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If You’re Self-employed, This PPP Rule Change Might Mean a Bigger Loan

Thanks to a recently revised rule from the Small Business Administration, self-employed individuals now can access potentially larger loans through the Paycheck Protection Program (PPP). This rule allows contractors, gig-economy workers, freelancers and other self-employed individuals to rely on their gross income to calculate their loan amount if they file a Schedule C (Form 1040). 

Though sole proprietors already were eligible for PPP, they previously had to use their 2019 or 2020 net income to demonstrate need on the application. Now, those that have filed a Schedule C can calculate the owner compensation share of their payroll costs – the share of payroll costs that represents the pay of the owner – based on either net profit or gross income.  

If you’re a Schedule C filer, here’s what that means for you: 

• If you’re a Schedule C filer with no employees, you may simply calculate the loan amount based on either net profit or gross income; 
• If you’re a Schedule C filer with employees, you can calculate the owner compensation share of your payroll costs based on either net profit or gross income, subtracting expenses for certain expenses such as employee wages, employee benefit programs, pensions and profit-sharing plans. 

The revised rule, however, can’t be retroactively applied to sole proprietors who already got a PPP loan, meaning if you received an earlier draw based on your net income, you can’t go back and get more money through this new formula.   

In order to satisfy loan forgiveness guidelines, you must use these funds to assist with a variety of business costs, such as owner compensation, rent, utilities and operational expenses.  

Since the beginning of the pandemic, the network of CPAs, enrolled agents and tax professionals at PADGETT BUSINESS SERVICES® has helped more 1,500 small businesses secure more than $101 million in pandemic relief funding, including PPP loans. The deadline to apply for a PPP loan is May 31, 2021, so if you’re interested in learning more about PPP, it’s important you find an office near you as soon as possible to set up a consultation.