If you cannot claim 100% of your loan as an OCR or OCS and you do not have any eligible business expenses for which you can use PPP funds, the remaining balance of the loan must be repaid in accordance with the terms of the PPP loan. At 1% interest for 5 years, this is one of the best loan terms you can find, but there is no prepayment penalty if you want to pay everything back sooner. As mentioned above, eight weeks of your loan proceeds are considered a salary replacement. When you applied for your PPP loan, you needed proof of salary, in this case a salary. To do this, you will need your 2019 Schedule C Form 1040, as well as a 2019 IRS 1099-MISC form that includes non-employee compensation, invoices, bank statements, or a book of records proving that you are self-employed. Apart from the exchange of the owner`s remuneration, there are stricter requirements for independent PPP beneficiaries to be eligible for forgiveness. The categories eligible for the credit rebate are as follows: While large small businesses were eligible for larger PPP loans, the maximum that a self-employed person could get from the no-employee or payroll loan program was $20,833. This amount was calculated as follows: Example 2: River earned $75,000 in 2019. Divided by 12, his average monthly income was $6,250.
Multiply that by 2.5, and River`s loan forgiveness amount is $15,625. If your loan was over $150,000, you can use Form 3508EZ as long as you have not reduced your FTE staff or salary and wages by more than 25%. Otherwise, you must use the standard pardon form. If you do not make a paycheck, the amount of your PPP loan will be calculated based on your gross or net income, as shown in a Schedule C for 2019 or 2020. Once you`ve filled out the business and loan information, you`ll need to break down your wage and non.B costs. In addition, you cannot pay contract workers with your PPP funds. You are only allowed to use them to pay W-2 employees. However, you can choose to allocate your homeowner compensation replacement funds to contractors, as the IRS does not dictate how to use income with this classification. To determine how much of your loan can be forgiven, follow these steps: And despite all this initial bad news, once the loan program has gained traction, the issues have been resolved, the changes made, and eligibility increased. For us, the best of these changes was that subsequent cycles of PPP funding allowed the self-employed to participate in support, although many do not have an actual “payroll” per se. A person who reported net business income of $50,000 in 2019 would be eligible for a fully forgivable loan of $10,400 over an eight-week period.
After that, any additional PPP funds you receive must be spent on business expenses to be allocated. In many ways, the self-employed have struggled to access and use Paycheque Protection Program loans than other small businesses. From the application process to the remittance guidelines, the self-employed have tried to understand how this forgivable loan program works for them. As a reminder, to get a loan forgiveness, your PPP loan had to be used for very specific purposes – either to pay your own salary, or for very specific non-wage costs such as mortgage interest, rent, utilities, loan payments, etc. Eligible expenses are quite strict. Filling out Form 3508 takes longer, but it`s still simple. Like the other two forms, it begins with a recitation of the details of the business and the loan. Then go into the calculations: list your wage and non-wage costs and list the RTD reductions. (Appendix A and its worksheet will help you specify and calculate these numbers.) On February 22, President Biden announced changes to the paycheck protection program that affect self-employed workers who applied for a PPP loan after March 3, 2021. This article breaks down the remittance process for loan applications made before and after March 3, 2021. Watch the video below for an overview of the changes. If you`ve applied for a PPP loan, you`re probably familiar with the loan terms and conditions.
However, since these conditions have been updated due to the PPP Flexibility Act, it is worth reviewing them. Needless to say, a good record and proper documentation are essential to obtain a credit remittance and deal with lender or SBA audits that may occur later. Form 3508 Credit Pardon Application: There is also a third form, General Form 3508. And that`s for people who got a loan of more than $150,000 AND reduced their employees and salaries by more than 25%. Self-employed workers are subject to different PPP rules than other small businesses. This is because they probably have different needs and work according to different business models. To be eligible for a full credit rebate, you must meet a few criteria. The good news is that solopreneurs who took out the maximum loan amount, which was 2.5 times their average monthly income, will receive a full credit rebate if they qualify. Qualification occurs when you meet these four requirements: Once you`ve added your annual labor costs to your Schedule C amount, divide it by 12 to determine your average monthly labor costs. If you multiply this number by 2.5, you will get the amount of your PPP loan. As mentioned earlier, PPP compensation is capped at $100,000 for each worker. Therefore, the amount of your loan for the self-employed is based on a maximum compensation of $100,000.
Previously, when the PPP LOAN CALCULATION was based on net income, the amount you could take as a sole proprietor was called “owner`s compensation.” It was calculated using your net income as shown on line 31 of your Schedule C, multiplied by 2.5/12 (or 0.208). For loans after the 3rd. In March 2021, this was changed to “Share of Owner`s Compensation” or “Owner`s Costs”. The good news is that many of them have finally gotten this help, and now that the pandemic is receding, it`s time to repay those PPP loans or – better! – to be assigned. Here`s how: The calculation you need to do for this form is: 1.) The number of full-time employees at the time of the loan, 2.) the number of full-time employees at the time of the remittance application, and 3.) Your total payroll for the pardon period. This will help you determine your “potential amounts of forgiveness.” With that in mind, let`s review what every self-employed person who has taken out a PPP loan should know about loan forgiveness. In addition, self-employed individuals with a PPP loan of less than $50,000 (which should be the case for all independent PPP borrowers) can start on the 8th. October 2020 use the SBA 3508S form, which is even shorter and simpler than 3508EZ. If you do not make a paycheck, the portion of the owner`s remuneration is calculated by multiplying your gross income reported in 2019 or 2020 in your Schedule C by 2.5/12 (or 0.208).
This is basically the entirety of your PPP loan, provided you get the amount of your loan. Sole proprietors and independent contractors find the PPP loan particularly attractive because of the concept of “owner`s compensation share” or “owner compensation,” which can give them a full discount so they can use the funds as they wish. This is how forgiveness works for the self-employed. Another possibility here is that you actually have expenses such as rent and/or utilities, but not enough to reach 100% of your loan; or you spend more than 40% of your loan on these other expenses (it`s unlikely, but it`s another way to reduce your cancelled amount). If you`re having trouble calculating this, Intuit has a great forgiveness calculator called AidAssist that you can use. You can prepare for a pardon application by having all your expenses covered by the PPP calculated. This includes your owner`s compensation and any other eligible PPP expenses. If you don`t apply for a discount, you can also carry forward the loan balance for two to five years with 1% interest. This interest rate would probably be the lowest you could get on the open market by a wide margin. While PPP loans have always been meant to be forgiven and you may not prefer to pay interest on a loan, the option is there if for some reason you may not qualify for loan forgiveness. It`s always better than applying for a regular SBA or a bank loan. To what extent were these people legitimate borrowers? How were they eligible to receive PPP loan funds? Talk about rubbing salt in the wound.
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