COVID-19 Resources

Update on Self-Employed Guidance for Paycheck Protection Program Loans

Written by Van Trefethen on April 17, 2020

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All information published represents our views at the time it was produced. Access all of Warren Averett’s Paycheck Protection Program by date on our COVID-19 PPP Resource Page

The Treasury and the SBA issued additional guidance on April 14th for the gig economy (i.e., self-employed individuals). The guidance clarified how self-employed individuals could apply for the important Paycheck Protection Program (PPP) loans.

For partnerships, self-employed income derived by active general partners of a partnership should be included in the income on the partnership loan application. The partners should not apply for a PPP loan separately. The income is capped at $100,000 per partner.

Self-employed individuals who report their income on Schedule C of Form 1040 are eligible to apply for a PPP loan. The loan applicant must provide a copy of the 2019 Form 1040 Schedule C (whether filed or not) with the loan application, along with support, such as Forms 1099, invoices, bank statements, etc. Applicants must also provide documentation from around February 15, 2020 showing that they were in business at that time.

Determining Loan Amounts

If the applicant does not have employees, the loan amount would be calculated by the following equation:

Net profit from 2019 Form 1040 Schedule C (capped at $100,000) ÷ 12 × 2.5

If the applicant does have employees, the loan amount would be calculated by the following equation:

(Net profit from 2019 Form 1040 Schedule C (capped at $100,000) ÷ 12 × 2.5) + (Average monthly payroll costs ÷ 12 × 2.5)

Eligible Loan Uses

The eligible uses for the loan include the following expenses:

  • Owner compensation replacement (based on 2019 net profit)
  • Employee payroll costs, including benefits (if applicable)
  • Mortgage interest obligations on real or personal property
  • Business rent payments
  • Business utility payments (includes gas used to drive a business vehicle)
    • You must have claimed or be entitled to claim a deduction for such expenses on your 2019 Form 1040 Schedule C for them to be a permissible use during the eight-week period following the first disbursement of the loan (the “covered period”). For example, if you did not claim or are not entitled to claim utility expenses on your 2019 Form 1040 Schedule C, you cannot use the proceeds for utilities during the covered period.
  • Seventy-five percent of the loan amount must be used on payroll costs, including owner compensation replacement. The self-employed individual without employees can use the remaining loan proceeds on other eligible costs above.

The loan proceeds may be forgiven if used in full for the following costs:

  • Payroll costs (annualized $100,000) no more than $15,385 per individual
  • Covered employee benefits (excludes owner benefits)
  • Owner compensation replacement (i.e., net profit from the 2019 Form 1040 Schedule C) limited to 8/52 of 2019 net profit
  • Other qualifying expenses listed under eligible uses

Connect with an Advisor

If you believe you would qualify for the PPP loan program, reach out to your lender as soon as possible. If you have questions about how this will affect you, please contact your Warren Averett advisor or complete this form to have a member of our team reach out to you.

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This article reflects our views at the time this article was written and should be used as reference only. We recommend that you talk to your Warren Averett advisor, or another business advisor, for the most current information or for guidance specific to your organization.

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