A Guide To The PPP Loan For The Self-Employed & 1099 Employees

1.What is the PPP Loan?

The PPP Loan is the payroll protection loan. It is part of an aid package that was passed through congress to help small businesses continue to operate and to keep people from applying for unemployment during the pandemic.

2.Is it a loan, or do I have to pay it back?

It is called a “loan”. HOWEVER, it is completely forgivable if you use the funds in certain ways.

3.I don’t have “payroll.” Does this mean that I can’t get it?

Do not let the term “payroll” throw you off. You do not have to pay people through a payroll system in order to apply!

 4. I am self-employed. Can I qualify?

YES! You don’t have to have employees in order to qualify!

5. I am a 1099 worker. Can I apply!

YES! One of the most common misunderstandings is that this program can’t be used by the self employed or the 1099 employee. You absolutely can apply!

6. How can I use the funds in order for my loan to be forgiven?

·       At least 60% of the proceeds must be used on “payroll costs”

·       No more than 40% can be used to cover “other qualified expenses”

·       Time frame- You must spend all of the money within 24 weeks from the time you receive it.

·       If you have employees, you must continue to pay them at least 75% of their pre-pandemic salary

·       If you have employees, you must make sure that you restore the headcount of your employees by the end of the 24-week forgiveness period. THIS is where it gets a little complicated. If you have employees and you have received this loan or want to apply, send me an email and I will explain how to make sure you meet this requirement.

7. What is the definition of “Payroll Costs”?

For sole proprietors (this includes single member LLCs), 1099 employees and gig workers, this is your net income from self-employment. This will be listed on line 31 of schedule C of your personal income tax return)- See question 9 below on how much you can pay yourself

8. What is the definition of “other qualified expenses”

·       Mortgage interest payments if you work out of you home (does not include principal payments)- This is likely limited to the amount that is deductible for tax purposes.

·       Rent if you rent a workspace

·       Utility payments- again, for people working out of their home this is likely limited to the amount that you can deduct for tax purposes.

·       Interest payments on business debt that existed prior to 2/15/20

9. If I am self-employed, how much of the loan can I use to pay myself?

This is a calculated amount, but don’t worry…it’s a simple calculation:

1.       Take your net income from line 31 of schedule C of your 2019 personal income tax return. Let’s assume this amount is $20,000

2.       Divide that amount by 52 to get your weekly equivalent: ($20,000/ 52) = $385

3.       Multiply the weekly equivalent by 8 to get your 8-week equivalent: ($385 X 8) = $3,080

4.       In this example, $3,080 is the amount you would be allowed to pay yourself.

5.       Now replace the $20,000 in the example with your net income for 2019 (from Schedule C)

6.       Compare your resulting calculation to $20,833 and take the smaller of those two amounts. This is the amount you can pay yourself.

10. If I am not able to use the funds in the ways required and I have to re-pay a portion of the loan, how long do I have to repay it, and how much interest will I have to pay?

Payments on the loan are deferred until a decision on whether or not you receive forgiveness is determined. If the decision is made that you must re-pay all or a portion of your loan, the term is 5 years and the interest rate is 1%.

11. What information do I need to gather before applying?

·       2019 income tax return (if you have this. Many people do not because the deadline to file isn’t until 7/15.)

·       If you don’t have your 2019 return, get a copy of your 2018 return

·       Banking information for where you want the funds to be deposited

·       Access to bank statements from that account

·       You will be required to submit a copy of Schedule C of your 2019 income tax return. If this isn’t complete yet, you can fill out a draft version and submit it. You can find the draft version on the IRS website: https://r.search.yahoo.com/_ylt=AwrE19lWovxe3X0AmRhXNyoA;_ylu=X3oDMTByOHZyb21tBGNvbG8DYmYxBHBvcwMxBHZ0aWQDBHNlYwNzcg--/RV=2/RE=1593643734/RO=10/RU=https%3a%2f%2fwww.irs.gov%2fpub%2firs-pdf%2ff1040sc.pdf/RK=2/RS=VDR3XQkoqyQNqT6XhfThfI3OQVk-

·       Drop in your 2019 numbers (compare to your 2018 schedule C to see how it was done for that year)

12. How do I apply?

Start with your bank. If they are no longer accepting applications, go to Bluevine.com, Kabbage.com or Fundera.com and look for the Corona Virus loan options or the payroll protection loan.

13. If I receive the loan, what documentation do I need to maintain in order to prove how I spent my loan proceeds?

·       Bank statements showing cash going out for each expense

·       Invoices & contracts with utilities companies and your landlord showing support for the expenses

·       Mortgage statements showing mortgage interest paid

·       Bank statement of your personal bank account showing where you deposited the funds for owners pay

You may still have lots of questions regarding this program. If so, shoot me an email, and I’ll address them.

Best of luck to you!