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Is a PPP Loan Right for Your Business? Can show payroll figures for either 2019 or 2020 to calculate PPP loan amount using either tax returns or 941 for chosen year; Reapplying and Loan Increases Existing PPP borrowers that did not receive loan forgiveness by December 27, 2020 may: (1) reapply for a First Draw PPP Loan if … Schedule C workers with no employees can use 100% of their PPP loans as owner’s compensation when choosing the 24-week covered period for forgiveness. Don’t worry; these instructions will help facilitate the whole process. The maximum amount for a PPP loan is 2.5 times your average monthly payroll costs. Typically, your forgiveness amount matches your loan amount, which we helped you calculate in the above section, How to Calculate PPP Loan Forgiveness if You’re Self-Employed. To calculate the amount of Owner Compensation Replacement that is eligible for forgiveness, you multiply your reported net income in 2019 on your Schedule C business tax return by 2.5/12 (or 0.208). How to complete Form 3508S for Self-Employed Individuals with no Employees. Additionally, reimbursable owner compensation has different guidelines than employee compensation. Share This Post. EZ PPP Loan Forgiveness Application and instructions; The releases Wednesday came only hours after the SBA issued a new interim final rule providing guidance on how to calculate employee and owner compensation for loan forgiveness in the new 24-week covered period created by the Paycheck Protection Flexibility Act. I am self-employed and have employees, how do I calculate my maximum PPP loan amount (up to $10 million)? Lastly, you can also visit and read through this helpful article to learn more about the documents you need to prepare for the PPP loan forgiveness application: Learn more about Paycheck Protection Program Loan Forgiveness . You may be reading about large chunks of money being awarded to small businesses and think – … The new IFR allows a Schedule C filer who has yet to be approved for a PPP first- or second-draw loan in the current, $284.5 billion phase of the program to elect to calculate the owner compensation share of its payroll costs based on either net profit (as reported on line 31 of Schedule C) or gross income (as reported on line 7 of Schedule C). These owner-employee restrictions impose both a lower cash compensation limit on owner-employees of borrowers who use the 24-week “covered period” for PPP loan forgiveness and certain categorical restrictions that differ from the treatment for ordinary employees. Second Draw PPP loans made to eligible borrowers qualify for full loan forgiveness if during the 8- to 24-week covered period following loan disbursement: Employee and compensation levels are maintained in the same manner as required for the First Draw PPP loan; The loan proceeds are spent on payroll costs and other eligible expenses; and If you’ve hired 1099 workers, they cannot be included in your PPP loan calculation and may apply for their own PPP loans. Because there are so many permutations, we have given the following example based on a partnership with employees (keep in mind that LLCs can choose to be taxed as an LLC, Partnership, or Sole Proprietorship). Please note that using the Cash Compensation worksheet is not required to complete the PPP Loan Forgiveness application. This is a blog on how to apply for Program Protection Program (PPP) loan forgiveness Form 3508S for self-employed individuals with no employees. The new 24-week limit and other changes to PPP Loans means changes in calculating payroll costs, and thus the amount of loan forgiveness. PPP Loan Forgiveness and Business Owner Retirement Contributions May 21st 2020. For purposes of calculating cash compensation, borrowers should use the gross amount before deductions for taxes, benefits, etc. ... clarifies that employer contributions to retirement plans are eligible for PPP and not capped by the $100,000 limit on compensation. This will likely amount to your entire PPP loan assuming it did not factor in additional payroll expenses. When it comes time to apply for forgiveness, sole proprietors can claim “Owner Compensation Replacement,” which allows them to automatically claim a portion of their PPP loan as lost profit. Owner Cash Compensation Limitation: For any owner-employee (with an ownership stake of 5% or more) or self-employed individual/general partner, the dollar amount for which forgiveness is requested cannot exceed 2.5 months’ worth of compensation received during the year used to calculate the PPP loan amount, capped at $20,833 per individual in total across all businesses. (Note that PPP loan forgiveness amounts will depend, in part, on the total amount spent during the 24-week period following the first disbursement of the PPP loan.) Cash Compensation Calculations & Owner Compensation. How to calculate PPP Forgiveness. Borrowers could choose. The guidance affirms that regardless of the method used to calculate the loan amount, forgiveness is capped at 2.5 months’ worth (2.5/12) of an owner-employee or self-employed individual’s 2019 or 2020 compensation (up to a maximum $20,833 per individual in total across all businesses). 2 Additionally, you need to calculate the amount you spent on payroll costs to determine your maximum loan forgiveness amount. It’s free to apply for a PPP loan, and Womply can help connect you with an SBA lender that’s right for you! Income listed on a Schedule C in your personal tax return is the only payroll that can be used to calculate your PPP loan amount. Reminder The $20,833 cap is based on the maximum defined compensation of $100,000 divided by 12 and then multiplied by 2.5. These are as follows: Payroll & Non-Payroll Costs. This makes the rules about this issue seem straightforward. For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the Covered Period. To calculate your forgiveness amount, you will need to add up all eligible payroll and non-payroll costs incurred during the covered period : 24-weeks (168-day) beginning when the borrower received their PPP loan. If you have or plan on getting the relevant data from your accountant, payroll service provider, or any other resource, you may enter that information directly into the online application. For loans made before June 5, 2020, you can choose to use either an 8-week or 24-week loan forgiveness covered period. First Draw PPP loans are made to eligible borrowers who qualify for full loan forgiveness if they have done the following during the 8- to 24-week period following their PPP loan disbursement: For all loans, the 2019 or 2020 Form 1040 Schedule C or F that the borrower 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 covered period. The process of calculating PPP Loan forgiveness can be broken up into 4 main parts, which are represented as lines on SBA Form 3508. This means that your PPP loan should roughly be ten weeks worth of your net profit. Womply has helped over 200,000 businesses get their PPP funding. Since as a sole proprietor, you likely do not have payroll to spend those funds on, owner compensation replacement will help you receive forgiveness. There are 3 basic steps to get your Paycheck Protection Plan loan forgiven. 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