For independent contractors and gig economy workers, eight weeks of PPP financing is automatically granted in lieu of salary after approval. You can prepare for a pardon application by having all your expenses covered by the PPP calculated. This includes your owner`s compensation and any other eligible PPP expenses. The good news is that many of them have finally gotten this help, and now that the pandemic is receding, it`s time to repay those PPP loans or – better! – to be assigned. Here`s how to do it: If you have more questions about PPP loan forgiveness, visit our PPP loan forgiveness FAQ page or join one of our experts for a PPP webinar. Example 1: Suppose Jen is a freelance photographer who earned $125,000 in 2019. She has no employees and works from home. Line 31 of their Schedule C shows that their net income was $125,000. Since it is over $100,000, Jen is exhausted at $100,000 for PPP loan purposes. The amount of your loan forgiveness would be the same amount of $20,833, or $100,000 spread over 12 months, times 2.5 ($100,000 ÷ 12 = $8,333.33. $8,333.33 x 2.5 = $20,833).
As mentioned above, eight weeks of your loan proceeds are considered a salary replacement. When you applied for your PPP loan, you needed proof of salary, in this case a salary. To do this, you will need your 2019 Schedule C Form 1040, as well as a 2019 IRS 1099-MISC form that includes non-employee compensation, invoices, bank statements, or a book of records proving that you are self-employed. Theoretically, a small business with employees could use 100% of its loan for labor costs and 0% for rent, utilities, or mortgage interest. Do the self-employed have the same choice? This third step calculates your average monthly income and the fourth step gives you your maximum PPP loan forgiveness amount – 2.5 times your monthly average. At $100,000, that figure is $20,833. To get your loan as a solopreneur, you can visit the SBA`s direct forgiveness portal to submit your application (as long as your lender has chosen to participate). After filling out some basic information, most of your credit information will be filled out on the form yourself, and you`ll sign it with DocuSign. You can submit it directly on the portal and the SBA will start processing your application. This how-to guide you through the process.
Note: To use the SBA portal, your loan had to be less than $150,000. What happens if the amount of my loan is greater than the amount that can be granted? Let`s say your loan amount was $25,000, but you`re exhausted at $20,833 in rebate. The difference – $4,167 – must be repaid under the terms of your PPP loan. But at 1% interest, it`s still a hell of a good deal. If you do not make a paycheck, the amount of your PPP loan will be calculated based on your gross or net income, as shown in a Schedule C for 2019 or 2020. If you`re having trouble calculating this, Intuit has a great forgiveness calculator called AidAssist that you can use. If the replacement amount of your homeowner`s indemnity does not exceed the amount of your PPP loan, you should determine whether your non-payment costs paid or incurred during the period covered are eligible for the rebate, and add them to your “salary costs” when you claim a rebate amount. Eligible non-payment costs include: Self-employed individuals can use a simplified pardon application called Form 3508S. This form applies to you if your loan amount is $150,000 or less.
If your loan was over $150,000, you can use Form 3508EZ as long as you have not reduced your FTE staff or salary and wages by more than 25%. Otherwise, you must use the standard pardon form. And yet, despite all this initial bad news, once the loan program gained traction, the problems were resolved, changes were made, and eligibility increased. For us, the best of these changes was that subsequent cycles of PPP funding allowed the self-employed to participate in support, although many do not have an actual “payroll” per se. To say that the tens of millions of freelancers, independent entrepreneurs and independent small business owners in the country should be able to use this loan product would be a huge understatement. The Covid pandemic has changed everything as self-employment income has dried up and many small business owners have struggled powerfully. The SBA then granted PPP loans to the self-employed as contractors with employees. In addition, most of the terms regarding the eligible use of PPP loans, how to get a full rebate from your lender, and other advice are for small business owners. That said, if you`re using PPP to replace your freelance income or pay for home office fees, you`ve had to compile responses from various press releases, forms, and recommendations from lenders.
Self-employed workers are subject to different PPP rules than other small businesses. This is because they probably have different needs and work according to different business models. To be eligible for a full credit rebate, you must meet a few criteria. Typically, lenders need up to 60 days to evaluate the credit remittance. Like any other small business that takes out a PPP loan, the self-employed will return to their lender when it`s time to get a PPP loan forgiveness. At this point, you will not be eligible for a full loan forgiveness if you apply for it if you are using an 8-week covered period. Assuming you don`t have any other expenses eligible for the rebate and you have taken out the maximum PPP loan you have, you have 25% of the total proceeds of your loan that is not forgiven. Filling out Form 3508 takes longer, but it`s still simple.
Like the other two forms, it begins with a recitation of the details of the business and the loan. Then go into the calculations: list your wage and non-wage costs and list the RTD reductions. (Appendix A and its worksheet will help you specify and calculate these numbers.) If you don`t apply for a discount, you can also carry forward the loan balance for two to five years with 1% interest. This interest rate would probably be the lowest you could get on the open market by a wide margin. While PPP loans have always been meant to be forgiven and you may not prefer to pay interest on a loan, the option is there if for some reason you may not qualify for loan forgiveness. It`s always better than applying for a regular SBA or a bank loan. Let`s look at two examples to better understand how to calculate your rebate amount: The good news is that solopreneurs who took out the maximum loan amount, which was 2.5 times their average monthly income, will receive a full credit rebate if they qualify. Qualification occurs when you meet these four requirements: If you are managing labor costs, your PPP credit calculation will require a few additional steps. You can also ask for forgiveness directly from your lender. You will need to complete one of three forms: Form 3508S, Form 3508 or the ZE application.
But which shape is best for you? Well, of course, you`d probably prefer the name-only EZ app, right? The PPP limits compensation to an annual salary of $100,000. Therefore, for sole proprietors or independent contractors without employees, the maximum possible PPP loan is $20,833, and the total amount is automatically eligible as part of the owner`s remuneration for the rebate. .