PPP Update: Sole Proprietors, Independent Contractors & Self-Employed Individuals

If you are the only employee of your business (no payroll expenses), your PPP loan amount will be calculated using line 7 (gross income) of your 2019 or 2020 Schedule C. If you have not filed your 2020 taxes and would like to use 2020 gross income, you may fill out the 2020 tax forms and compute your 2020 gross income. 

In the PPP portal, under Loan Information tab, Section 4: Calculate Your Loan Amount you will enter your total gross income from line 7 of your IRS Form 1040, Schedule C and the tax year used.  

Please note that the PPP portal will automatically calculate your loan amount using the first $100,000 of gross income per program rules. The portal will also automatically compute your loan amount based on gross income.  

Please upload the following documents as part of your application in the PPP Portal: 

• 2019 or 2020 IRS Form 1040, Schedule C

• 2019 Form 1099-Misc or 2020 1099-NEC detailing non-employee compensation received (box 7 on 1099-Misc or box 1 on 1099 NEC), invoice, bank statement, or book of record establishing you are self-employed

• 2020 invoice, bank statement, or book of record establishing you were in operation on February 15, 2020

If you have previously received a PPP loan, you will have to document a revenue reduction of at least 25%.

“Period 1 Revenue” in Section 3 of loan application represents the 2019 “reference quarter”. “Period 2 Revenue” represents the 2020 quarter where the applicant experienced a 25% reduction in revenue over the reference quarter.  

Entities in Operation for all of 2019: Applicants must demonstrate that gross receipts in any quarter of 2020 (Period 2 Revenue) were at least 25% lower than the same quarter of 2019 (Period 1 Revenue). Alternatively, applicants may compare annual gross receipts in 2020 (Period 2 Revenue) with annual gross receipts in 2019 (Period 1 Revenue). Applicants choosing to use annual gross receipts must submit copies of annual tax forms substantiating the annual gross receipts reduction. 

For entities not in business during the first and second quarters of 2019 but in operation during the third and fourth quarters of 2019: Applicants must demonstrate that gross receipts in any quarter of 2020 (Period 2 Revenue) were at least 25% lower than either the third or fourth quarters of 2019 (“Period 1 Revenue”). 

For entities not in business during the first, second, and third quarters of 2019 but in operation during the fourth quarter of 2019: Applicants must demonstrate that gross receipts in any quarter of 2020 (Period 2 Revenue) were at least 25% lower than the fourth quarter of 2019 (Period 1 Revenue). 

For entities not in business during 2019 but in operation on February 15, 2020: Applicants must demonstrate that gross receipts in the second, third, or fourth quarter of 2020 (Period 2 Revenue) were at least 25% lower than the first quarter of 2020 (Period 1 Revenue).

Gross receipts includes all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Generally, receipts are considered “total income” (or in the case of a sole proprietorship “gross income”) plus “cost of goods sold” and excludes net capital gains or losses as these terms are defined and reported on IRS tax return forms. 

Gross receipts do not include the following: Taxes collected for and remitted to a taxing authority if included in gross or total income, such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees; proceeds from transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker. All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer's request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts. Gross receipts of a borrower must be aggregated with gross receipts of its affiliates. For a nonprofit organization, veterans organization, nonprofit news organization, 501(c)(6) organization, and destination marketing organization, gross receipts has the meaning in section 6033 of the Internal Revenue Code of 1986.

Please note that while you may use 2019 or 2020 data for your calculations – you must use the same year for both gross income and payroll calculations.  

Step 1: Compute your gross income by:

• Taking your gross income from line 7 from IRS Form 1040, Schedule C

• Subtract lines 14 (Employee Benefits Program), 19 (pension and profit sharing plans) and 26 (wages less employment credits)

This number will be entered into the Loan Portal and automatically added to the Average Monthly Payroll for Employees.

Step 2: Calculate your annual payroll expenses for Employees:

• 2019 or 2020 gross wages and tips paid to your employees whose principal place of residence is in the United States computed using 2019 or 2020 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 and any amounts paid to any employee whose principal place of residence is outside the US; and

• 2019 or 2020 employer contributions to employee group health, life, disability, vision and dental insurance (portion of IRS Form 1040, Schedule C line 14 attributable to those contributions);

• 2019 or 2020 retirement contributions (Form 1040, Schedule C line 19), and

• 2019 or 2020 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 3: Calculate the average monthly amount (divide the amount from Step 1 by 12) and enter as “Monthly Average Payroll” within Section 4 under Loan Information in the PPP Portal.

In the PPP portal, under Loan Information tab, Section 4, you will need to enter:

• Total Gross Income - Line 7 of your IRS Form 1040, Schedule C

• Box A – The calculation from Step 1 above, which is the calculation of Gross Income (line 7 of your IRS Form 1040, Schedule C) minus the sum of line 14, line 19, and line 26.

• Average monthly payroll for employees (not including owners) – Enter the calculation from Step 3 above.

• 2019 or 2020 IRS Form 1040, Schedule C

• 2019 or 2020 IRS Form 941*

• State quarterly wage unemployment insurance tax reporting form from each quarter in 2019 or 2020 (or equivalent payroll processor records or IRS Wage and Tax Statements)

• If applicable, documentation of any retirement or health insurance contributions**

• A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish you were in operation and had employees on that date. 

If you have previously received a PPP loan, you will have to document a revenue reduction of at least 25%.

“Period 1 Revenue” in Section 3 of loan application represents the 2019 “reference quarter”. “Period 2 Revenue” represents the 2020 quarter where the applicant experienced a 25% reduction in revenue over the reference quarter.  

Entities in Operation for all of 2019: Applicants must demonstrate that gross receipts in any quarter of 2020 (Period 2 Revenue) were at least 25% lower than the same quarter of 2019 (Period 1 Revenue). Alternatively, applicants may compare annual gross receipts in 2020 (Period 2 Revenue) with annual gross receipts in 2019 (Period 1 Revenue). Applicants choosing to use annual gross receipts must submit copies of annual tax forms substantiating the annual gross receipts reduction. 

For entities not in business during the first and second quarters of 2019 but in operation during the third and fourth quarters of 2019: Applicants must demonstrate that gross receipts in any quarter of 2020 (Period 2 Revenue) were at least 25% lower than either the third or fourth quarters of 2019 (“Period 1 Revenue”). 

For entities not in business during the first, second, and third quarters of 2019 but in operation during the fourth quarter of 2019: Applicants must demonstrate that gross receipts in any quarter of 2020 (Period 2 Revenue) were at least 25% lower than the fourth quarter of 2019 (Period 1 Revenue). 

For entities not in business during 2019 but in operation on February 15, 2020: Applicants must demonstrate that gross receipts in the second, third, or fourth quarter of 2020 (Period 2 Revenue) were at least 25% lower than the first quarter of 2020 (Period 1 Revenue).

Gross receipts includes all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Generally, receipts are considered “total income” (or in the case of a sole proprietorship “gross income”) plus “cost of goods sold” and excludes net capital gains or losses as these terms are defined and reported on IRS tax return forms. 

Gross receipts do not include the following: Taxes collected for and remitted to a taxing authority if included in gross or total income, such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees; proceeds from transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker. All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer's request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts. Gross receipts of a borrower must be aggregated with gross receipts of its affiliates. For a nonprofit organization, veterans organization, nonprofit news organization, 501(c)(6) organization, and destination marketing organization, gross receipts has the meaning in section 6033 of the Internal Revenue Code of 1986.