Independent contractors and self-employed individuals finally have official guidance on how to apply for loans under the Paycheck Protection Program (PPP).
While individuals who file their taxes using 1099 forms have been able to apply for PPP loans since Friday, April 10, they have had to navigate the application process without clear direction from the Treasury Department. That changed on Tuesday when the Treasury Department's website instructed workers to calculate the maximum size of their loan using Schedule C, line 31--the net profit amount--from their 2019 1040 tax forms. To calculate 2.5 months' worth of pay, divide that number by 12, and then multiply by 2.5.
As per the PPP legislation, the maximum payroll amount for any one individual that can be used to calculate a loan size is $100,000 on an annualized basis. So, if your net income was, say, $105,000 in 2019, you would calculate your maximum loan size using $100,000. The maximum loan amount for a 1099 worker is $20,833.33.
The majority of the loan amount is forgivable. The Treasury writes that the amount that can be forgiven will be limited to eight weeks' worth of 2019 net profit, since self-employed individuals often have few overhead costs. The Treasury had not previously offered any guidance on loan forgiveness for 1099 workers.
The new guidance generally aligns with what experts had suggested. At Inc.'s most recent National Small Business Town Hall webinar on Friday, April 10, several experts, including U.S. Chamber of Commerce executive vice president Neil Bradley, advised that 1099 workers should apply using their most recent tax returns to account for the payroll information.
Registration is now open for the next free Town Hall, which takes place at 12 p.m. Eastern on Friday, April 17.