IMPORTANT UPDATE FOR 2021:
Congress has approved an extension of the PPP loan program. SBA will accept applications until May 31, 2021, including “second draw” PPP loans for businesses that received PPP funding in 2020.
In this 3-minute read:
- Calculating the maximum PPP loan amount for a partnership
The Paycheck Protection Program allows business owners to apply for loans to help them through the economic crisis that the COVID-19 pandemic has led to. Several types of businesses qualify for this program, including partnerships.
Check here for the full details on who can apply for a PPP loan.
In this article, we’ll guide your partnership through the process of calculating how much you can request for your PPP loan.
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How to calculate your PPP loan amount if you are in a partnership
If you are in a partnership, whether it is a general partnership where you share equal responsibilities with your partners or a limited partnership, this calculation applies to your business.
Go through the following steps to determine how much you can request for your PPP loan, up to a max of $10 million.
Step 1: Compute your 2019 or 2020 payroll costs
Collect the figures from each of the following areas and add them up:
- Compute 2019 or 2020 payroll costs by adding the following:
- 2019 or 2020 Schedule K-1 (IRS Form 1065) Net earnings from self-employment of individual U.S. based general partners that are subject to self-employment tax, computed from box 14a (reduced by any section 179 expense deduction claimed, unreimbursed partnership expenses claimed, and depletion claimed on oil and gas properties) multiplied by 0.9235*, up to $100,000 per partner (if 2019 schedules have not been filed, fill them out);
- 2019 or 2020 gross wages and tips paid to your employees whose principal place of residence is in the United States, if any, which can be computed using 2019 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, subtracting 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 U.S;
- 2019 or 2020 employer contributions for employee health insurance, if any (portion of IRS Form 1065 line 19 attributable to health insurance);
- 2019 or 2020 employer contributions to employee retirement plans, if any (IRS Form 1065 line 18); and
- 2019 or 2020 employer state and local taxes assessed on employee compensation, primarily state unemployment insurance tax (from state quarterly wage reporting forms), if any.
*This treatment follows the computation of self-employment tax from IRS Form 1040 Schedule SE Section A line 4 and removes the “employer” share of self-employment tax, consistent with how payroll costs for employees in the partnership are determined.
Please note: The partnership’s 2019 (and 2020 if available) IRS Form 1065 (including K-1s) and other relevant supporting documentation if the partnership has employees, including the 2019/2020 IRS Form 941 and state quarterly wage unemployment insurance tax reporting form from each quarter (or equivalent payroll processor records or IRS Wage and Tax Statements) along with records of any retirement or health insurance contributions, must be provided to substantiate the applied-for PPP loan amount. If the partnership has employees, a payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish the partnership was in operation and had employees on that date. If the partnership has no employees, an invoice, bank statement, or book of record establishing the partnership was in operation on February 15, 2020 must instead be provided.
Step 2: Calculate your average monthly payroll expenses
Total the amount from Step 1 and divide it by 12. This will give you your partnership’s average monthly payroll expenses from the last year.
Step 3: Multiply your average monthly payroll by 2.5
Take the average monthly payroll costs from Step 2 and multiply that number by 2.5. Each business is allowed to request up to 2.5 times their monthly payroll expenses.
Step 5: Add any outstanding EIDL loans
If your business applied for an Economic Injury Disaster Loan (EIDL) and add any outstanding loan amount to your PPP loan request.
Be sure not to include any “advance” you have received on an EIDL loan for COVID-19, since that portion doesn’t have to be repaid.
Here’s an example of the calculation for a partnership with an outstanding EIDL loan:
Annual payroll expenses: $1,200,000
Average monthly net profit: $100,000
Multiply by 2.5: $250,000
Add outstanding EIDL loan amount of $10,000
Total amount to request: $260,000
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