Wink Inc.
Enrolled Agents
America’s Tax Experts
®
Wink Tax Services
Paycheck Protection Loans For the Self-
Employed
Note: This Information has been condensed from SBA preliminary
guidance issued on 4/13/2020 for which the SBA was soliciting
comments. But it does answer a number of questions with respect
to self-employed individuals applying for a Paycheck Protection
Program (PPP) loan. The information is in the form of Q & As.
I have income from self-employment and file a Form
1040, Schedule C. Am I eligible for a PPP Loan?
You are eligible for a PPP loan if:
You were in operation on February 15, 2020;
You are an individual with self-employment income
(such as an independent contractor or a sole
proprietor);
Your principal place of residence is in the United States;
and
You filed or will file a Form 1040 Schedule C for 2019.
Partnerships - However, if you are a partner in a partnership, you
may not submit a separate PPP loan application for yourself as a
self-employed individual.
Instead, the self-employment income of general active partners
may be reported as a payroll cost, up to $100,000 annualized, on a
PPP loan application filed by or on behalf of the partnership.
How do I calculate the maximum amount I can
borrow and what documentation is required?
How you calculate your maximum loan amount depends upon
whether or not you employ other individuals.
No Employees - If you have no employees, the following
methodology should be used to calculate your maximum loan
amount:
Step 1: Find your 2019 IRS Form 1040 Schedule C line 31 net
profit amount (if you have not yet filed a 2019
return, fill it out and compute the value). If this
amount is over $100,000, reduce it to $100,000. If
this amount is zero or less, you are not eligible for a
PPP loan.
Step 2: Calculate the average monthly net profit amount (divide
the amount from Step 1 by 12).
Step 3: Multiply the average monthly net profit amount from Step
2 by 2.5.
Step 4: Add the outstanding amount of any Economic Injury
Disaster Loan (EIDL) made between January 31,
2020 and April 3, 2020 that you seek to refinance,
less the amount of any advance under an EIDL
COVID-19 loan (because it does not have to be
repaid).
Regardless of whether you have filed a 2019 tax return with the
IRS, you must provide the 2019 Form 1040 Schedule C with your
PPP loan application to substantiate the applied-for PPP loan
amount and a 2019 IRS Form 1099-MISC detailing nonemployee
compensation received (box 7), invoice, bank statement, or book
of record that establishes you are self-employed. You must provide
a 2020 invoice, bank statement, or book of record to establish you
were in operation on or around February 15, 2020.
If you have employees, the following methodology should be used to
calculate your maximum loan amount:
Step 1: Compute 2019 payroll by adding the following:
a.
Your 2019 Form 1040 Schedule C line 31 net
profit amount (if you have not yet filed a 2019
return, fill it out and compute the value), up to
$100,000 annualized. If this amount is over
$100,000, reduce it to $100,000. If this amount
is less than zero, set this amount at zero;
b.
2019 gross wages and tips paid to your
employees whose principal place of residence is
in the United States computed using 2019 IRS
Form 941 Taxable Medicare wages & tips (line
5c- column 1) from each quarter plus any pre-
tax employee contributions for health insurance
or other fringe benefits excluded from Taxable
Medicare wages & tips; subtract any amounts
paid to any individual employee in excess of
$100,000 annualized and any amounts paid to
any employee whose principal place of residence
is outside the United States; and
c.
2019 employer health insurance contributions
(health insurance component of Form 1040
Schedule C line 14), retirement contributions
(Form 1040 Schedule C line 19), and state and
local taxes assessed on employee compensation
(primarily under state laws commonly referred
to as the State Unemployment Tax Act or SUTA
from state quarterly wage reporting forms).
Step 2: Calculate the average monthly amount (divide the
amount from Step 1 by 12).
Step 3: Multiply the average monthly amount from Step 2 by 2.5.
Step 4: Add the outstanding amount of any EIDL made between
January 31, 2020 and April 3, 2020 that you seek to
refinance, less the amount of any advance under an
EIDL COVID-19 loan (because it does not have to be
repaid). You must supply your 2019 Form 1040
Schedule C, Form 941 (or other tax forms or
equivalent payroll processor records containing similar
information) and state quarterly wage unemployment
insurance tax reporting forms from each quarter in
2019 or equivalent payroll processor records, along
with evidence of any retirement and health insurance
contributions, if applicable. A payroll statement or
similar documentation from the pay period that
covered February 15, 2020 must be provided to
establish you were in operation on February 15, 2020.
How can PPP loans be used by individuals with
income from self-employment who file a 2019
Form 1040, Schedule C?
The proceeds of a PPP loan are to be used for the following
Owner compensation replacement calculated based on
2019 net profit.
Employee payroll costs for employees whose principal
place of residence is in the United States, if you have
employees.
Other Business Expenses: Similar expenses would have
had to have been deducted on the 2019 Schedule C to be a
permissible use during the eight-week period (covered
period) following the first disbursement of the loan.
o
Mortgage interest payments (but not mortgage
prepayments or principal payments) on any
business mortgage obligation on real or personal
property.
o
Interest payments on any other debt obligations
that were incurred before February 15, 2020 (Note:
such amounts are not eligible for PPP loan
forgiveness).
o
Business rent payments (e.g., the warehouse
where you store business equipment or the vehicle
you use to perform your business), and
o
Business utility payments (e.g., the cost of
electricity in the warehouse you rent or gas you use
driving your business vehicle).
Are there any other restrictions on how I can
use PPP loan proceeds?
Yes. At least 75 percent of the PPP loan proceeds shall be used for
payroll costs. For purposes of determining the percentage of use of
proceeds for payroll costs (but not for forgiveness purposes), the
amount of any refinanced EIDL will be included.
What amounts shall be eligible for
forgiveness?
The amount of loan forgiveness can be up to the full principal amount of
the loan plus accrued interest. The actual amount of loan forgiveness
will depend, in part, on the total amount spent over the covered period
on:
Payroll costs including salary, wages, and tips, up to
$100,000 of annualized pay per employee (for eight weeks,
a maximum of $15,385 per individual), as well as covered
benefits for employees (but not owners), including health
care expenses, retirement contributions, and state taxes
imposed on employee payroll paid by the employer (such as
unemployment insurance premiums);
Owner compensation replacement, calculated based on
2019 net profit as previously described above, with
forgiveness of such amounts limited to eight weeks’ worth
(8/52) of 2019 net profit.
Note: Excluded from payroll and owner compensation is any
qualified sick leave equivalent amount for which a credit is
claimed under section 7002 of the Families First Coronavirus
Response Act (FFCRA) (Public Law 116-127) or qualified family
leave equivalent amount for which a credit is claimed under
section 7004 of FFCRA:
Payments of interest on mortgage obligations on real
or personal property incurred before February 15, 2020,
to the extent they are deductible on Form 1040 Schedule C
(business mortgage interest payments);
Rent payments on lease agreements in force before
February 15, 2020, to the extent they are deductible on
Form 1040 Schedule C (business rent payments); and
Utility payments under service agreements dated before
February 15, 2020 to the extent they are deductible on
Form 1040 Schedule C (business utility payments).
What documentation will I be required to
submit to my lender with my request for loan
forgiveness?
In addition to the borrower certification required by the Act, to
substantiate your request for loan forgiveness, if you have employees,
you should submit Form 941 and state quarterly wage unemployment
insurance tax reporting forms or equivalent payroll processor records
that best correspond to the covered period (with evidence of any
retirement and health insurance contributions).
Whether or not you have employees, you must submit evidence of
business rent, business mortgage interest payments on real or personal
property, or business utility payments during the covered period if you
used loan proceeds for those purposes.
The 2019 Form 1040 Schedule C that was provided at the time of the
PPP loan application must be used to determine the amount of net profit
allocated to the owner for the eight-week covered period. The
Administrator, in consultation with the Secretary, determined that for
purposes of loan forgiveness it is appropriate to require self-employed
individuals to rely on the 2019 Form 1040 Schedule C to determine the
amount of net profit allocated to the owner during the covered period.
Are
businesses
that
receive
revenue
from
legal
gaming eligible for a PPP Loan?
A business that is otherwise eligible for a PPP Loan is not rendered
ineligible due to its receipt of legal gaming revenues if:
a)
the business’s legal gaming revenue (net of payouts but not
other expenses) did not exceed $1 million in 2019; and
b)
legal gaming revenue (net of payouts but not other
expenses) comprised less than 50 percent of the business’s
total revenue in 2019.
Businesses that received illegal gaming revenue are categorically
ineligible. The Administrator, in consultation with the Secretary,
believes this test appropriately balances the longstanding policy
reasons for limiting lending to businesses primarily and substantially
engaged in gaming activity with the policy aim of making the PPP Loan
available to a broad segment of U.S. businesses and their employees.
Wink Inc. Enrolled Agents | 2701 Troy Center Dr, Ste 255 |
Troy | Michigan | 48084 | Tel: 248-816-1220 | TF: 800-276-8319
| Text: 248-800-6013 |