Paycheck Protection Program Guidelines for Schedule C Filers

Blog
April 20, 2020

The Treasury Department issued an Interim Final Rule on April 14, 2020 providing additional Paycheck Protection Program (PPP) guidance for sole proprietorships, independent contractors, and self-employed individuals. Key details from this Interim Final Rule are highlighted below. This document was prepared based on information available on April 15, 2020. We will update it as further details emerge.

For additional information on the PPP, please reference our other blogs:

What makes a sole proprietorship, independent contractor, or a self-employed individual eligible to apply?

  • You must have been in operation on February 15, 2020
  • You are a U.S. resident
  • You filed a Schedule C with your IRS Form 1040

What documents should a sole proprietorship, independent contractor, or a self-employed individual prepare?

How do you calculate the maximum loan amount assuming no employees?

  • Identify your net profit (line 31) on your schedule C.
  • Take any net profit up to $100,000 and divide it by 12.
  • Multiply the result above by 2.5.
  • If you received an EIDL loan or grant between January 31, 2020, and April 3, 2020 subtract it from the calculation above.
  • Do not include state and local taxes, health benefits or retirement benefits within your income when determining your loan amount. The maximum income allowed is $100,000.
  • Example 1: Management consultant reporting $750,000 of net profit in 2019 and received a $10,000 EIDL advance.
    • Loan Calculation: ($100,000/12)*2.5-$10,000.
      • Maximum Loan Amount: $10,833.33.

How do you calculate the maximum loan amount if you have employees?

  • Identify your net profit (line 31) on your schedule C, limited to $100,000.
  • 2019 payroll costs for employees (example: wages up to an annualized salary of $100,000, health insurance, retirement benefits and SUTA).
  • Add the total from the two bullets above and divide it by 12. Multiply the result above by 2.5.

What can the loan be used for?

  • Owner compensation replacement as discussed below
  • Employee payroll costs
  • Payments of interest on any mortgage obligation (excludes prepayment)*
  • Rent*
  • Utilities*
  • Interest on any other debt obligation that were incurred before February 15, 2020*

*You can only use the loan for this expense if the expense was claimed as a deduction in 2019.

What should be considered when determining eligibility for loan forgiveness?

  • Payroll costs up to $100,000 of annualized pay plus benefits discussed above if you have employees
  • Owner compensation replacement
  • Mortgage obligation, lease obligation, and utility payment documentation
  • The proceeds must be utilized within eight weeks of the loan origination date. Proceeds must only be used for approved purposes.

What needs to be provided to a lender to be considered for loan forgiveness?

  • If you have employees, provide payroll records.
  • Mortgage obligation, lease obligation, and utility payment documentation.
  • Support for compensation replacement, calculated as:
    • (2019 Schedule C Net Profit up to $100,000)*(8/52)
    • Note, the maximum owner compensation forgiveness is based on compensation for eight weeks. The maximum loan is calculated based on 2.5 months of owner net profit from 2019. The maximum loan forgiveness is $15,385.

Our team will continue to monitor this situation and keep you informed about any relevant updates regarding the PPP. If you have additional questions or concerns, please contact us. For help guiding your business through the coronavirus outbreak, visit our COVID-19 resource hub.