Last week the Small Business Administration (SBA) released an updated set of Interim Final Rules for the PPP (Paycheck Protection Program). These latest rules supplement the First PPP Interim Final Rules with guidance for individuals with self-employment income who file a Form 1040, Schedule C. We have highlighted some of the key takeaways from this most recent update.
- The maximum loan amount for Schedule C filers will be based on the taxpayer’s 2019 Schedule C. Although the 2019 tax return filing deadline has been extended from April 15 to July 15, individual taxpayers looking to qualify for the loan will need to provide the 2019 Form 1040 Schedule C with the PPP loan application (regardless of whether you have filed a 2019 tax return with the IRS). Calculations to determine the loan amounts are outlined on pages 6-8 Interim Final Rule document.
- Schedule C filers will need to establish eligibility by proving they were in operation on or around February 15, 2020 by providing 2020 documentation such as bank statements, invoices, or financial statements. If the Schedule C filer had employees, a payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish the Schedule C filer was in operation on February 15, 2020.
- Individuals who are partners in a partnership should include their self-employment income received from the partnership as “payroll” costs (up to $100,000) when applying for loans and calculating loan forgiveness. The guidance stops short of defining what is included in self-employment income for partners, including the treatment of guaranteed payments, however under IRC 707(c) guaranteed payments are subject to self-employment tax unless they are to limited partners.
- Self-employed individuals participation in the PPP may impact eligibility for state administered unemployment compensation or unemployment assistance programs.
- Loan forgiveness amounts will be reduced for self-employed individuals who take credits for sick time or family leave under the Families First Coronavirus Response Act.
It is important to understand the new Interim Final Rules for the PPP before applying to ensure you qualify and also to understand how funds received may impact other benefits you may be entitled to.