PPP forgiveness for self employed, independent contractors, gig workers (2021 rules)

In this 5-minute read:

  • What are the rules for PPP forgiveness for self employed, sole proprietors, contractors, gig workers, etc.?
  • How can self-employed individuals spend their PPP loan funds?
  • How can independent contractors, gig workers, and self-employed individuals get PPP loan forgiveness?

The rules of the Paycheck Protection Program are a little different for self-employed individuals, independent contractors, sole proprietors, gig workers, etc. and some recent updates make the loans from this program all the more appealing for these borrowers and potential borrowers. These types of businesses (and they are businesses, per PPP rules) have the opportunity to get even more PPP funding in spring 2021 than ever before, thanks to some recent PPP rules changes for schedule C borrowers. Plus, as with all PPP borrowers, they can have their loan completely forgiven, so long as they follow a few important steps along the way. 

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What are the terms PPP loan forgiveness self-employed people need to know (are they different for independent contractors, sole props, etc.)?

First, it helps to know what the forgiveness terms are for the PPP loans. Knowing this before spending the money will help you allocate it appropriately so that you can receive loan forgiveness. 

For self-employed individuals, the forgiveness terms are as follows:

  • At least 60% of your loan must go towards payroll costs—this is essentially your salary for the covered period, including any wages, tips, or commission. If you’re a sole proprietor, independent contractor, or self-employed individual (and don’t have employees) you CAN legally pay yourself 100% of your PPP money
  • You must use any of the remaining other 40% (if there is any remaining) on eligible expenses for the program
    • Mortgage, rent, utilities for office space
    • Operational expenses (specific software applications that keep business operations moving along)
    • Business-related damages caused by the riots/public disturbances in 2020 that couldn’t be covered by insurance
  • You must use your loan within 8-24 weeks of receiving the funds—this is also called the “covered period” (you can select your covered period when you apply for your loan)
  • You may apply for PPP loan forgiveness the day after your covered period ends, and for 10 months thereafter. After 10 months following your covered period, you’ll need to start paying interest on any unforgiven portion of your loan. So be sure to apply for forgiveness as soon as you can! (See below for more details about the process of PPP loan forgiveness self-employed no employees, etc.)

How can I spend my PPP loan money? Maintaining PPP loan forgiveness for sole proprietor, independent contractors, gig workers, and self-employed individuals

As covered above, a big rule of the PPP loan is that in order for it to be forgiven, at least 60% has to go towards “payroll costs.” This can be a little confusing for the majority of self-employed workers that don’t have employees and don’t consider the fact that they actually have payroll expenses. What constitutes payroll? Are you able to just pay yourself with the money and then spend it on whatever you want? Yeah, kind of. 

Assuming you meet all other guidelines and use your loan over the 8 to 24 week covered period, you could use 100% of the loan to pay your income during that time and receive full loan forgiveness. Now, that being said your maximum loan amount is can only be 2.5 times your average monthly profit (As of March 2021, anyone applying for a PPP loan using Form 1040 Schedule C may elect to use EITHER their gross or their net income to calculate their max loan amount), capped at $100,000 on an annualized basis. 

Once you’ve paid your income with the PPP loan, that money is yours to do what you will. But we’re guessing that you likely have your typical living expenses to pay for, so it’s not like you just won a free all-expense paid vacation. The point of the PPP loan is to help you recover from the financial impact of the COVID-19 pandemic and the lockdowns and restrictions resulting therefrom.

Outside of payroll or income expenses, you can use up to 40% of your PPP loan to help with other business expenses. For self-employed individuals, this might get a little trickier, particularly if you are working out of your home. 

Just like you would if you were deducting operating expenses from your taxes, you could determine the portion of your rent, mortgage, or utilities that counts as a business expense and then use your PPP loan to help pay for those expenses. 

Other approved expenses are necessary operational costs for software applications that keep your business moving. Maybe you have a project management software or time tracking tool that you subscribe to. These types of expenses can also be covered by your PPP loan. 

No matter what you choose to spend your PPP loan on, you’ll want to be diligent in tracking exactly where these funds go if you want to receive full loan forgiveness. 

Check out our guide: Tracking PPP expenses to maintain forgiveness (tools and tips!) 

What’s the process for independent contractor PPP loan forgiveness, gig workers, and self-employed individuals?

If you wish to apply for loan forgiveness (and you absolutely should), you can do so once you’ve used all of your loan proceeds. You’ll need to apply for forgiveness within 10 months of the last day of your covered loan period to be eligible for loan forgiveness. 

To apply for loan forgiveness, you should contact your PPP lender and complete the correct application form. It will be one of the following:

You’ll also need to compile documentation to verify your expenses. For payroll, this may include bank account statements and tax forms. For non-payroll expenses, you’ll need documents like invoices states, lease agreements, canceled checks, or other account statements to verify the expenditure. 

Once you’ve filled out the appropriate form and compiled your documentation, you should submit these with your lender. They may request additional supporting documents depending on the loan forgiveness amount for which you apply. They may also use a slightly different (lender specific) form, internal/online processes, etc. so make sure you follow their directions.

Continue to work with your lender throughout the process. Follow up with them for updates as necessary. Your lender will notify you if the SBA reviews your loan and let you know what the final decision is. Your lender is responsible for ensuring that you know when or if your loan has been forgiven and any details regarding loan payback if that applies to you. 

For more information about how to prepare for PPP loan forgiveness, visit our PPP forgiveness FAQ

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