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PPP Update - If you file as Schedule C there are some good news

Many independent contractors and Sole Proprietors were not able to borrow sufficient funds because their Net Income compared to their gross income was nominal and in fact the US Small Business Administration (“SBA”) recognizes that.

For this reason, “the SBA issued a new Paycheck Protection Program (“PPP”) Interim Final Rule (“Rule”) on March 3, 2021, which will permit independent contractors and sole proprietors who file Schedule C Business form as part of their 1040 Income Tax return to to base their PPP Loan upon their “gross income” (line 7 of Schedule C), for their first draw PPP loan, if no loan has yet been received and/or for their second draw PPP loan, if the first loan has been received and used. The gross income reported on line 7 will still be capped at the same $100,000 as was net profit, so the maximum loan a Schedule C taxpayer may receive remains at $20,833 ($100,000 x 20.833%).

Until the issuance of the new Rule Schedule C filers could receive a PPP loan based solely upon 20.833% of the net profit shown on Line 31 of Schedule C of their Form 1040, not exceeding $100,000. This is based upon what was shown as Net Profit on Schedule C, which basically consists of revenues, less normal business expenses. This change makes self-employed individuals eligible for larger loans.”

Some considerations about this New PPP:

  • Is not retroactive.

  • borrowers whose PPP loans have already been approved based upon previous guidance cannot now increase their loans based on the new gross income methodology.

  • Schedule C filer who has yet to be approved for a PPP first or second draw loan to elect and calculate the owner compensation share of its payroll costs based on either net profit or gross income.

If you as Schedule C have employees, the borrower may elect to calculate the owner compensation share of its payroll costs based on either net profit or gross income minus expenses reported on lines 14 (employee benefit programs), 19 (pension and profit-sharing plans), and 26 (wages (less employment credits)) of Schedule C.
If you do not have employees, the borrower may simply choose to calculate its loan amount based on either net profit or gross income.

The good news is that many self employed individuals will be eligible for either a PPP first draw loan, if they were not previously eligible for one, or a larger PPP second draw loan, regardless of the amount of the first loan.

Do you have any questions about the New PPP for Schedule C? We have answers! Contact us or book a call.

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