but not mortgage prepayments or principal payments) on any business mortgage obligation on real or personal property (e.g.,
the interest on your mortgage for the warehouse you purchased to store business equipment or the interest on an auto loan for a vehicle you use to perform your
Business rent payments (e.g., the warehouse where you store business equipment or the vehicle you use to perform your business)
Business utility payments (e.g., the cost of electricity in the warehouse you rent or gas you use driving your business vehicle).
You must have claimed or be entitled to claim a deduction for such expenses on your 2019 Form 1040 Schedule C for them to be a permissible use during the eight-week period following the first disbursement of the loan (the “covered period”).
For example, if you did not claim or are not entitled to claim utilities expenses on your 2019 Form 1040 Schedule C, you cannot use the proceeds for utilities during the covered period.
Interest payments on any other debt obligations that were incurred before February 15, 2020 (such amounts are not eligible for PPP loan forgiveness).
Refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020 (maturity will be reset to PPP’s maturity of two years). If you received an
SBA EIDL loan from January 31, 2020 through April 3, 2020, you can apply for a PPP loan.
- If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan.
- If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.