Instructions for Schedule C: Income, Loans and Business Positions Income Other than Gifts and Travel Payments

Sole proprietors, Paycheck Protection Program (PPP) loans just got a whole lot better. The SBA’s recent Interim Final Rule (IFR) states that Schedule C filers (that’s you, sole proprietors) can now use gross income instead of net to calculate PPP loan amounts. 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. Self employed individuals without employees will generally be using something called “owner’s compensation replacement,” to calculate the amount spent on payroll. The form unlocks federal, state and school-based financial aid, including federal student loans, need-based grants, work-study and even some scholarships.

Independent contractors, gig workers, self-employed persons with no employees, and similar types of applicants don’t have employees on payroll, and thus will need to provide different documents to show income. PPP now allows certain eligible borrowers that previously received a PPP loan to apply for a Second Draw PPP loan with the same general loan terms as their First Draw PPP loan. It’s important to spend your loan proceeds correctly if you want to qualify for full forgiveness. The SBA has established some very specific guidance regarding the use of PPP loan proceeds for those with income from self-employment who file a Form 1040, Schedule C. Instantly, compare your best financial options based on your unique business data. Know what business financing you can qualify for before you apply, with Nav.

How the FAFSA ‘soft launch’ will work

A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish you were in operation on February 15, 2020. The partnership’s 2019 IRS Form 1065 (including K-1s) must be provided to substantiate the applied-for First Draw PPP Loan amount. “Forgiveness is capped at 2.5 months’ worth (2.5/12) of an owner-employee or self employed individual’s 2019 or 2020 compensation (up to a maximum $20,833 per individual in total across all businesses). The individual’s total compensation may not exceed $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. For borrowers that elect to use a ten-week covered period, the cap is ten weeks’ worth (10/52) of 2019 or 2020 compensation (approximately 19.23 percent) or $19,231 per individual, whichever is less, in total across all businesses. For a covered period longer than 2.5 months, the amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation is capped at 2.5 months’ worth (2.5/12) of 2019 or 2020 compensation (up to $20,833) in total across all businesses.

• You must provide a 2020 invoice, bank statement, or book of record to establish you were in operation on or around February 15, 2020.
• Gross income is the total amount of income before deducting expenses, losses, or taxes and includes loans other than loans from a commercial lending institution.
• Second Draw PPP loans can be used to help fund payroll costs, including benefits.
• Congress made some changes, but these special rules based loan amounts on sole proprietors’ total profits (as shown on their 2019 tax return).
• But if not, any remaining balance will become a loan at 1% interest for five years, unless the loan was made before on or after June 5, 2020.
• If you applied for PPP as a self-employed individual using net profit, you may discover you could get a larger loan by using gross income.

Self-employed individuals with employees may also qualify based on payroll plus owner’s compensation using the methods described above. More businesses are likely to qualify for PPP using the new calculation. You must provide the 2019 or 2020 (whichever you used to calculate loan amount) Form 1040 Schedule C with your PPP loan application to substantiate the amount for which you applied.

Student Loan Repayment Options: Find the Best Plan For You

You must also include a 2019 or 2020 (whichever you used to calculate loan amount) IRS Form 1099-MISC detailing non-employee compensation received (box 7), invoice, bank statement, or book of record that establishes you are self-employed. If using 2020 to calculate loan amount, this is required regardless of whether you have filed a 2020 tax return with the IRS. You must provide a 2020 invoice, bank statement, or book of record to establish you were in operation on or around February 15, 2020. The SBA developed a brand-new borrower application form for this new calculation change.

Keep in mind that if you already qualified based on the maximum owner’s compensation of $20,833 based on net profit on your Schedule C there is no need to do anything. (For second draw loans to businesses with a NAICS code starting in 72, the maximum amount based solely on owner’s compensation is $29,167). This is a welcome change for sole proprietors, independent contractors, and self-employed individuals. But the fact that if you have already taken a First-Draw and Second-Draw loan you cannot retroactively change to this new calculation is a tough pill to swallow. Regardless, we hope new guidance will change that drawback, and even more people can benefit from this revision.

Can I Use PPP to Refinance My EIDL Loan?

Until that time, schools will not be able to answer questions about aid eligibility or status. The Department said it will save the information of anyone who submits the form during the soft launch and will not require resubmission when the form is formally launched. Those who submit the FAFSA should receive a confirmation email with preliminary financial aid eligibility information. If you filed with Jackson Hewitt but DID NOT electronically sign your tax return, you can go to any office and show proper identification to obtain a copy. If your return was prepared at a Jackson Hewitt office that uses the Electronic Signature & Storage (ESS) system, you can print your tax return and other related tax documentation using MyJH.

Some of this aid draws from a limited pool and is first come, first served. Report the source and amount of gross income of $500 or more you received during the reporting period. Gross income is the total amount of income before deducting expenses, losses, or taxes and includes loans other than loans from a commercial lending institution. You must also report the source of income to your spouse or registered domestic partner if the use of daybooks, journals, and ledgers in accounting your community property share was $500 or more during the reporting period. For most borrowers, the maximum loan amount of a Second Draw PPP loan is 2.5x the average monthly 2019 or 2020 payroll costs up to $2 million. For borrowers in the Accommodation and Food Services sector (use NAICS 72 to confirm), the maximum loan amount for a Second Draw PPP loan is 3.5x the average monthly 2019 or 2020 payroll costs up to $2 million.

If your lender has sold the loan for servicing, you will apply through the servicer. Keep in mind that ultimately your lender will process your forgiveness application so you will need to follow their instructions. If you’ve already applied for a PPP loan, your total loan amount based on the gross income calculation can’t be increased. A partner in a partnership cannot apply for a PPP loan; instead, the partnership must apply for the loan by reporting the self-employment income of the active general partners as a payroll cost. If you want an actual copy of your tax return from the IRS, you’ll need to download form 4506 from the IRS, fill it out and submit it, and wait up to 72 days.

Self-Employed: How To Apply For A Payroll Protection Program PPP Loan

However, stories emerged about sole proprietors only qualifying for teeny-tiny loans—loans hardly worth the time spent applying. From April 3 through April 14, 2020, the Small Business Administration (“SBA”) has guaranteed over one million loans under the Paycheck Protection Program (“PPP”). Over 4,600 lenders throughout the U.S. have been tasked with serving as conduits for distributing $349 billion in federal loan funds made available for the PPP, with approximately $296 billion dollars having already been approved for distribution in eleven days. The average PPP loan amount so far has been $239,000, though the vast majority of approved loans (70%) have been for $150,000 or less. We recommend you complete your IRS Form 1040 and Schedule C accurately and submit them to your PPP lender with your other documentation. You can attest to the accuracy of the 2020 form and they can use it as evidence of your income, even if you haven’t officially filed your 2020 taxes yet.

And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward — and free. We want you to maximize your loan forgiveness under the Paycheck Protection Program. This most recent SBA guidance is positive and helpful information for many self-employed individuals. SBA will issue further guidance for those individuals who were not in operation in 2019, but who were in operation on February 15, 2020, and who will file a Form 1040 Schedule C for 2020. (a) they were in operation on or before February 15, 2020, and(b) they have self-employment income, and(c) their principal place of business is in the United States; and(d) they filed or will file a Form 1040 Schedule C for 2019. Whether you completed your taxes with H&R Block in an office or paid to do your taxes online, you can get return copies when you create or sign in to your MyBlock account.

Your lender may work with you to prove your income using other documentation, though, so be sure to check with them. Second Draw PPP loans can be used to help fund payroll costs, including benefits. Funds can also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.

Is there a minimum net profit amount I need to show on line 31 of the Schedule C to qualify for a PPP loan?

So be sure to provide good-quality copies of all your documents, and make sure they’re legible, properly filled out, and accurate. A Schedule C Form is used to report income or loss from your business or the profession you practiced as a contractor, gig worker, etc. All Second Draw PPP Loans will have the same terms regardless of lender or borrower. Stay tuned to ASMP for the latest on the PPP and how it can support you and your business in this time.