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Paycheck Protection Program Loans
Overview: Independent Contractors
With Updates as of April 23, 2020
Continue to Check SBA’s Website
This information is provided for general informational and educational purposes only and does not constitute legal advice. Please
note guidance is changing regularly and we encourage you to check with the SBA and your lender for updated information.
What We Cover Here
• Paycheck Protection Program Overview
• Similarities and Differences: Organization and
Independent Contractor Applicants
• Documents to Prepare and Collect, How to
Apply, Calculating Total Loan Request, and
Forgiveness
• Additional Resources
Who is this guidance for?
FMA develops guidance primarily for
nonprofit organizations.
Over the past few weeks, many nonprofits in our
PPP workshops have expressed concern when
learning that independent contractors are excluded
from a nonprofit’s allowable payroll calculations.
Given how closely many nonprofits work with
independent contractors, they requested guidance
to support their independent contractors in
applying for a PPP loan for themselves.
Who is this guidance for?
As a result of responding to nonprofit requests, we
focus exclusively here on the category of
independent contractors most frequently
mentioned by the nonprofits with whom we work:
independent contractors without employees
and/or who are not partners in a partnership.
Note: The loan calculation formula differs for independent
contractors with employees and those who might be in a partnership.
If this describes you, we encourage you to read the SBA’s Interim
Final Rule released April 14th which contains the relevant guidance.
Introduction to Audited
Financial StatementsFMA Paycheck Protection Program Toolbox
https://fmaonline.net/ppptoolbox/
Introduction to Audited
Financial StatementsAdditional questions?
Please reach out to
One of our experts will assist you
with your questions as soon as possible
Overview of the Program and
How to Apply
Introduction to Audited
Financial StatementsProgram Overview
The Paycheck Protection Program is a loan
administered by the Small Business Administration
designed to provide short-term stability to small
businesses, nonprofit organizations, and
independent contractors.
The goal is to keep employees of nonprofits and
businesses and self-employed individuals such as
independent contractors off the already-crowded
unemployment rolls.
Introduction to AuditedKey Similarities & Differences
Organizations Independent Contractors
Maximum Loan
Amount
2.5x average monthly
payroll2.5x average monthly net profit
Timeline for
Calculations
2019 calendar year
OR past 12 monthsONLY 2019 calendar year
Terminology
average monthly
payroll; payroll
expenses
average monthly net profit;
owner compensation
replacement
What is included in
“payroll expenses?”
salary, benefits, state
and local taxes…
ONLY what you pay yourself,
net of expenses
How much of the loan
can be spent on
“payroll expenses?”
a minimum of 75% of
the loan up to 100%.
limited to a maximum of 75%
of the maximum loan amount.
Basics of the Program: 5 Key Questions
1. Can I apply?
2. What do I need to apply?
3. How much can I borrow?
4. What can the loan be used for?
5. How much of the loan can be forgiven?
Basics of the Program: Eligibility
Can I apply?Yes, if you are an independent contractor and:
1. You were in operation on February 15, 2020
2. Your principal place of residence is in the United States
3. You filed or will file a Form 1040 Schedule C for 2019
4. You are not currently facing criminal charges, on probation or
parole and within the last five years, you have not been
convicted, pled guilty, pled no contest, been placed on pretrial
diversion, or placed on any form of parole or probation
connected with a felony charge
Note: Additional SBA guidance is forthcoming for independent contractors who
did not file 2019 taxes, but began working no later than January 2020.
Introduction to Audited
Financial StatementsBasics of the Program: Documentation
What do I need to apply?
Check with your lender. They will likely request the
following information at a minimum:
• Documentation that you were operating as an
independent contractor on or around February 15, 2020
(e.g., a 2020 invoice, bank statement, or book of record)
• Completed 2019 1040 Schedule C
• Your 1099s for 2019
Basics of the Program: Loan Amount
How much can I borrow?
Step One: Find your net profit for 2019 - it is
listed on Line 31 of your 2019 IRS Form 1040,
Schedule C.
Basics of the Program: Loan Amount
How much can I borrow?
Step Two: Divide Line 31
net profit by 12 to calculate
your average monthly net
profit. Net profit is capped
at $100,000.
Step Three: Multiply your
average monthly net profit
by 2.5 to calculate your
maximum loan amount.
Example: If your Line 31
net profit was $31,200
$31,200 = $2,600
12
$2,600 X 2.5 = $6,500(maximum
loan amount)
(average monthly
net profit)
What can the loan be used for?
Category Details Amount
Forgivable?
Pay yourself(owner compensation
replacement)
8 weeks of 2019 average
weekly net profit
(capped at $15,385)
ONLY 8 weeks of
2019 average weekly
net profit
(capped at $15,385)
Business expenses:limited to mortgage
interest, rent, and
utilities
*ONLY if agreements
predate Feb 15th
*ONLY if claimed as
deductible expenses on
2019 Schedule C
ONLY expenses
incurred in the 8
weeks after loan
disbursement
Interest payments on other debt
obligations
* ONLY if obligations
predate Feb 15thNONE
Loan Use: What Can You Pay Yourself?
Calculating owner compensation replacement:
Step One:
Find net profit
Line 31
Schedule C
Step Two: Divide by 52 weeks for
average weekly net profit
Step Three: Multiply by 8 for
owner compensation replacement
8 weeks of “owner compensation replacement”
$31,200 = $600
52
$600 x 8 = $4,800
(PPP terminology for independent contractor payroll expenses)
Business Continuation, Not Expansion
$4,800
$6,500
Maximum loan
amount
Maximum you can
pay yourself
Formula(2019 net profit/12
months) x 2.5
(2019 net profit/52
weeks) x 8
Calculation ($31,200/12) x 2.5 ($31,200/52) x 8
Total $6,500 $4,800
= ~75% of maximum loan amount
What can the remaining 25% of the loan
be used for?
Interest payments on other debt obligations based on
agreements dated before February 15, 2020
Business-related expenses:
Mortgage interest, Rent, and/or Utility payments that are:
• based on agreements dated before February 15, 2020
• claimed as deductible expenses on 2019 Schedule C
* Line #16a: mortgage interest
* Line #20: rent or lease
* Line #25: utilities
Authorized Expenses? 2019 Schedule C
confirms your claimed deductions
Forgiveness and Authorized Use of Loan
Category Forgiveness Authorized but not
forgiven
Pay yourself
(owner compensation
replacement)
ONLY 8 weeks of 2019 average
weekly net profit
NONE – no additional
money can be paid to
yourself.
Business expenses:
limited to mortgage
interest, rent, and
utilities
* expenses incurred in the 8
weeks after disbursement
* ONLY if agreements predate
Feb 15th
* ONLY if claimed as
deductible expenses on 2019
Schedule C
* Expenses incurred
after first 8 weeks
* ONLY if agreements
predate Feb 15th
* ONLY if claimed as
deductible expenses
on 2019 Schedule C
Interest payments on
other debt obligationsNONE
ONLY if agreements
predate Feb 15th
Full and Partial Loan Forgiveness
If you anticipate not having enough authorized business expenses
for full forgiveness, you can…
1. Try to borrow a lower amount
2. Keep balance as 1% 2-year loan. Spend loan only on
(1) authorized business expenses or (2) interest on debt
obligations. Unauthorized expenditures constitute fraud.
3. Return unspent balance. There is no penalty for prepayment.
Keep all loan proceeds in a single bank account.
75% owner compensation replacement
25% authorized business expenses
must be spent within 8 weeks of disbursement of the loan
For full loan forgiveness,
Introduction to AuditedLoan Forgiveness Process
What is needed for forgiveness?
Certification: You must certify that the amount of
forgiveness you are requesting is related to forgivable
expenses: 8 weeks of owner compensation replacement
and authorized business expenses.
Documentation: You must submit documentation of
payment for authorized business expenses including
cancelled checks, payment receipts, transcripts of
accounts, or other documents.
Introduction to Audited
Financial StatementsLooking at the Application
This is what we know so far. Lenders will have their way of completing but
organizations are encouraged to start with this.
https://home.treasury.gov/system/files/136/Paycheck-
Protection-Program-Application-3-30-2020-v3.pdf
What else is on the application?
Field Suggested Guidance
Business Legal Name Your name on your tax return
DBA or Trade Name If you go by a DBA on your tax return
Business Address Address on your tax return
Business TIN (EIN, SSN) Can be your SSN or TIN/EIN if you have one
Business Phone Your phone number
Primary Contact Your name
Email Address Your email address
Average Monthly Payroll 2019 Form 1040 Schedule C, Line 31 - net profits,
divided by 12
x 2.5 = Loan Request(+ EIDL, Net of
Advance if Applicable)
average monthly payroll (average net profits) X 2.5(*note – additional calculations needed if you have an EIDL
advance or loan)
Number of Employees 1
Purpose of the Loan Check all that apply. Do not select Other, nor spend
on other expenses.
Considerations: EIDL
If you have applied for or received an Economic Injury Disaster
Loan advance grant or loan…
EIDL Advance Grant EIDL Loan
Maximum loan
calculation
Reduce PPP maximum
loan calculation by
grant amount.
Increase PPP maximum loan
calculation by amount of
outstanding balance
Loan
management
If you receive after your
PPP loan has been
disbursed, forgiveness
amount is reduced by
amount of grant.
If EIDL loan was used for
payroll costs, your PPP loan
must be used to refinance
your EIDL loan.
If EIDL loan was not used for
payroll costs, no impact.
Introduction to Audited
Financial StatementsConsideration: Unemployment Benefits
As an independent contractor, you may also be eligible to receive
unemployment benefits. If you are receiving unemployment
benefits, you must disclose the PPP loan during your weekly
recertification call.
Because the PPP loan is intended to replace your net income for
8 weeks, it is likely that you will be ineligible to receive
unemployment benefits during those 8 weeks immediately
following disbursement of the PPP loan.
Check the rules of your state and with a tax accountant if you
have questions.
Introduction to Audited
Financial StatementsConsiderations: Unemployment Benefits
.PPP Unemployment Benefits
Eligibility Independent contractor whose
work has been impacted by
COVID-19. You can be working
at the time you receive it. No
limits on income.
Must recertify on a weekly basis that
you are looking for work and are
unable to find any. Ineligible if working
more than 3 days/week or earning
more than $504/week.
Timeline 8 weeks up to 39 weeks (varies by state)
Structure Forgivable loan, no tax Taxed on benefits
Amount 2.5 x monthly net profit Varies by state. ½ of state minimum +
$600/week bonus through July 31st.
In NY, minimum is $782/week through
July 31st.
Payment Lump Sum. Can apply for
forgiveness after 8 weeks
Weekly.
Introduction to Audited
Financial Statements
What Independent Contractors Need to
Do Immediately if You’re Interested
1. Reach out to your bank or other lenders to
confirm they’re an SBA lender who will be
processing PPP applications for independent
contractors. Confirm what paperwork they need
2. Gather your 1099s from 2019 and fill out your
Schedule C for 2019 if you haven’t yet.
3. File your taxes if lender requires it.
4. Apply!
Introduction to Audited
Financial StatementsFMA Paycheck Protection Program Toolbox
https://fmaonline.net/ppptoolbox/
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