PPP LOAN FORGIVENESS As a self-employed and sole proprietor individual.
As a self-employed and sole proprietor individual, I get paid on a 1099, all income I receive I consider as payroll since it's just me. THE BANK THAT ARRPOVED THE PPP FOR ME ALSO USED THE 1099, NOT SCHEDULE C, I applied for the PPP was approved and received the loan. Now how does one go about applying for loan forgiveness taking this into consideration?
Do I take weekly payments into a personal account from the business, meaning divide the amount I recived by 8 weeks? I have asked the lending bank but they have no information on how to proceed with this matter as of yet.
Any insight into this matter will be greatly appreciated. So that I can properly use the funds and Apply for the loan forgiveness.
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How sole proprietor PPP loans are calculated
Generally, the PPP loan amount that businesses qualify for is based on their average payroll expenses. However, since sole props and contractors usually don’t have payroll, their loan is based on 2019 net profit divided by 12, to get a monthly “average” net profit. This number times 2.5 equals your PPP loan amount. Which means your PPP loan is roughly ten weeks worth of net profit.
Now, how do you get that amount forgiven, since you don’t have payroll to spend it on?
Owner compensation replacement
Instead of spending your funds on payroll, you can automatically get eight week’s worth of net profit forgiven, without having to spend it on anything. This is called “owner compensation replacement”—it makes things nice and simple. The remaining PPP funds will need to be spent on utilities, rent, and mortgage interest expenses in order to be forgiven.
The amount of “owner compensation replacement” you’re eligible to claim for forgiveness is calculated by multiplying your reported net income in 2019 on your Schedule C by 8/52 (or 0.154).
A simple example
You filed your Form 1040 and Schedule C for 2019, where you reported $27,300 in net income.
Your monthly “payroll cost” would be $2,275, so you qualified for $5687.50 in PPP funding.
To calculate your maximum owner compensation replacement, you would multiply $27,300 by 8/52.
$27,300 * 8 / 52 = $4,200
The $4,200 would be fully eligible for forgiveness. The remaining amount of your PPP loan ($1487.50) would need to be spent on eligible expenses such as utilities, rent, and mortgage interest.
I think it only applies to owners with employees who keep them furloughed and paid . I’m also mostly 1099 & can not qualify.
I or you could defer business or residential rent or mortgage & taxes of course if needed but thank goodness Business is slower but still good, and I invest well and I’m a big believer in keeping at least 6 months cash at all times.
If you find out differently, let me know.
Call me anytime if I can help.
Norman
If you are referring to the PPP, and you have received it. SBA loan specialists have recommended that you divide the max forgivable amount (or whatever you received up to that amount) by 8. Write a check to yourself each week for 8 weeks for that amount. The memo on the check should be "payroll." You can verify this through the SBA loan specialist at the bank which filed for your PPP. They have the criteria as was written in the PPP. They should be able to guide you to the specific amount.
That would be an accounting question but most accountants are still studying everything for things are changing everyday .
I am assuming you are talk about the PPP.
There are many unanswered questions about the PPP and the best person to ask this question is your CPA. If you don't have one I can give you the name and number of an excellent CPA.
How Can 1099 Employees File for a PPP Loan?
PPP applications opened for 1099 employees on April 10, 2020. 1099 employees are now eligible to apply for their own PPP loans through their banks or a loan marketplace.
Banks that were previously approved SBA lenders have prioritized funding loans for their customers, so you should check with your bank to see if they’re an approved SBA lender and are funding PPP loans. If not, we can help you get matched with a lender.
What Documents Do 1099 Employees Need to Apply for a PPP Loan?
You can visit our complete step-by-step guide to completing an application for full instructions.
Will a PPP Loan for a 1099 Employee Be Forgivable?
Any funds used for forgivable uses in the first 8 weeks should be forgivable. Because PPP loans are based on 2.5 times your payroll costs as a 1099 employee, theoretically you would use 2 times your monthly payroll costs to cover 8 weeks of your pay, starting from the date your loan is getting funded.
Due to the demand for PPP loans, it’s estimated that 70% of the total loan amount will need to be used for payroll expenses in order for the entirety of the loan to be forgiven. If a 1099 employee receives a loan for 2.5 times their average monthly income and uses 2 times their average monthly income over 8 weeks, 66% of the loan would be used for payroll. The amount used on payroll will be eligible for forgiveness, but it remains a mystery if the 66% used to replace 1099 wages will be enough to satisfy the requirements for the full loan, so you may be expected to repay some of it.
As a conservative approach, 1099 employees can apply for a PPP loan amount less than the maximum. If you applied for a loan that was only 2 times your average monthly payroll costs, theoretically the whole thing would be forgivable.
Are PPP Loans Automatically Forgiven for 1099 Employees?
No. All PPP loan recipients must apply for loan forgiveness through their lender. We don’t know exactly what that process looks like yet because the SBA hasn’t released guidance.
Can You Receive Unemployment at the Same Time as Your PPP Loan?
No. PPP loans cannot be used for the same purpose as other government funds at the same time. So you cannot receive unemployment at the same time as you’re using PPP funds to cover lost payroll.
If you are currently receiving unemployment, you will have to cancel it starting on the date your PPP loan is funded. If you are still suffering from lost wages after PPP funds have been exhausted, you can apply for unemployment through your state agency.
Can You Choose the Start Date For the Loan?
You cannot choose the start date for the loan. The loan term begins the day you receive funds.
The CARES act has a provision for you and a self employed individual with only 1099 income. I'm assuming that you are not incorporated as well. Remember, it's not what you consider income, it's what the SBA, IRS or the Act that applies to you, considers income.
Item ii, Part B in Section II of the SBA section of the CARES Act spells out the qualifications for Payroll Protection Plan relief money. It states that an independent contractor who operates as a sole proprietor may apply for PPP relief. A bank you do business with is your best bet, or a Community Bank or Credit Union. New funding is now available. Make sure you have not defaulted on a past SBA loan. Qualifications are not difficult.
Your loan amount should have been calculated using your 2019 Schedule C net profit (2.5 x your average monthly payroll). You should divide the loan amount by 8, and pay yourself that amount over an 8 week period. Mechanically, the loan amount should be deposited into your business account, and you can "pay yourself" by systematically transferring your loan proceeds into a personal account over the 8 week period. Your lender should work with you to prepare the proper documentation to apply for loan forgiveness. Also, keep in mind that you may also use some of the proceeds for non-payroll costs such as rent, utilities, etc. But these expenses cannot account for more than 25% of your loan forgiveness. I've included a link to guidance from the SBA that provides more details regarding the PPP loan and it's forgiveness provisions:
https://www.sba.gov/sites/default/files/2020-04/PPP%20Interim%20Final%20Rule_0.pdf
Hope that helps!
You first have to have an established business account in your business’ name prior to February15, 2020. You will noT qualify for a PPP Loan without a business account. This is a reason to get an EIN number even though many most dole proprietors use their SSN (which is legal to do).
An alternative is to apply for an SBA loan, or most importantly, apply for Unemployment. If you have filed your taxes and filed a Schedule C, you will be eligible to get up to $600.00/week even as a self-employed person. Hopes this helps!