The CARES Act and Help for the Self-Employed

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Recently, Congress passed the CARES Act which provides financial support for small businesses during this COVID-19 period. One of the programs available for small business owners is the Payroll Protection Program (PPP). The program provides business owners with loans to help with everything from rent to payroll. If at least seventy-five percent (75%) of the loan is expended on employee payroll expenses, the loan will be forgiven.

The initial program was launched on April 3, 2020 for businesses with employees. However, on April 10, 2020 a second tier of the program was launched for independent contractors and those who are self employed filing under IRS Form 1099. Here are some suggestions and information for those of you interested in applying for a PPP loan as an independent contractor or self-employed individual.

How do I apply?

Because the program is so new all the logistics have not been worked out and the process is ever evolving. That said, you will have to apply using the same application form used by small business employers. Use the following link to apply: PPP Application Form.

What type of information or documents will I need as a contractor or self-employed individual?

While all of the guidance and clarity is not available, you should start with assembling your most recent year(s) personal tax return, 1099’s, bank statements and other official documents which can help to establish your gross income. In particular, review your Schedule C on your IRS Form 1040 tax return.

How much should I ask for or what is my eligibility amount?

The PPP is based upon the amount spent on payroll. Contractors and self-employed individuals are eligible for a loan of up to one hundred thousand dollars ($100,000.00) in annual income, which then has to be prorated into a monthly amount. Because independent contractors or self employed individuals do not have payroll or use payroll services, calculating the eligibility amount is going to be different from that of an employer/employee based business. I would suggest using a very simple method to calculate your eligible loan amount. Begin by calculating your annual income. Then divide your annual amount by twelve (12) to determine your monthly income. Finally, multiply your monthly amount by two and one half (2 1/2) to determine your eligible amount. Until we have further guidance and clarity from treasury this is the current suggestion.

Where can I get help?

To apply for these loans, help is available from your local commercial and community banks. Beware of banks or lenders who are not willing to provide you with two and one half (2 1/2) months calculation of your full loan eligibility. You may also check with your local chamber of commerce for help in identifying approved lenders.

Finally, in this environment scammers are “ah plenty”! Therefore, if you are getting emails and calls from people reaching out to help you, that’s not quite how these programs work. This is true especially if it’s not someone you have done business with before. You may even want to seek referrals before you begin talking with them. If they are going to charge you a fee, walk away. If they are promising you that your loan application will be processed quickly, walk away.

I only started my business in January 2020 or this year, can I still apply ?

Yes. You are eligible to apply if your business started before February 15, 2020. You will have to engage your local lender, SBA, your accountant and or lawyer to assist you with providing the relevant information needed to support your application if your business is new.

Will my PPP loan be forgiven?

The short answer is maybe. In some instances the entire loan will be forgiven while in other cases only a percentage of the loan will be forgiven. Here is the big picture on forgiveness. The analysis has a two step process. The first step requires you to keep detailed records/tracking of your payroll, interest on debt, rent and utility expenses for eight (8) weeks after your loan origination date.

The second step will require you to maintain a head count of your employees since February 15, 2020. If your head count decreases, you may be eligible for a portion of the loan amount being forgiven. If on the other hand for example you had released your employees but re-hired them and retained them through June 30, 2020, in addition to at least using 75% of the entire loan amount on payroll, then the entire loan can be forgiven.

As for independent contractors or self-employed individuals, a good place to begin when determining your salary and qualifying amount for forgiveness is the amount reported on your IRS Form Schedule C as net earning from self employment.

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