Tax Alert: SBA Issues Additional PPP Guidance for
Self-Employed Individuals
April 16, 2020 - On Wednesday night, the Small Business Administration (“SBA”) announced that the funds appropriated under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act for the Paycheck Protection Program (“PPP”) soon will be fully committed.  Currently, there is no proposed legislation that would allocate additional resources to the program. However, Treasury Secretary Steve Mnuchin is negotiating with Congress regarding another round of funding that would be made available for borrowers under the PPP program.
Despite the limited remaining availability of funds provided under the initial PPP, the SBA issued a new Interim Final Rule on April 14 that provides additional guidance for self-employed individuals borrowing under the program.  The new guidance should be followed for any pending PPP applications submitted under the current program and for any applications submitted under any future programs.  Borrowers that have already received PPP loan proceeds are not eligible to retroactively apply the new guidance.

Some of the key items addressed in the new Interim Final Rule include:

  • Eligible individuals that report or will report net self-employment income on a 2019 Form 1040, Schedule C are eligible for a PPP loan. The individual must have been operating the business on February 15, 2020 and must have a principal residence in the United States. The SBA will issue additional guidance for individuals who were operating a business on February 15, 2020 and will file a 2020 Schedule C but were not operating a business in 2019.

  • The maximum loan amount is dependent on whether the self-employed individual employs other individuals. Individuals that do not have employees will be ineligible for a loan if they do not report a net profit from the business.  

  • Generally, the loan is calculated using a formula based on a multiple of owner compensation replacement, employee compensation, and other employee benefits.  Both owner and employee compensation are subject to a $100,000 annualized limit for each individual. The loan proceeds may be used to pay employee and owner compensation, business mortgage interest, business rent, and business utilities. At least 75% of the loan proceeds must be used for employee and owner compensation.

  • The principal balance and accrued interest on the loan may be forgiven. The amount of forgiveness is the total of employee compensation, the owner compensation replacement, employee benefits, business mortgage interest, business rent, and business utilities for the eight-week period beginning on the loan origination date.  

  • The borrower will be required to provide various documents to the lender for purposes of the loan qualification and forgiveness verification processes. The individual must provide a 2019 Schedule C to the lender whether or not he or she has filed a 2019 Form 1040 at the time of the loan. Other required documentation includes Forms 941, state unemployment filings, Forms 1099-MISC, bank statements, and evidence of rent, mortgage interest, and utility payments.

  • General partners that receive self-employment income from active participation in a partnership are treated as self-employed individuals. However, these individuals are not eligible to file a separate PPP loan application. Instead, the partnership must include the eligible partners’ self-employment income in payroll costs on its PPP loan application.

For more information regarding the PPP and other SBA loan programs, please see the COVID-19 information page on the Whitley Penn website at .

ALERT UPDATE: The SBA has just announced it is no longer accepting applications under the Paycheck Protection Program after exhausting the $349 billion funding authorized by the CARES Act.
Whitley Penn is continually monitoring the tax and economic developments related to the Coronavirus pandemic and will send out additional alerts in the future.  In the interim, please contact your Whitley Penn Tax Advisor if you have any questions or require any additional information.