Yesterday afternoon (April 14, 2020), the Small Business Administration provided guidance on two key areas of uncertainty in the Paycheck Protection Program (PPP). The guidance focuses on the self-employed, including partners/partnerships and applies to applications submitted under the PPP through June 30, 2020, or until funds made available for PPP are exhausted. Below is an overview of the Interim Final Rule; this is an overview and is not all-inclusive. Significant additional details are contained in the Interim Final Rule here and should be reviewed and discussed with your professional advisors.
Self-employed and partners/partnerships
Who Can File?
Participation in the PPP may affect your eligibility for state administered unemployment compensation or unemployment assistance programs, including the programs authorized by the CARES Act, or CARES Act Employee Retention Credits.
Loan Calculations and Documentation Required
The Interim Final Rule discusses loan amounts and loan forgiveness calculation for individuals with self-employment income – with and without employees. The maximum loan amount is based on 2.5 months of the borrower’s payroll during the one-year period preceding the loan. Important details on calculations are included in the Interim Final Rule here. Documentation required includes:
If you’re self-employed with no employees, you must include your completed 2019 Form 1040 Schedule C with the PPP application. If you have not filed your 2019 return, you must still fill out Schedule C, compute the net profit amount (line 31) and include it with your PPP application to substantiate the applied-for loan amount. You must also include a 2019 IRS Form 1099-MISC detailing non-employee compensation received (box 7), invoice, bank statement, or book of record that establishes you are self-employed and a 2020 invoice, bank statement, or book of record to establish you were in operation on or around February 15, 2020.
If you’re self-employed with employees, you must include in your PPP application your 2019 Form 1040 Schedule C, Form 941 (or other tax forms or equivalent payroll processor records containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or equivalent payroll processor records, along with evidence of any retirement and health insurance contributions, if applicable. A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish you were in operation on February 15, 2020.
Use of Loan Proceeds
For the self-employed the Interim Final Rule lays out details of allowable use of loan proceeds, which include in brief:
Amounts Eligible for Forgiveness
Amount of forgiveness can be up to the full principal amount of the loan. The actual amount of loan forgiveness will depend, in part, on the total amount spent over the covered period on:
Additional guidance and clarification are provided in the full Interim Final Rule. We encourage you to read it in full and discuss with your tax advisor prior to taking action and to ensure you are gathering and maintaining appropriate documentation for all requirements of the loan(s) and loan(s) forgiveness
As always, if you have questions, please contact your Smith and Howard tax advisor or use the contact form at the bottom of this page.
(1)SBA will issue additional guidance for those individuals with self-employment income who: (i) were not in operation in 2019 but who were in operation on February 15, 2020, and (ii) will file a Form 1040 Schedule C for 2020
If you have any questions and would like to connect with a team member please call 404-874-6244 or contact an advisor below.CONTACT AN ADVISOR
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