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    Self-Employed Individuals May Use Gross Income to Calculate Max PPP Amount

    The SBA has issued a new PPP rule that allows self-employed individuals -- those who file Form 1040, Schedule C – to calculate their maximum PPP loan amount using gross income instead of net profit. This should allow for self-employed individuals to obtain larger PPP loans since many of them don’t record much, if any, net profit on their Schedule C. 

    The new PPP application can be found here. 

    If a Schedule C filer has employees, they may elect to calculate the owner compensation share of their payroll costs based on either net profit or gross income minus expenses reported on lines 14 (employee benefit programs), 19 (pension and profit-sharing plans), and 26 (wages (less employment credits)) of Schedule C. If a Schedule C filer has no employees, the borrower may simply choose to calculate their loan amount based on either net profit or gross income.

    Borrowers may use their PPP proceeds to cover the following:

    • Owner compensation (if net profit is used) or proprietor expenses (business expenses plus owner compensation if gross income used).
    • Employee payroll costs.
    • Mortgage interest payments.
    • Business rent payments.
    • Business utility payments.
    • Interest payments on any other debt incurred before Feb. 15, 2020 (which are not eligible for PPP loan forgiveness).
    • Covered operations expenditures, as defined in Section 7A(a) of the Small Business Act, to the extent they are deductible on Schedule C.
    • Covered property damage costs, as defined in Section 7A(a) of the Small Business Act, to the extent they are deductible on Schedule C.
    • Covered supplier costs, as defined in Section 7A(a) of the Small Business Act, to the extent they are deductible on Schedule C.
    • Covered worker protection expenditures, as defined in Section 7A(a) of the Small Business Act, to the extent they are deductible on Schedule C.

    In an effort to tamp down on fraud, a Schedule C filer who reports more than $150,000 gross income to calculate their first-draw PPP loan will not be able to claim the safe harbor provided for borrowers that, together with their affiliates, received PPP loans of less than $2 million. The SBA is eliminating the loan necessity safe harbor for these borrowers because they may be more likely to have other available sources of liquidity to support their business’ operations than Schedule C filers with lower levels of gross income.

    Please note that borrowers whose PPP loans have already been approved cannot increase their loan based on these new rules. The change is not retroactive. 

    As always, if you have any questions about PPP eligibility or forgiveness, please reach out.

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