Whether you are self-employed, a sole proprietor or an independent contractor with no employees, the paycheck protection program (PPP) is a COVID-19 relief program designed to help you survive the pandemic.
Utilize the following highlights to help you successfully navigate the forgiveness process which began on August 10, 2020:
On Thursday, May 28, the U.S. House of Representatives approved the Paycheck Protection Program Flexibility Act of 2020 by a vote of 417-1. This bill has been enacted to make it easier for all PPP borrowers to qualify for PPP loan forgiveness.
Here are some highlights from this bill:
Sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form automatically qualify to use the Loan Forgiveness Application Form 3508EZ or lender equivalent and should complete that application.
According to the latest interim guidance and consistent with SBA Form 3508 & 3508EZ, with no employees, your eight or twenty-four weeks begin on the date the lender disburses the funds to you.
You would have an alternate date possibility if you had employees on a W-2 payroll.
The Covered Period is either: (1) the 24-week (168-day) period beginning on the PPP Loan Disbursement Date, or (2) if the Borrower received its PPP loan before June 5, 2020, the Borrower may elect to use an eight-week (56-day) Covered Period. For example, if the Borrower is using a 24-week Covered Period and received its PPP loan proceeds on Monday, April 20, the first day of the Covered Period is April 20 and the last day of the Covered Period is Sunday, October 4. In no event may the Covered Period extend beyond December 31, 2020.
Enter any amounts paid to owners (owner-employees, a self-employed individual, or general partners).
For an 8-week Covered Period, that maximum total loan amount is $15,385. For a 24-week Covered Period, that total is $46,154 for purposes of this 3508EZ.
For a 24-week Covered Period, this amount is capped at $20,833 (the 2.5-month equivalent of $100,000 per year) for each individual or the 2.5-month equivalent of their applicable compensation in 2019, whichever is lower.
When you file 2019 Schedule C and have no employees, your minimum loan forgiveness amount is your Payroll amount divided by 0.60.
Example 4. Your PPP loan is $20,833 which is the max compensation to an employee/owner over a 24-week period; $15,385 for 8-week period. Let’s say your Schedule C payroll to yourself is $11,385.
If you spend $7,000 on interest and utilities over the 24-week period; your loan forgiveness amount is $18,385 ($11,385 + $7,000). You can let the unforgiven $2,448 ($20,833 - $18,385) continue as a 1 percent interest loan for five years from the date of the loan or you can pay it off during this time frame with no prepayment penalties.
You may utilize the 3508EZ form if your employees were not furloughed, terminated nor greater than 25% compensation reduction.
Form 3508 is required if your loan amount exceeds $2M and/or furloughed or terminated employees.
Interest on unsecured credit is not eligible for loan forgiveness because the loan is not secured by real or personal property. Although interest on unsecured credit incurred before February 15, 2020 is a permissible use of PPP loan proceeds, this expense is not eligible for forgiveness.
However, payments of interest on business mortgages on real or personal property (such as an auto loan) are eligible for loan forgiveness. When you claim the home-office deduction on your Schedule C, it reduces the net profits from your business. In other words, the home-office deduction is a business deduction.
Under the current loan forgiveness rules, your non-payroll PPP loan forgiveness amount (limited to a maximum of 40 percent of total forgiveness) may include the following during your eight or twenty-four week covered period:
To put this in perspective, you need both the home (rented or owned) and the home office in place before February 15, 2020.
If you need our assistance with either the PPP loan forgiveness, we are here to be of service. Contact us at (818) 340-0157.