The Ultimate Guide to PPP for the Self-Employed

As the PPP deadline of June 30th looms less than a week away, we felt it was important to provide some context for the self-employed individuals looking to take advantage of the nearly $120B still remaining.  Background: the Paycheck Protection Program (PPP) is a $660 billion dollar loan program. It was implemented by Congress specifically to help fund small businesses impacted by the unprecedented COVID-19 shutdown. This funding for small businesses was crucial to keep the heart of America alive during a time when society vanished. Without the PPP (and Economic Injury Disaster Loan) program, the ongoing process of recovery would be an even longer and more painful battle.

Numerous small businesses were able to start applying for PPP loans beginning on April 3rd; however, applications for self-employed individuals weren’t being accepted until April 10th.

So the question is, why were self-employed owners not favored first?

The consensus answer; it is because sole props and LLCs don’t have a separate tax liability. The business is taxed on an individual basis, which prevents the owner(s)/shareholders from paying traditional payroll taxes. For businesses without employees or payroll (such as 1099 independent contractors and sole props), the loan amounts are then calculated based on profits alone.

How to calculate your self-employed PPP loan amount:

Step 1: Total your 2019 monthly net income on a simple spreadsheet.
Step 2: Divide the sum by 12 to get your monthly average net profit.
Step 3: Multiply the result by 2.5 to get your PPP loan amount.

Applying for loan forgiveness:

Now that you’ve calculated your loan amount, it’s time to apply for funding. The best part, thanks to the new ‘EZ Form’ for PPP forgiveness, self-employed individuals can take advantage of what is known as, ‘owner compensation replacement’. In a nutshell, this means that forgiveness is possible without producing detailed payroll reports.

The maximum possible loan amount you can receive is $20,833, with $15,385 automatically eligible for forgiveness as owner compensation replacement. The remaining $5,448 can be forgiven if spent on approved expenses (see next section on those) over the 24-week covered period.

What are the approved expenses?

So how else besides payroll can funds be utilized while still qualifying for forgiveness? Up to 40% of the PPP amount can be applied towards other helpful items for business owners. Below is a detailed breakdown, however, these items must have been in place prior to February 15, 2020:

Mortgage interest: Pre-existing business property mortgages.

Rent: This includes business housing and equipment like computer hardware and software.

Business utilities: Water, gas, cable, software, and transportation.
Other Required business services: Things that support the production of the business’s product or services, such as COVID-19 supplies, website migration, or software acquisition.

The EZ Application:

The new EZ application for PPP loan forgiveness (Form 3508EZ) recently became available. It’s much simpler than the previous application, and has been reduced to roughly a one-page form. You can apply for forgiveness with the EZ application if:

– You are a self-employed individual, independent contractor, or sole proprietor.
– If you had no employees at the time of the PPP loan application.
– If you did not include any employee payroll expense in the “average monthly payroll cost” calculation on your loan application.

You can apply for PPP loan forgiveness directly from the SBA, or if you want complete and professional help with the process, contact Southern Payroll & Benefits for immediate assistance!

Call: 423-207-2497
Email: george@southernpb.com

The Ultimate Guide to PPP for the Self-Employed

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