Additional Guidance for the Paycheck Protection Program
April 16, 2020
By Joel Barth
POSTED: 4/16/2020, 3:00PM
Please note: The PPP is not, at this time, accepting new applications because it has reached the limit of funding appropriated, but is attempting to obtain additional appropriations from Congress.
The Small Business Administration (“SBA”) issued another round of guidance on April 14, 2020 with respect to the Paycheck Protection Program (“PPP”). The ruling primarily addresses the calculations of payroll costs and loan forgiveness with respect to self-employed individuals, including partners in a partnership. The following highlights key takeaways from the guidance:
Treatment of partners in a partnership or limited liability company (“LLC”) taxed as a partnership. Partners may not submit separate PPP applications as self-employed individuals. The partnership or LLC may include self-employment income of general active partners as a payroll cost, up to $100,000 annualized, on its PPP loan application.
Maximum loan amount for self-employed individuals with no employees. The formula to determine the maximum loan amount is: Start with 2019 Schedule C Income, limited to $100,000 (if zero or less, the self-employed individual does not qualify for the PPP); DIVIDE by 12 and MULTIPLY by 2.5; ADD Economic Injury Disaster Loan (“EIDL”) made between January 31 and April 3, 2020 to be refinanced, less any forgiven EIDL advance.
Maximum loan amount for self-employed individuals with employees. Same as above with no employees, but ADD to the Schedule C income the 2019 taxable Medicare wages and tips to U.S. employees, including pre-tax employee contributions for health insurance or other benefits excluded from taxable Medicare wages, 2019 employer health insurance contributions, retirement contributions and state and local taxes assessed on employee compensation, less any amounts paid to an individual employee in excess of $100,000.
Required documents for self-employed individuals:
- 2019 Schedule C MUST BE provided with the loan application (2019 Draft Schedule C if not yet filed).
- Form 1099-MISC or other document that establishes self-employment.
- Documentation establishing borrower was in business on or around February 15, 2020.
- Additional documentation for self-employed Individuals WITH payroll:
- 2019 Forms 941, state quarterly unemployment tax reporting forms and documentation of retirement and health insurance contributions, and
- 2020 payroll statement or similar documentation that establishes they were in business on or around February 15.
Allowable uses of PPP loans for individuals with self-employment income:
- Owner compensation based on 2019 Schedule C, limited to $100,000 annualized.
- Payroll costs for U.S. employees, limited to $100,000 per person annualized.
- Interest payments on any business mortgage obligations.
- Rent and utility payments for business usage.
- Interest on any other debt incurred before February 15 (however, such interest is not eligible for forgiveness).
- Any of these categories of expenses must have been claimed or entitled to be claimed on the 2019 Schedule C.
- Refinancing an EIDL loan made between January 31 and April 3, 2020, less any EIDL advance.
Note: Must use at least 75% of proceeds for payroll costs for U.S. employees but limited to $100,000 per employee annualized.
Forgivable amounts for individuals with self-employment income (capped at 100% of the principal amount plus accrued interest):
- Owner compensation based on 2019 Schedule C, capped at $15,385 for the eight-week period ($100,000 MULTIPLIED by eight, DIVIDED by 52), excluding sick leave amounts for which a credit was claimed under the FFCRA.
- Payroll costs for U.S. employees, capped at $15,385 per employee for the eight-week period, plus health care and retirement benefit costs and state taxes on compensation for employees (but not owners).
- Payments of interest on mortgage obligations incurred before February 15, 2020, to the extent deductible on Schedule C.
- Rent payments on leases in force before February 15, 2020, to the extent deductible on Schedule C.
- Utility payments on agreements in force before February 15, 2020, to the extent deductible on Schedule C.
Note: At least 75% of the amount forgiven must be used for payroll costs.
Required documentation for loan forgiveness
- Forms 941 and state unemployment tax filings that best correspond to the eight-week period.
- Documentation of retirement and health insurance contributions during the period.
- Documentation of business rent, business mortgage interest or business utility payments during the period.
- 2019 Schedule C used at the time of the application.
Additional guidance will be issued for individuals with self-employment income who were not in operation in 2019 but were in operation on February 15, 2020 and who will file a Schedule C for 2020.