2020 – 04/16

On Tuesday April 14, 2020 the Small Business Administration (SBA) issued a new interim final rule that supplements the guidance regarding the Paycheck Protection Program (PPP) Loans.  

Interim Final Rule: Individuals with Self-Employment Income 

The Small Business Administration issued 13 CFR Part 120 Business Loan Program Temporary Changes of the Paycheck Protection Program – Interim Final Rule. The additional guidance provides specific information on calculating the maximum loan amount for individuals with self-employment income who file a Form 1040, Schedule C, Profit or Loss From Business. The section starts on page 4.  

The 2019 Form 1040 Schedule C is required to be provided with the PPP loan application, according to the interim rule, which notes that detailed documentation guidelines are also required. Guidance is also provided on how PPP loans may be used and how loan forgiveness will be calculated.  

The maximum loan amount calculation depends on whether you employ other individuals or not. Those with no employees will need to look at their 2019 net income from Schedule C, Line 31 and calculate the monthly average by dividing by 12. If this amount is zero or less, they do not qualify for a PPP loan and if the amount is over $100,000, they are limited to $100,000. The monthly average is multiplied by 2.5 to get the maximum loan value. There are adjustments if you have received either the emergency grant advance or a disaster loan under the SBA Economic Injury Disaster Loan (EIDL) program.    

If you have employees for your self-employed business the calculation is similar, but you will add to your net income (line 31) the amount of wages paid to your employees (max of $100,000 per employee) and employer health insurance contributions and retirement contributions (Sch C line 19) and the State Unemployment Tax Act (SUTA) taxes on the employee wages. 

The SBA stated it 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 Feb. 15, 2020, and (2) will file a Form 1040 Schedule C for 2020. 

Additionally, the new guidance directs that the self-employment income of partners in a partnership 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 (or an LLC filing taxes as a partnership). Individual partners may not submit a separate PPP loan application as a self-employed individual. 

The guidance also addresses the eligibility issues of certain business concerns and requirements for certain pledges of PPP loans. 

Click Here to see the updated interim final rule 

Click Here to see the updated FAQ 

 

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