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Updated Paycheck Protection Program Loan Regulations: What The Self-Employed And Independent Contractors Need To Know

Photo by Alexander Mils on Unsplash

From Forbes, Brian Thompson provides information on what independent contractors need to provide to be eligible for the Paycheck Protection Program (PPP). Brian writes:

In addition to the previous requirements that (i) you were operation on February 15, 2020 (ii) you were an individual with self-employment income and (iii) your principle place of residence is in the United States, you must now have filed or will file a Schedule C for 2019. This schedule is going to be key for many reasons. The first PPP Interim Final Rule said you could use “income or expenses from a sole proprietorship, or other supporting documentation sufficient to demonstration qualifying payroll.”

The SBA has also clarified rules for partnerships. If you are a partner in a partnership, you cannot submit a separate loan application for yourself as a self-employed individual. You must file the application by or on behalf of the partnership.

I’ve updated my previous step-by-step article about how to calculate payroll here with the new calculations. But I want to highlight a few factors here as well.

Those of you without employees, regardless of whether you filed a 2019 tax return with the IRS, must provide:

  • the 2019 Form 1040 Schedule C to substantiate applied-for PPP Loan amount
  • a 2019 IRS Form 1099-Misc detailing non-employee compensation (box 7), invoice, bank statement or book of record that establishes that you are self-employed.
  • A 2020 invoice, bank statement or book of record to establish you were in operation on or around February 15, 2020

For those of you with employees, you must supply your

  • 2019 Form 1040 Schedule C,
  • Form 941 (or other tax forms or equivalent payroll processor records containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or equivalent payroll processor records, along with evidence of any retirement and health insurance contributions, if applicable.
  • 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

Again, this is a change from previous guidance.  Institutions like Bank of America BAC asked businesses with no employees to provide a Profit and Loss for 2019. I’m curious to hear whether they will ask for this additional verification—if you’ve already applied and they do, let me know.

How PPP loan funds can be used 

PPP Loan funds can be used for the following

  • Owner compensation replacement based on the 2019 net profit
  • Employee payroll costs
  • Mortgage interest payment (but not mortgage prepayment or principal payments) on any business mortgage obligation on real or personal property
  • Business rent payments
  • Business utility payments
  • Interest payments on any other debt obligations that were incurred before February 15, 2020.
  • Refinancing an EIDL loan made between January 31, 2020 and April 3, 2020. (Note: you must refinance the EIDL if your EDIL loan was used for payroll costs)

One key caveat: to use loan funds for these expenses, you must have claimed or been entitled to claim a deduction for them on your 2019 Schedule C. The SBA stated that these loans are intended to be used to maintain existing operations and payroll, not for business expansion.

Read the full story for, among other things, information on amounts and requirements for loan forgiveness Updated Paycheck Protection Program Loan Regulations: What The Self-Employed And Independent Contractors Need To Know

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