COVID-19: SBA Clarifies PPP Loan for the Self-Employed with No Employees
The SBA resumed accepting Paycheck Protection Program applications from participating lenders on Monday, April 27, 2020.
If you are self-employed, with no employees, you absolutely need to qualify for this loan and its forgiveness. Here are details you need to know.
The self-employed with no employees is eligible for a PPP loan if:
- You were in operation on February 15, 2020.
- You are an individual with self-employment income (such as an independent contractor or a sole proprietor).
- Your principal place of residence is in the United States.
- You have filed or will file a Form 1040 Schedule C for 2019.
Steps to follow:
- Find your 2019 IRS Form 1040 Schedule C line 31 net profit. (If you have not yet filed your 2019 tax return, fill out the Schedule C now. You need it for the loan.) If the net profit amount is over $100,000, reduce it to $100,000.
- Calculate the average monthly net profit amount (divide the amount from line 1 by 12).
- Multiply the average monthly net profit amount from line 2 by 2.5.
In addition to your 2019 Schedule C to solidify your loan amount, you need documents to prove you are self-employed, such as a 2019 IRS Form 1099-MISC, invoice, bank statement, or book of record. You also must establish that you were in operation on or around February 15, 2020, with a 2020 invoice, bank statement, or book of record.
The loan amount that qualifies for forgiveness:
- Eight weeks’ worth (8/52) of your 2019 net profit (last year—from Schedule C).
- Mortgage interest paid during the covered period (eight weeks from loan receipt) on real or personal business property (the interest you deduct on Schedule C).
- Rent payments during the covered period on lease agreements in force before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C (business rent payments).
- Utility payments under service agreements dated before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C (business utility payments).
The SBA will reduce your loan forgiveness by any COVID-19 qualified sick or family leave tax credit you claimed.
Loan amount. Say your Schedule C shows $120,000 of net profit. Your limit is $100,000. Divide that by 12, and your monthly amount is $8,333. Multiply that by 2.5, and your loan amount is $20,833.
Loan forgiveness. Your loan forgiveness is $15,385 (8/52 of $100,000) plus qualifying interest, rent, and utilities not to exceed total loan forgiveness of more than $20,513.
If you are wondering how the Paycheck Protection Program may benefit you, please contact Manay CPA for a virtual appointment. We hope this summary will be helpful in your understanding of the SBA’s Paycheck Protection Program available for you as a self-employed with no employees.
Together, we can get through this.
Good thoughts for you and your loved ones.
Burcu Bree Manay, CPA,MPAc, CTC
President & Managing Partner