Disciphering the Paycheck Protection Program – April 10th opens to independent contractors and self-employed individuals

by Steven Weisz for The Dance Journal

The new Paycheck Protection Program (PPP) is intended to help eligible organizations retain their workforce. PPP loans are available for 501(c)(3) nonprofits, most small businesses with 500 or fewer employees, sole proprietorships, self-employed individuals and independent contractors.

PPP loans are available in amounts up to the lesser of two and a half months of payroll costs (based on an annual average of the 12 months prior to the loan origination date or calendar year 2019) or $10 million. For sole proprietors and independent contractors, payroll costs are defined as wages, commissions, income or net earnings from self-employment, capped at $100,000 on an annualized basis per individual employee.

This Friday, April 10, banks will begin accepting applications from independent contractors and self-employed individuals. PPP loans will be available through June 30, 2020.

Salary for self-employed individuals with no employees who report income through Schedule C is determined by net profit. Locate that amount either on Line 31 of Schedule C on your 2019 tax return or the Net Profit line of your most recent income statement. Divide this annual net profit figure by 12 to determine monthly average payroll expense. Note: If annual net profit surpasses $100,000, divide $100,000 by 12. Multiply the resulting amount by 2.5 to determine the size of your PPP loan.

In its April 2 Interim Final Rule, the Small Business Administration noted that independent contractor cost does not count toward the payroll costs of the contracting company. For the purposes of PPP, independent contractors must file individually. Use your income reported on Schedule C and 1099-MISC to determine salary and loan amount.  Be sure to use net salary (income after expenses).

Self-employed individuals should gather the necessary documents to substantiate wages, income, commission or net earnings for their lender, including these specific items by employee type:
Self-employed: Schedules from 2019 tax return filed (or to be filed) or most recent income statement; if not available, bank records may suffice
Independent contractor: Schedules from 2019 tax return filed (or to be filed) and 2019 Form 1099-MISC; if not available, bank records may suffice

According to the Interim Final Rule of April 2nd, all applicants “must also submit such documentation as is necessary to establish eligibility such as payroll processor records, payroll tax filings, or Form 1099-MISC, or income and expenses from a sole proprietorship. For borrowers that do not have any such documentation, the borrower must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.”

The covered loan period begins February 15, 2020 and ends June 30, 2020. Loans are fully guaranteed by the federal government for two years from settlement. The maturity is two years and the interest rate is one percent. No personal guarantee from the business owner or collateral is required, and the borrower may defer repayment of the loan for six months.

PPP loans will be forgiven only if loan proceeds are used to cover eligible payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made and employee and compensation levels are maintained.Borrowers can apply directly to their lender for the loan to be forgiven on a tax-free basis for qualifying costs incurred during the eight-week period after the loan’s origination date.

Use this form to apply for the Paycheck Protection Program with an eligible lender ––paycheck-protection-program-borrower-application-form



I have done my best to interpret and present the information about the PPP program for freelancers/self-employed to the best of my knowledge based on facts provided to me by various government agencies. I am not offering legal or financial advice with this post nor do I claim to be an expert in these areas. Please do your own due diligence as you see fit for your individual circumstances. I accept neither liability or responsibility for decisions made as a result of this post/email.

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