Can a Self Employed Person Apply for Ppp

Editor's note: On Tuesday, May 4th the PPP ran out of general funds and the SBA stopped accepting new PPP loan applications. A reserve of funds is nevertheless available for community financial institutions that lend to businesses run by women, minorities, and underserved communities. Additionally, a reserve of funds remains for applications previously submitted only non yet reviewed by the SBA. If you have already submitted your loan awarding, however, this does not guarantee yous funding.

The Paycheck Protection Programme (PPP) is designed to support American small businesses with immediate cash support during the COVID-nineteen pandemic. If you lot are a sole proprietor, an contained contractor, or a gig worker, here's what you demand to know, and what you'll demand to apply. This guide has been updated to reflect the new First Draw and 2d Draw loan distinctions.

All small businesses qualify for the Payment Protection Program.

This includes:

Sole proprietors who report income and pay taxes on a Schedule C in your personal taxation return. Whether y'all're a fitness instructor, tutor, freelancer, or side hustler, if y'all've got a Schedule C, you can qualify.

Independent contractors who collect 1099-MISC forms (but for the PPP, you'll need to submit a Schedule C, non your 1099s).

Gig economic system workers who take on-call jobs provided by companies such as Uber, DoorDash, Lyft, TaskRabbit, and Instacart.

The only stipulation is that your business was operational as of February 15, 2020. If y'all started your business later on that date, you lot volition non exist eligible for this program.

Further reading: The Paycheck Protection Program (A Elementary Guide)

What is the benefit of the Paycheck Protection Program?

This program is designed to help Americans stay employed and retain their salaries. As the proper noun implies, this is a payroll-focused program. The payout you receive volition exist based on your average monthly payroll expense multiplied by ii.5. Under the PPP, your payroll expense tin can include your salary expenses and health insurance premiums.

The biggest perk of this programme is that it can be nigh entirely forgiven. If yous proceed your payroll expenses consistent to what they were before the COVID-19 pandemic, including the salary paid and the number of employees paid, y'all could be eligible to accept those expenses forgiven from your loan amount, every bit well as sure other expenses such as rent and utilities.

The good news is that if yous are self-employed (and you are your only employee), this should exist like shooting fish in a barrel to achieve!

However, information technology is of import to note that you cannot receive both Unemployment Benefits and a PPP loan at the aforementioned time. Yous can use the PPP funds to pay yourself through what's called possessor compensation share or proprietor costs. This is to compensate you lot for a loss of business income. To take the full amount of possessor compensation share, you will have to use a covered period of at least xi weeks weeks. By doing then, y'all are making yourself ineligible for unemployment benefits (under Pandemic Unemployment Assistance) for the total xi weeks.

You lot should consider the payout of each program to determine which is the best fit for you.

Farther reading: PPP Loans vs. Unemployment Benefits (How to Choose)

What if I don't use a payroll service?

If you ain a business concern and do not give yourself a salary through a payroll service, you are probable still eligible for the Paycheck Protection Program—with i exception. Businesses that are structured as C corporations or S corporations must be using payroll to pay their owners, because the corporation is taxed separately from the individual. If you own a corporation and have not been paying yourself a salary through payroll, you volition not take a bacon covered through the PPP. This is because distributions or dividends from a corporation are not considered to be a salary or cocky-employment income.

Further reading: Do Possessor Draws Count as Salary for the Paycheck Protection Programme?

Sole proprietors and the PPP

If you run a business on your ain, your business is a sole proprietorship— even if you haven't formally permit the IRS know.

Since you don't have employees, you won't be reporting your payroll costs for the PPP loan. Instead, you'll exist reporting your gross business organisation income, which volition be reported on line 7 of a Schedule C (for loans prior to March 3, 2021, this was internet income). As long every bit your business concern was operational prior to Feb 15, 2020, you lot can employ to the Paycheck Protection Program.

You lot will need to provide a Grade 1040 Schedule C for either 2022 or 2020, depending on which year you used to calculate your loan amount.

If you've already filed your taxes, this should be piece of cake: merely submit a copy of your filled-out Schedule C to your lender. If you haven't filed your taxes yet, you lot volition demand to become retroactive bookkeeping done so you tin summate your gross income and fill up out your Schedule C properly.

If you don't have bookkeeping or a revenue enhancement return, we strongly recommend that you get defenseless up with your bookkeeping. Without a payroll service, bookkeeping is the best manner to determine your net profit as a sole proprietor (which is what the PPP will ask for).

Your monthly average payroll expense will be your annual gross profit divided by 12. If your almanac gross profit is over $100,000, you may only claim up to $100,000 divided by 12.

Farther reading: Gross Profit vs. Net Profit: Agreement Profitability

**Sole proprietors with payroll expenses

If you lot are including salaries and wages paid to employees (or yourself) in your PPP loan amount calculation, you cannot utilize your gross income as reported on line 7 of a 2022 or 2022 Schedule C.

Instead, take the value from line vii and subtract lines 14, 19, and 26. The maximum of this value is $100,000. By subtracting those lines, you are removing whatever payroll costs from your gross income so you aren't double dipping.

Take this value, add together in your 2022 or 2022 payroll costs, then separate by 12 for your average monthly payroll expenses. Multiplying this by ii.v volition give you your PPP loan corporeality.

Sole proprietors who are married

If you run a sole proprietorship informally with a spouse, y'all will only apply to the PPP once, and your spouse would not be considered to take a bacon through the business unless they were paid equally a contractor prior to Feb 15, 2020.

Sole proprietors with more than i business

If yous own more than one sole proprietorship, you may employ separately for each - but only if these sole proprietorships accept separate EINs. The general rule of thumb is that y'all tin utilise separately for as many businesses y'all own that have separate identification numbers, or separate tax reportings. You may apply for the PPP once with your SSN as a sole proprietor, and so separately for any other businesses you own using their EINs. If this situation applies to you, the SBA has ruled that your owner compensation is capped at $20,833 beyond all businesses. For example, if you received $10,000 in compensation from one business, you would be able to report a maximum compensation of $10,833 from all other businesses.

Independent contractors and the PPP

If you work as a 1099 independent contractor, you are by default considered to be a sole proprietor in the eyes of the IRS. This ways your freelance income gets reported annually on a Schedule C within your personal tax render. Yous will have a Schedule C even if yous pick upwardly odd jobs or exercise freelance work, and this Schedule is based on the 1099-MISC forms you lot collect from the companies or individuals who accept hired y'all equally a contractor.

Your salary is nigh easily determined by looking at the gross profit listed on your Schedule C. If you have already filed your 2022 or 2022 taxes, or prepared a 2022 or 2022 return, this will be reported on line 7 of the Schedule C. If you lot have not filed your taxes, y'all will yet need to make full out a Schedule C in order to qualify for the PPP.

Rent, mortgage, and utilities expense

The Paycheck Protection Plan funding tin can cover your part lease, rent, or mortgage interest, provided that you had information technology earlier February 15 2020. If you have a domicile office, you tin can claim a portion of the expenses (the per centum of your habitation that's used as a home role).

Again, collect any paid invoices, statements, lease agreements, or cancelled checks that volition help prove you had these expenses.

Withal, if yous want to take your loan forgiven, yous must spend 60% of the loan funds on payroll costs (and the remaining xl% on rent, mortgage involvement, and utilities).

New eligible expenses

All PPP loans can be used on the following approved expenses:

• Operations expenses such as invoicing and bookkeeping software (an online bookkeeping service similar Bench counts)

• Belongings damage costs due to public disturbances not covered by insurance

• Supplier costs such as work materials

• Protective equipment to be COVID-compliant

Further reading: How to Spend Your PPP Funds (Updated for 2021)

When does the application open?

As of January 2021, the PPP is fully in operation. The SBA is accepting applications for both Offset Depict loans for any eligible concern that has not still received a PPP loan and Second Draw loans for whatsoever eligible business organisation that has spent their first loan.

How do I apply?

You can utilize for the Paycheck Protection Program through an SBA-backed lender. We recommend applying through your own financial institution to first—a lender you already have an existing banking relationship with. That will be the fastest way to get canonical.

Next, we recommend applying for PPP through a customs bank. They have less demand and will likely exist able to process you faster.

If you're applying for the PPP for the commencement time, refer to our guide for Get-go Depict loans.

2d Depict loans have some additional requirements. We've put together a separate 2d Draw application guide here.

Financial records you'll need

You'll demand to provide payroll/bookkeeping records to prove your payroll expenses.

That could include:

• Payroll processor records

• Payroll tax filings

• Schedule C for a sole proprietorship (mandatory for self-employed folks)

If yous don't have access to those kinds of documents, you can also provide banking company records.

Proof of income

The lender will want to meet all documents related to whatever wage, commission, income, or cyberspace earnings from self-employment that y'all have received. This ways that you lot'll demand to collect whatsoever earnings reports, pay stubs, or invoices you have.

Sole proprietorship and contained contractors will need to submit a 2022 or 2022 Schedule C showing income and expenses from the sole proprietorship.

All self-employed individuals with payroll expenses (because they have employees) volition need to submit 2022 or 2022 payroll tax filings such every bit quarterly Class 941s and state wage unemployment insurance forms reported to the Internal Revenue Service.

Proof of operation

All self-employed individuals will demand to provide evidence that their business was operating on or around Feb 15, 2020. An invoice, bank argument, accounting record, or payment tape tin can be used.

If yous ain more than than one business

Nosotros are also hearing reports that entrepreneurs who own more than 1 business are having difficulty getting relief funding when their businesses don't have cleanly separated finances. If you lot own more than than one business, it'south of import to get separate bookkeeping washed for each concern. This will go doubly of import when it comes time to testify your expenses for loan forgiveness.

Can I employ to the PPP through more one lender?

Yes! In that location is no impairment in applying through more ane lender. In fact, lenders are encouraging businesses to apply through multiple lenders, to increment their chances of getting candy in time.

If y'all're applying for a Second Draw PPP loan, we recommend applying through your first lender, as your data can be carried over. Many fintech lenders like BlueVine will notwithstanding accept new 2d Draw applications though—just make sure you know your original SBA PPP loan number.

More COVID relief resource

• Paycheck Protection Program (PPP) Loans Resource Hub for Small Concern
• PPP Loan Forgiveness: The Complete Guide
• Home Office Deductions and the PPP
• EIDL vs Paycheck Protection Program: The Breakup
• How to Make full out Your SBA Disaster Loan Awarding

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Source: https://bench.co/blog/operations/paycheck-protection-program-self-employed/

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