SBA releases new PPP application form and rules for Schedule C applicants

IMPORTANT 2021 PPP UPDATE FOR SCHEDULE C BORROWERS

As of March 3, 2021, PPP loan applicants who report their income with IRS Form 1040 Schedule C (i.e., most independent contractors, 1099 workers, and sole proprietors) will be able to use their GROSS (instead of net) profits to determine their max loan amount. This can make a big impact on the amount you can borrow, depending on how much you make and how you have reported your profits. Read more about all the latest 1040 Schedule C/PPP loan rules changes, see the new rules IFR, and the new PPP application form for Schedule C applicants.

On December 22, 2020, Congress passed a bill renewing funding under the CARES Act, including an additional $284 billion earmarked for America’s struggling small businesses. The rules and application process for PPP loans and forgiveness have been modified, with more businesses eligible for PPP loans, more expenses forgivable, and a simplified application process. Also there is provision for “second draw” PPP loans for businesses that received PPP funding in 2020.

 

In this 2-minute read:

  • Urgent new PPP rules update and new application for contractors, sole proprietors, and self-employed individuals who file a form 1040 Schedule C
  • How the new maximum loan calculation can mean the difference between qualification for a PPP loan and non qualifying
  • How to calculate your maximum PPP loan amount
  • Where to find the new Schedule C borrower form

On February 22, 2021, the Biden administration announced important updates to the PPP loan program intended to help truly small businesses, independent contractors, and sole proprietors get the stimulus funding they so desperately need. You can read our article about all the changes to the PPP program under the Biden administration, but the most important change for these smallest of applicants can have huge impacts on the amount of money they can borrow for these forgivable loans, and can even mean the difference between some people qualifying for these stimulus loans, versus not being able to apply.

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PPP Applicants who use 1040 Schedule C can now choose to use GROSS income to calculate maximum loan amounts

The most relevant change to the rules is that borrowers who use IRS Form 1040 Schedule C to report their income will now be able to elect to use their GROSS INCOME from line 7 as the basis for their maximum loan calculation. Previously they could only use their net profits figure from line 31, which meant that many small businesses, contractors, 1099 workers, and self-employed individuals didn’t show enough profit to be able to qualify for the $1000 minimum PPP loan amount.

Based on the calculations, you must show at least $4800 in income to qualify for a PPP loan.

Why do I need to have earned at least $4800 to qualify for a PPP loan?

There’s currently a minimum SBA PPP loan amount of $1000. When calculating your maximum PPP loan amount, the SBA takes your evidence of your average monthly payroll (or earnings if you’re an independent contractor, sole proprietor, or eligible self-employed individual and pay yourself), and multiplies that number by 2.5 to get your maximum loan amount. So: $4800 (annual gross or net profit) ÷12 (months) X 2.5 = $1000.

Go deeper: 1040 Schedule C tips for independent contractors, sole proprietors, and self-employed

How do the new PPP rules for Schedule C applicants change who may be able to qualify for stimulus loans?

Prior to March 3, 2021, independent contractors, sole proprietors, and self-employed individuals who report income using IRS Form 1040 Schedule C were limited to their NET profit amount (line 31 on the form) in calculating their average monthly payroll expenses, which is multiplied by 2.5 (or 3.5 for NAICS category 72 businesses) to arrive at your maximum PPP loan amount.

Previously, if this number from line 31 was lower than $4800, but the applicant’s GROSS income (line 7) was greater than $4800, the applicant would not be eligible for a PPP loan. However, the new rules allow borrowers in this category to elect to use their gross income total (line 7), which means that many more potential borrowers will now be able to qualify for PPP loans for the first time. 

How do I calculate my maximum PPP loan amount if I’m an independent contractor (Schedule C filer)?

We’ve created helpful guides to the process of calculating your maximum PPP loan amount for Schedule C filers:

Additional PPP loan resources for independent contractors and sole proprietors

Learn more about the Paycheck Protection Program and how it can help you as an independent contractor, sole proprietor, gig worker, or self-employed individual. We’ve put together several resources to help people like you!

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