When / how can independent contractors & self-employed apply for PPP loans in 2021?

In this 6-minute read:

  • When can independent contractors and self-employed business owners apply for the PPP loan in 2021?
  • How can independent contractors and self-employed business owners apply for the PPP loan?
  • How do I calculate my maximum first draw PPP loan amount if I’m self-employed and have employees?
  • How do I determine my maximum PPP loan amount as a farmer or rancher who reports my income on IRS Form 1040 Schedule F?

IMPORTANT PPP UPDATE: As of March 3, 2021, applicants who report their income with IRS Form 1040 Schedule C (i.e., most independent contractors, sole proprietors, and 1099 workers) 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 the latest 1040 Schedule C/PPP loan rules changes, and see the new rules, and the new PPP application form for Schedule C applicants.

For 2021 the SBA and Treasury Department have approved another round of the Paycheck Protection Program with a renewal of $284 billion to help businesses that have been affected by the challenges associated with the pandemic and public disturbances this past year. 

Many small businesses are eligible for first or second draw PPP loans, and that includes independent contractors and self-employed individuals like farmers, truckers, content creators, online stores, and more. Learn how your business can apply for the PPP loan in this article. (For more details, please check out our article with more PPP FAQs for 1099s and contractors.

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When can independent contractors and self-employed business owners apply for the PPP loan in 2021?

Whether you are applying for a first or second draw PPP loan, all applications must be submitted to SBA by May 31, 2021 through an approved SBA 7(a) lender. The loan opened back up the week of January 11, 2021 for certain lenders, and January 19, 2021 for all SBA approved lenders. President Biden signed the PPP Extension Act of 2021 on March 30.

This program may be extended or renewed later in 2021 depending on demand, and the Biden administration. We expect that the PPP program will likely be extended again in some fashion. 

See if you are eligible for a first or second draw loan: PPP for independent contractors 2021 (new FAQs).

How can independent contractors and self-employed business owners apply for the PPP loan?

There is a new application form for the 2021 PPP loan, but you aren’t able to submit this directly to the SBA. 

In order to apply for the PPP loan, all business owners (self-employed and independent contractors included) must submit their application through an approved SBA 7(a) lender. Any number of federally insured depository institutions like banks or credit unions and other community lenders who are participating in the Paycheck Protection Program can help facilitate your application. See if your own bank is participating in the program. 

You might also consider working through a loan agent to help get your application in quickly and through the best lender. Womply can help in this process and connect you with an eligible lender to help you get your free PPP loan application processed quickly.  

How do I calculate my first draw loan amount if I’m self-employed with no employees?

IMPORTANT PPP UPDATE: As of March 3, 2021, applicants who report their income with IRS Form 1040 Schedule C (i.e., most independent contractors, sole proprietors, and 1099 workers) will be able to use their GROSS (instead of net) profits to determine their max loan amount. Read more about the latest 1040 Schedule C/PPP loan rules changes, and see the new rules, and the new PPP application form for Schedule C applicants.

The PPP loan will be 2.5 times your average monthly payroll costs, based on your annual gross income (for schedule C applicants), with a cap at $10 million. As you submit your PPP loan application, you’ll need to calculate the amount that you can apply for. 

Here are the steps the SBA guides independent contractors and sole proprietorships to calculate their max PPP loan amount (this applies only to Schedule C filers, and does not apply to partners in a partnership):

  • Step 1: Get your 2019 IRS Form 1040 Schedule C line 7 GROSS INCOME amount. If that amount is larger than $100,000, reduce it to $100,000. If the amount is zero or below, then you aren’t eligible for a PPP loan. 
  • Step 2: Divide the amount you pulled from Step 1 by 12 to get your average monthly profit. 
  • Step 3: Multiple your average monthly profit from Step 2 by 2.5. 
  • Step 4: If applicable, add any outstanding amount of Economic Injury Disaster Loans (EIDL) made between January 31, 2020 and April 3, 2020 that you seek to refinance. Don’t include any advance from an EIDL COVID-19 loan because that doesn’t have to be repaid. 

Beyond your desired loan amount and the PPP loan application itself, you will also need to provide several other documents to substantiate your loan:

  • 2019 IRS Form 1040 Schedule C
  • 2019 IRS Form 1099-MISC to detail any non-employee compensation (box 7)
  • 2019 IRS Form 1099-K
  • Invoice, bank statement, or book of record showing you were self-employed in 2019
  • Invoice, bank statement, or book of record showing you were self-employed in 2020

For more information, view our full PPP loan FAQ and our PPP lender document checklist.

 

How do I calculate my maximum first draw PPP loan amount if I’m self-employed and have employees?

To determine your maximum first draw PPP loan amount if you are self-employed and have employees, use the following methodology to calculate your maximum loan amount:

  1. Step 1: Compute 2019 or 2020 payroll (using the same year for all items) by adding the following:
    1. At your election, either (1) the net profit amount from line 31 of your 2019 or 2020 IRS Form 1040, Schedule C, or (2) your 2019 or 2020 gross income minus employee payroll costs, calculated as your gross income reported on IRS Form 1040, Schedule C, line 7, minus your employee payroll costs reported on lines 14, 19, and 26 of IRS Form 1040, Schedule C (for either option, if you are using 2020 amounts and have not yet filed a 2020 return, fill it out and compute the value), up to $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred (if this amount is over $100,000, reduce it to $100,000, or if this amount is less than zero, set this amount at zero);
    2. 2019 or 2020 gross wages and tips paid to your employees whose principal place of residence is in the United States, computed using 2019 or 2020 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; subtract any amounts paid to any individual employee in excess of $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred, and any amounts paid to any employee whose principal place of residence is outside the United States; and
    3. 2019 or 2020 employer contributions to employee group health, life, disability, vision and dental insurance (portion of IRS Form 1040, Schedule C line 14 attributable to those contributions); retirement contributions (IRS Form 1040, Schedule C, line 19); and state and local taxes assessed on employee compensation (primarily under state laws commonly referred to as the State Unemployment Tax Act or SUTA from state quarterly wage reporting forms).
  2. Step 2: Calculate the average monthly amount (divide the amount from Step 1 by 12).
  3. Step 3: Multiply the average monthly amount from Step 2 by 2.5.
  4. Step 4: Add the outstanding amount of any 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 supply your 2019 or 2020 (whichever you used to calculate your loan amount) IRS Form 1040, Schedule C; Form 941 (or other tax forms or equivalent payroll processor records containing similar information); and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever you used to calculate your loan amount) or equivalent payroll processor records, along with evidence of any retirement and health insurance contributions, if applicable. A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish you were in operation on February 15, 2020.

You will need to provide formal documentation on each of the items mentioned above as you apply for your PPP loan. For more details about this calculation process, visit our PPP loan FAQ

How do I determine my maximum PPP loan amount as a farmer or rancher who reports my income on IRS Form 1040 Schedule F?

The same calculation processes outline above for self-employed individuals with or without employees should be followed, depending on your circumstances. The only difference is that in lieu of Schedule C, you’ll use your Schedule F form to determine your net profits and payroll costs. 

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