Independent Contractors and Self-Employed Persons

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Are independent contractors eligible for PPP loans?

Yes. Self-employed individuals, sole proprietorships, and independent contractors are eligible for PPP funds.

Can I apply for a second PPP loan as an independent contractor or self-employed person if I received a PPP loan in 2020?

The new round of PPP loans offer a “second draw” for harder-hit businesses that received PPP funding in 2020. You may be eligible for a “second draw” provided you or your business has used or will use the full amount of the first PPP, and has experienced at least a 25 percent reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same quarter in 2019.

 

More information about second draw PPP loans.

I am self-employed and have no employees, how do I calculate my maximum First Draw PPP Loan amount?

IMPORTANT UPDATE: The SBA has announced impending updates to the PPP. Starting soon, borrowers using Schedule C will use their gross income (line 7) instead of net income (line 31). We will update our FAQ to reflect these new changes as soon as they go into effect.

 

The following methodology should be used to calculate the maximum amount that can be borrowed if you are self-employed and have no employees, and your principal place of residence is in the United States, including if you are an independent contractor or operate a sole proprietorship (but not if you are a partner in a partnership):

 

  • Step 1: Find your 2019 IRS Form 1040 Schedule C line 7 gross profit amount. If this amount is over $100,000, reduce it to $100,000. If this amount is 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.
  • 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).

 

Your 2019 IRS Form 1040 Schedule C must be provided to substantiate the applied-for PPP loan amount. You must also provide a 2019 IRS Form 1099-MISC detailing nonemployee compensation received (box 7), IRS Form 1099-K, invoice, bank statement, or book of record establishing you were self-employed in 2019 and a 2020 invoice, bank statement, or book of record establishing you were in operation on February 15, 2020.

 

Note that PPP loan forgiveness amounts will depend, in part, on the total amount spent by the borrower during the covered period following disbursement of the PPP loan.

What counts as payroll costs for an independent contractor?

For independent contractors and self-employed people, payroll costs can include any wages, commissions, income, cash tips (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips), or net earnings that they receive. 

This is capped at $100,000 on an annualized basis for each employee.

I had W-2 income as well as 1099 income in 2019 and 2020, am I eligible for a PPP loan?

Yes. If you had 1099 or other self-employed income in 2019 or 2020 (as long as you began receiving that 1099 income prior to February 15, 2020), you can still receive PPP funds.

 

Receiving other forms of income (e.g. from an employer, from passive income sources, from investments, etc.) does not disqualify you from receiving a PPP loan.

Can PPP loans for independent contractors be forgiven?

Just like other businesses, if you use your loan for approved, specific purposes, your PPP loan for an independent contractor or self-employed individual can be forgiven. 

 

In order to have your loan forgiven, the funds must only be used to cover payroll costs, mortgages, rent, and other utilities over the course of the 8-24 week period after receiving the loan (and you must apply with your lender for loan forgiveness—read the link below for more info). 

 

The loan can be used for other legitimate business expenses, but you may be required to pay back any portion of the loan not used for the specific items outlined above.

How can PPP loans be used by individuals with income from self employment who file a Form 1040, Schedule C?

The proceeds of a PPP loan are to be used for the following:

 

  • Owner compensation replacement, calculated based on 2019 or 2020 (using the same year that was used to calculate the loan amount) net profit
  • Employee payroll costs (as defined in this interim final rule) for employees whose principal place of residence is in the United States, if you have employees.
  • Mortgage interest payments (but not mortgage prepayments or principal payments) on any business mortgage obligation on real or personal property (e.g., the interest on your mortgage for the warehouse you purchased to store business equipment or the interest on an auto loan for a vehicle you use to perform your business), business rent payments (e.g., the warehouse where you store business equipment or the vehicle you use to perform your business), and business utility payments (e.g., the cost of electricity in the warehouse you rent or gas you use driving your business vehicle). You must have claimed or be entitled to claim a deduction for such expenses on your 2019 or 2020 (whichever you used to calculate loan amount) Form 1040 Schedule C for them to be a permissible use. For example, if you did not claim or are not entitled to claim utilities expenses on your 2019 or 2020 Form 1040 Schedule C, you cannot use the proceeds for utilities.
  • Interest payments on any other debt obligations that were incurred before February 15, 2020 (such amounts are not eligible for PPP loan forgiveness).
  • Refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020 (maturity will be reset to PPP’s maturity of two years for PPP loans made before June 5, 2020 unless the borrower and lender mutually agree to extend the maturity of such loans to five years, or PPP’s maturity of five years for PPP loans made on or after June 5).
  • Covered operations expenditures, as defined in section 7A(a) of the Small Business Act, to the extent they is deductible on Form 1040 Schedule C.
  • Covered property damage costs, as defined in section 7A(a) of the Small Business Act, to the extent they is deductible on Form 1040 Schedule C. viii. Covered supplier costs, as defined in section 7A(a) of the Small Business Act, to the extent they is deductible on Form 1040 Schedule C.
  • Covered worker protection expenditures, as defined in section 7A(a) of the Small The Administrator, in consultation with the Secretary, determined that it is appropriate to limit self-employed individuals’ (who file a Form 1040 Schedule C) use of loan proceeds to those types of allowable uses for which the borrower made expenditures in 2019 or 2020 or that were used on covered property damage, as defined in section 7A(a).

The Administrator has determined that this limitation on self employed individuals who file a Form 1040 Schedule C is consistent with the borrower certification required by the Act; specifically, that the PPP loan is necessary ‘‘to support the ongoing operations’’ of the borrower. The Administrator and the Secretary thus believe that this limitation is consistent with the structure of the Act to maintain existing operations and payroll and not for business expansion. This limitation on the use of PPP loan proceeds will also help to ensure that the finite appropriations available for these loans are directed toward maintaining existing operations and payroll, as each loan that is made depletes the appropriation Business Act, to the extent they is deductible on Form 1040 Schedule C.

Am I eligible for a PPP loan for funds received via Rental Properties, Real Estate investments, Airbnbs, etc.?

This depends entirely on how you were taxed for these payments. If you filed for Schedule E (passive income), then you would not be eligible for a PPP loan for those funds.

 

If, however, you filed your taxes as Schedule C (single member LLC, 1099 revenue, etc.) for those funds, then you would be eligible for a PPP loan, and should definitely apply using the sum from Line 7 of schedule C as noted in the self-employment maximum loan amount directions.

 

IMPORTANT UPDATE: The SBA has announced impending updates to the PPP. Starting soon, borrowers using Schedule C will use their gross income (line 7) instead of net income (line 31). We will update our FAQ to reflect these new changes as soon as they go into effect.

I am self-employed and have employees, how do I calculate my maximum First Draw PPP Loan amount (up to $10 million)?

IMPORTANT UPDATE: The SBA has announced impending updates to the PPP. Starting soon, borrowers using Schedule C will use their gross income (line 7) instead of net income (line 31). We will update our FAQ to reflect these new changes as soon as they go into effect.

 

The following methodology should be used to calculate the maximum amount that can be borrowed if you are self-employed with employees, including if you are an independent contractor or operate a sole proprietorship (but not if you are a partner in a partnership):

 

  • Step 1: Compute your 2019 payroll costs by adding the following:
    • 2019 IRS Form 1040 Schedule C line 7 gross profit amount:
      • if this amount is over $100,000, reduce it to $100,000,
      • if this amount is less than zero, set this amount at zero; 
    • 2019 gross wages and tips paid to your employees whose principal place of residence is in the United States, up to $100,000 per employee, which can be computed using
      • 2019 IRS Form 941 Taxable Medicare wages & tips from each quarter,
      • Plus any pre-tax employee contributions for health insurance or other fringe benefits excluded from Taxable Medicare wages & tips, and
      • Minus (i) any amount paid to any individual employee in excess of $100,000, and (ii) any amounts paid to any employee whose principal place of residence is outside the United States;
    • 2019 employer contributions for employee group health, life, disability, vision, and dental insurance (the portion of IRS Form 1040 Schedule C line 14 attributable to those contributions); 
    • 2019 employer contributions to employee retirement plans (IRS Form 1040 Schedule C line 19); and
    • 2019 employer state and local taxes assessed on employee compensation, primarily state unemployment insurance tax (from state quarterly wage reporting forms).
  • Step 2: Calculate the average monthly payroll costs amount (divide the amount from Step 1 by 12).
  • Step 3: Multiply the average monthly payroll costs amount from Step 2 by 2.5.
  • 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). 

 

Your 2019 IRS Form 1040 Schedule C, 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 documentation of any retirement or group health, life, disability, vision, and dental contributions, must be provided to substantiate the applied-for PPP loan amount. A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish you were in operation and had employees on that date.

 

Note that PPP loan forgiveness amounts will depend, in part, on the total amount spent by the borrower during the covered period following disbursement of the PPP loan.

I got paid from both W-2 and 1099 before pandemic. I'm on unemployment from my W-2. Can I keep my unemployment there and still file for a PPP loan for my 1099?

Whether or not you are on unemployment, doesn’t disqualify you from applying for a PPP loan. It’s possible that receiving a PPP loan for your 1099 may disqualify you from receiving unemployment insurance for you W-2, you should check with your local unemployment office to confirm.

I am a self-employed farmer or rancher who reports my income on IRS Form 1040 Schedule F. What documentation must I provide in place of Schedule C and how should my maximum loan amount be determined (up to $10 million)?

Self-employed farmers and ranchers (i.e., those who report their net farm profit on IRS Form 1040 Schedule 1 and Schedule F) should use IRS Form 1040 Schedule F in lieu of Schedule C. 

 

The calculation for self-employed farmers and ranchers without employees is the same as for Schedule C filers that have no employees, except that Schedule F line 9 (gross income) should be used to determine the loan amount.

 

The calculation for self-employed farmers and ranchers with employees is the same as for Schedule C filers that have employees with several exceptions. First, the difference between Schedule F line 9 (gross income) and the sum of Schedule F lines 15, 22, and 23 (for employee payroll) should be used. Second, employer contributions for employee group health, life, disability, vision and dental insurance (portion of Schedule F line 15 attributable to those contributions) and employer contributions for employee retirement contributions (Schedule F line 23) should be used in place of those respective lines on Schedule C.

 

The documentation requirements are the same as for Schedule C filers except the 2019 IRS Form 1040 Schedule 1 and Schedule F must be included with the loan application in place of IRS Form 1040 Schedule C. Additionally, for farmers and ranchers with employees, IRS Form 943 should be provided in addition to, or in place of, IRS Form 941, as applicable.

I am self-employed (or a partnership) and was in operation on February 15, 2020, but was not in operation between February 15, 2019, and June 30, 2019. I have filed or will file a Form 1040 Schedule C or Schedule F (or Form 1065) for 2020. What reference period should I be using to compute my First Draw PPP Loan amount?

In this case, you may choose one of two ways to calculate your First Draw PPP Loan amount. The first option is for borrowers to follow the applicable instructions in Question 1 through 4 and use payroll information for all of 2020 instead of 2019. The second option is for borrowers to calculate their loan amount using their average monthly payroll costs incurred in January and February 2020. For borrowers choosing the second option, the following methodology should be used by Schedule C filers to calculate the maximum amount that you can borrow:

 

  • • Step 1: Fill out an IRS Form 1040 Schedule C for January and February 2020. The entries on the schedule must reflect all business income and expenses from those two months, with the exception that on Schedule C line 13:
    • you must include only 1/6 of the amount of any annual depreciation and section 179 expense deduction attributable to investment made in those months, and
    • you must include 1/6 of the amount of the 2020 depreciation deduction attributable to investment made in prior years.
  • Step 2: Take the gross profit amount for January and February on Schedule C line 7. 
    • If this amount is more than $16,667 for the two months combined, set it to $16,667.
    • If this amount is less than 0 for the two months combined, set it to 0.
  • Step 3: If you have employees, add your employee payroll costs for January and February 2020 to the result in Step 2. Only include payroll costs for those employees whose principal place of residence is in the United States and up to $16,667 of gross pay per employee.
  • Step 4: Divide the total by 2, and then multiply it by 2.5.
  • Step 5: Add the outstanding amount of any EIDL made between January 31, 2020 and April 3, 2020 that you seek to refinance, less the amount of any advance under an EIDL COVID-19 loan (because it does not have to be repaid).

 

Your IRS Form 1040 Schedule C as completed must be provided to your lender when you apply for a PPP loan. This information should be consistent with what you will submit to the IRS and must be true and accurate in all material respects. You must also supply bank statements from your business account(s) for the months of January and February 2020 to substantiate your net profit amount from Schedule C. If you have employees, you also must provide payroll records from those two months, your IRS Form 941 for the first quarter of 2020, and documentation of any employer retirement and group health, life, disability, vision, and dental insurance contributions made on behalf of employees.

 

Schedule F filers should use the same methodology as above but complete a Schedule F in Step 1 and replace net profit from Step 2 with the gross income amount on Schedule F line 9 (if no employees) or the difference between the gross profit amount on Schedule F line 9 and employee payroll costs from the sum of Schedule F lines 15, 22, and 23 (if you have employees). Documentation requirements are the same as above except Schedule F as completed must be provided in place of Schedule C.

 

Partnerships should use the same methodology as above but complete a Form 1065 in Step 1 and replace net profit from Step 2 with the net earnings from self-employment for each individual U.S.-based general partners (the difference between box 14a of IRS Form 1065 K-1 and the sum of (i) any section 179 expense deduction claimed in box 12; (ii) any unreimbursed partnership expenses claimed; and (iii) any depletion claimed on oil and gas properties) multiplied 0.9235. Documentation requirements are the same as above except Form 1065 as completed must be provided in place of Schedule C.

I have income from self-employment and file a Form 1040, Schedule C. Am I eligible for a PPP Loan?

You are eligible for a PPP loan if:

 

  • (i) You were in operation on February 15, 2020;
  • (ii) you are an individual with self-employment income (such as an independent contractor or a sole proprietor);
  • (iii) your principal place of residence is in the United States; and
  • (iv) you filed or will file a Form 1040 Schedule C for 2019; However, if you are a partner in a partnership, you may not submit a separate PPP loan application for yourself as a self-employed individual. Instead, the self-employment income of general active partners may be reported as a payroll cost, 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 on a PPP loan application filed by or on behalf of the partnership. Partnerships are eligible for PPP loans under the CARES Act, as amended by the Economic Aid Act, and the Administrator has determined, in consultation with the Secretary of the Treasury (Secretary), that limiting a partnership and its partners (and an LLC filing taxes as a partnership) to one PPP loan is necessary to help ensure that as many eligible borrowers as possible obtain PPP loans before the statutory deadline of March 31, 2021

How do partnerships apply for PPP loans, and how is the maximum First Draw PPP Loan amount calculated for partnerships (up to $10 million)? Should partners’ self- employment income be included on the business entity level PPP loan application or on separate PPP loan applications for each partner?

(Note that PPP loan forgiveness amounts will depend, in part, on the total amount spent during the covered period following disbursement of the PPP loan.)

 

The following methodology should be used to calculate the maximum amount that can be borrowed for partnerships (partners’ self-employment income should be included on the partnership’s PPP loan application; individual partners may not apply for separate PPP loans):

 

  • Step 1: Compute 2019 payroll costs by adding the following:
    • 2019 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, multiplied by 0.9235,5 up to $100,000 per partner:
      • Compute the net earnings from self-employment of individual U.S.-based general partner that are subject to self-employment tax from box 14a of IRS Form 1065 Schedule K-1 and subtract (i) any section 179 expense deduction claimed in box 12; (ii) any unreimbursed partnership expenses claimed; and (iii) any depletion claimed on oil and gas properties;
        • if this amount is over $100,000, reduce it to $100,000;
        • if this amount is less than zero, set this amount at zero;
    • 2019 gross wages and tips paid to employees whose principal place of residence is in the United States (if any), up to $100,000 per employee, which can be computed using:
      • 2019 IRS Form 941 Taxable Medicare wages & tips (line 5ccolumn 1) from each quarter,
      • Plus any pre-tax employee contributions for health insurance or other fringe benefits excluded from Taxable Medicare wages & tips, and
      • Minus 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 United States;
    • 2019 employer contributions for employee (but not partner) group health, life, disability, vision, and dental insurance, if any (portion of IRS Form 1065 line 19 attributable to those contributions);
    • 2019 employer contributions to employee (but not partner) retirement plans, if any (IRS Form 1065 line 18); and o 2019 employer state and local taxes assessed on employee compensation, primarily state unemployment insurance tax (from state quarterly wage reporting forms), if any.
  • Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1 by 12).
  • Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5.
  • Step 4: Add any 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). 

 

The partnership’s 2019 IRS Form 1065 (including K-1s) must be provided to substantiate the applied-for First Draw PPP Loan amount. If the partnership has employees, other relevant supporting documentation, including the 2019 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 group health, life, disability, vision, and dental insurance contributions must also be provided to substantiate the First Draw 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

If a partnership received a PPP loan that did not include any compensation for its partners, can the loan amount be increased to include partner compensation?

Yes, if a partnership received only an amount that covered their employee payroll and didn’t include compensation for the partners, then their lender can electronically submit a request to increase the loan amount through the SBA’s E-Tran Servicing site, even if the loan has been fully dispersed. In no event can the increased loan amount exceed the maximum loan amount allowed under the PPP Program, which is $10 million for an individual borrower or $20 million for a corporate group. Additionally, the borrower must provide the lender with required documentation to support the calculation of the increase. Any request for an increase must be submitted electronically in E-Tran on or before March 31, 2021, and is subject to the availability of funds.