Can independent contractors use 2020 tax docs for PPP? (max loan amount tips)

In this 4-minute read:

  • Can independent contractors use 2020 tax documents to apply for PPP loans?
  • What if I haven’t filed my 2020 taxes yet?
  • How do I choose whether to use gross or net income to apply for PPP loans?
  • Important rule changes that benefit Schedule C filers
  • New application forms for Schedule C “gross income” applicants

It remains to be seen whether the PPP loan window will be extended after the current application deadline of May 31, 2021, but we expect there’s a fairly good possibility that it will be, or that the PPP will be renewed yet again later in the year. Regardless, recent changes in the PPP rules have shaken up independent contractors, sole proprietors, and eligible self-employed individuals who have questions about how they should calculate their maximum loan amounts, which tax documents they can use to apply, and which forms they should use.

Let’s see if we can shed some light on these and other pertinent questions for these potential PPP borrowers.

Get up to $50,000 in forgivable PPP loans! Womply has helped over 200,000 businesses, contractors, sole proprietors, and self-employed individuals get their PPP loans. Start your free PPP application now!

What recent PPP rule changes have potentially huge benefit for independent contractors and other Schedule C applicants?

On February 22, 2021, the Biden-Harris administration announced new PPP rule changes that now allow PPP borrowers who file using IRS Schedule C (Form 1040) to selectively use GROSS profits, rather than NET profits, to calculate their maximum PPP loan amount. 

This is huge news for many smaller businesses, contractors, gig workers, sole proprietors, etc. because a lot of these people didn’t report enough net income to qualify for the minimum PPP loan amount under the previous rules. Read more about the $4800 minimum earnings PPP cutoff.

If you’re not sure if you qualify, start your free PPP application now, and the process will help you determine your eligibility.

Can I use 2020 payroll/tax records to apply for PPP loans?

Yes, you can. As long as you are otherwise eligible for PPP loans and you were in business as of February 15, 2020, you can use either 2019 or 2020 payroll and tax records to calculate your maximum PPP loan amount and submit your application.

If you haven’t filed your 2020 federal tax return yet, you should fill out the appropriate forms and use the calculations when you submit your application. Your lender will ask for a copy of your Schedule C (Form 1040) form if you choose to use 2020’s information to apply, even if you haven’t submitted your tax return yet.

How do I choose whether to use 2019 or 2020 records to calculate my PPP loan amount? Or whether to use gross or net income?

Since you can use either 2019 or 2020 data to substantiate your maximum PPP loan amount request during your application, you can elect to use whichever year (and either gross or net income) will result in the higher loan amount for your situation.

You can do the calculations below and determine which year, and which option (gross or net income) results in the higher maximum PPP loan request amount, then use the appropriate year’s tax forms and application forms to apply with your SBA lender.

If you have no employees, use the following methodology to calculate your potential maximum loan amount:

  • Step 1: From your 2019 or 2020 IRS Form 1040, Schedule C, you may elect to use either your line 31 net profit amount or your line 7 gross income amount. (If you are using 2020 to calculate payroll costs and have not yet filed a 2020 return, fill it out and compute the value.) If this amount is over $100,000, reduce it to $100,000. If both your net profit and gross income are zero or less, you are not eligible for a PPP loan
  • Step 2: Calculate the average monthly gross profit amount (divide the amount from Step 1 by 12).
  • Step 3: Multiply the average monthly gross profit amount from Step 2 by 2.5. This amount cannot exceed $20,833.
  • Step 4: Add the outstanding amount of any Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 that you seek to refinance. Do not include the amount of any advance under an EIDL COVID-19 loan (because it does not have to be repaid).

You must provide the 2019 or 2020 (whichever you used to calculate your loan amount) IRS Form 1040, Schedule C with your PPP loan application to substantiate the applied-for PPP loan amount and a 2019 or 2020 (whichever you used to calculate your loan amount) IRS Form 1099-MISC detailing nonemployee compensation received (box 7), invoice, bank statement, or book of record that establishes you are self-employed. If using 2020 to calculate your loan amount, this is required regardless of whether you have filed a 2020 tax return with the IRS. You must also provide a 2020 invoice, bank statement, or book of record to establish you were in operation on or around February 15, 2020.

Which application form do I use to apply for PPP loans if I’m self-employed/contractor/sole proprietor using gross income?

The SBA has released new PPP application and forgiveness forms for people using Schedule C (form 1040) to report their income and apply for PPP loans, and other options. There’s a specific form (Form 2483-C for first draw loans and Form 2483-SD-C for second draw) for borrowers who choose to use their gross income rather than their net income to calculate their maximum PPP loan amount. 

Learn more and see the new PPP forms here.

If you are a Schedule C filer who is eligible for a PPP loan, we have good news! We built Fast Lane for you.

  • Simple, five minute data collection process
  • Guides you through every step along the way
  • Automated first and second draw loan applications

 Put your PPP application in the Fast Lane

Not an independent contractor filing Schedule C? Don’t worry, Womply can still connect you (for free!) with an approved SBA lender for your PPP loan. Start your PPP application here.


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