In our previous article “SBA Parameters for the Paychecks Protection Program (PPP)” we outlined the general details of the program. Listed below are answers to questions for those individuals that want to participate in the program and are self-employed or are sole proprietors of a business.
The SBA will issue additional guidance for those individuals with self-employment income who; (1) were not in operation in 2019 but who were in operation on February 15, 2020 and (2) will file a Form 1040 Schedule C for 2020
I have income from self-employment, and I file Form 1040, Schedule C, am I eligible?
Yes. You need to also have meet other eligibility criteria such as, operational on February 15, 2020, principal place of residence is in the US and you filed or will file Form 1040 Schedule C for 2019.
Can partners in a partnership submit a separate PPP loan application for being considered self-employed?
No. The self-employment income of general active partners can be reported as payroll costs, up to $100,000 annualized on the PPP loan application filed by the partnership.
How do I calculate my maximum loan amount, if it’s just me, no employees?
Step 1: What is the dollar amount on 2019 Form 1040, Schedule C, Line 31?
Step 2: Calculate the average monthly net profit, divide the amount in Step 1 by 12
Step 3: Multiply the average monthly amount from Step 2 by 2.5
Step 4: Add the amount of any EIDL loan made between January 31, 2020 and April 3, 2020 that you seek to refinance, and subtract the amount of any advance under the EIDL COVID-19 loan
What kind of documentation do I need to bring, if I have no employees?
How do I calculate my maximum loan amount, if I have employees?
Step 1: What is the dollar amount on 2019 Form 1040, Schedule C, Line 31?
Step 2: calculate 2019 gross wages and tips paid to employees by 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 wages paid to an individual employee in excess of $100,000 annualized and any amounts paid to an employee whose principal residence is outside the US
Step 3: calculate 2019 employer health insurance contributions (From 1040 Schedule C, Line 14), retirement contributions (Form 1040, Schedule C, Line 19) and state and local taxes assessed on compensation (SUTA from quarterly wage reporting forms).
Step 4: add the totals in the above steps to achieve 2019 payroll costs
Step 5: Calculate the average monthly net profit, divide the amount in Step 4 by 12
Step 6: Multiply the average monthly amount from Step 5 by 2.5
Step 7: Add the amount of any EIDL loan made between January 31, 2020 and April 3, 2020 that you seek to refinance, and subtract the amount of any advance under the EIDL COVID-19 loan
What kind of documentation do I need to bring, if I have employees?
What can I use the PPP loan proceeds for?
At least 75% of the PPP loan proceeds should be used for payroll costs.
What is eligible for forgiveness?
The amount of forgiveness can be up to the full principal plus accrued interest. It will depend, in part on the total amount spent over the covered period on the following:
Will the amount of my loan forgiveness be reduced if I lay off an employee, offer to rehire the same employee but the employee declined the offer?
Simply the answer is no. The SBA and Treasury Department intend to issue an interim final rule excluding laid off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act loan forgiveness reduction calculation. This interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.
What documents do I need for forgiveness?
About the Author
Jim is the Partner in charge of the CFO for Hire division of BST & Co. The CFO for Hire division is an outsourced solution for a company’s operational accounting needs. CFO for Hire delivers timely financial information/reports to better help a business owner or not for profit executive director make more informed business decisions.
Jim’s primary responsibilities are managing complex engagements and leading special projects. He also provides leadership on corporate development, product development, and sales and marketing matters.
jlozano@cfo-for-hire.com/ 518-459-6700
Posted on April 15, 2020 at 4:09 PM