New Guidance on PPP Forgiveness: Self-Employed

Government Clarifies PPP Loan Forgiveness for the Self-Employed

We now have more clarity on the Paycheck Protection Program (PPP) loan forgiveness for the self-employed with no employees. The new law “Paycheck Protection Program Flexibility Act of 2020” creates a 24-week period for spending your PPP loan proceeds. If you obtained your loan proceeds before June 5, you can elect to use the eight-week period to spend your PPP loan proceeds.

Here’s the difference:

  • If the 24-week covered period applies, your loan forgiveness for your deemed payroll is capped at 2.5 months of your 2019 Schedule C net profit, not to exceed $20,833.
  • If you elect the eight-week covered period, your loan forgiveness for your deemed payroll is capped at eight weeks, not to exceed $15,385.

When you file as a Schedule C taxpayer and have no employees, your PPP loan is based on 2.5 times your 2019 Schedule C, line 31, net profit, limited to $20,833.

Here’s how the loan amount works:

Sch. C Net Profit Monthly Loan Amount
$125,000 limited to $100,000 $8,333 $20,833
$100,000 $8,333 $20,833
$75,000 $6,250 $15,625
$50,000 $4,167 $10,417
$25,000 $2,083 $5,208

You may have your loan proceeds either in hand or in play at this point.

If you have not yet applied for your PPP loan, you still have a few days to do so. Lawmakers recently reopened the program with an eye on using the remaining funds. Under this new law, the extension of the PPP loan program will last until the earlier of August 8, 2020, or the day the funds are exhausted.)

This new “easy road” to forgiveness gives you 24 months for 100%. Under the new 24-month rule, you achieve forgiveness when you pay yourself the total loan amount within 10.8 weeks of the date you received your loan proceeds. Let’s round the 10.8 to 11 weeks. Yes, you are reading this correctly. By simply using the loan proceeds on paying yourself during the first 11 weeks, you achieve total forgiveness.

Note this. By using the 11 weeks, you achieve total PPP loan forgiveness without having to spend any money on rent, utilities, or interest.

Form 1040 Schedule C Businesses

Your PPP loan and its forgiveness for “compensation” are capped at $15,385 under the eight-week covered period or at $20,833 under the 24-week covered period. The cap amounts are computed using your net profit from line 31 of your 2019 Schedule C. Your road to 100% loan forgiveness is the 11-week program. With 11 weeks of taking the loan amount out of the business, you obtain full forgiveness without paying any rent, utilities, or interest.

When Can the Owner-Employee’s Business Apply for Forgiveness?

According to SBA guidance issued on June 22, 2020, you may submit your loan forgiveness application anytime on or before the maturity date of the loan—including before the end of the covered period—if you used all the loan proceeds for which you requested forgiveness. Example. You receive a $20,833 PPP loan on May 19, 2020. During the 11 weeks beginning with May 19, 2020, your corporation pays qualified payroll costs that total $20,833. You can apply for $20,833 of loan forgiveness anytime beginning with week 11. According to the June guidance, you may submit your loan forgiveness application anytime on or before the maturity date of the loan — including before the end of the covered period — if you used all the loan proceeds for which you requested forgiveness. Example. You receive your $20,833 PPP loan on May 15, 2020. You put the money in your business checking account. During the 11 weeks beginning with May 15, 2020, you write checks to yourself that total $20,833. You can apply for $20,833 of loan forgiveness anytime beginning week 11 or later.

What About Interest, Rent, and Utilities?

With the 11-week program described, you don’t have to consider interest, rent, or utilities to achieve 100% forgiveness. In fact, why bother? By simply using the 11 weeks, you have less paperwork and worry. Of course, you might want to consider interest, rent, and utilities if this takes you to earlier forgiveness. To obtain full forgiveness, you could spend as little as 60% on payroll and the balance on interest, rent, and utilities. Example. You file a Schedule C and have no employees, and on June 1, 2020, you obtain a PPP loan of $20,000. During the first eight weeks, you spend $12,000 on yourself and $8,000 on qualified Schedule C deductible business interest, rent, and utilities. You can elect the eight-week period and qualify for 100% forgiveness.

Here are the basic PPP forgiveness requirements that apply to your 2020 Schedule C business deduction payments for interest, rent, and utilities:

  • Interest payments on any business mortgage obligation on real or personal property where such obligation was in place before February 15, 2020 (but not any prepayment or payment of principal)
  • Payments on business rent obligations on real or personal property under lease agreements in force before February 15, 2020
  • Business utility payments for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020

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We specialize in working with women after divorce, death of a spouse, or other life transitions such as retirement or job change. We provide financial planning and investment management services.

We believe in a holistic approach. Movement in each piece of your financial plan impacts the others, so we consider your entire picture.

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