While the CARES Act defines employees as “full-time, part-time or other employees” for the purposes of eligibility for PPP loan applications, it uses the “full-time equivalents standard” to determine the amount of loan forgiveness. As a result, the “direct” number of employees you used to determine your eligibility for the credit may be different from the number used for the pardon, which is based on full-time equivalency. When the coronavirus pandemic forced businesses across the country to close, the government created the Paycheque Protection Program (PPP) to allow small businesses to have an immediate influx of cash through forgivable loans. What you may not have known is that sole proprietors, independent contractors and gig workers are also eligible for the PPP. Salary costs include compensation for employees (whose principal residence is in the United States) in the form of salary, wages, commissions or similar remuneration; tips or equivalent (based on the employer`s records of previous tips or, in the absence of such records, a reasonable and good faith estimate by the employer for such tips); payment of leave, parental, family, medical or sick leave; assistance with separation or dismissal; payment of benefits to employees, consisting of group health insurance, including insurance premiums, and retirement; payment of state and local taxes levied on workers` compensation; and, for an independent contractor or sole proprietor, wages, commissions, income or net income from self-employment or similar remuneration. You are also eligible for a PPP loan if you are a person carrying on a sole proprietorship or as an eligible self-employed or self-employed person who was in business on February 15, 2020. You do not need employees who are eligible for a credit remittance under the Paycheque Protection Program. The PPP has specific rules for self-employed workers, independent contractors and gig workers that allow them to recover wages lost due to the pandemic. But to get a full credit discount, you need to meet a few requirements. Now, you need to know how to take full advantage of PPP in the future. The interim rules go beyond simply separating employers from independent contractors and sole proprietors in defining wage costs.
The provisional rules raise and explicitly answer the question: the question of how to treat independent contractors appears in the initial calculation of aggregate labour costs. The interim rules define approximately “labor costs” to include compensation for U.S.-based workers in the form of wages, wages, tips, vacation, family leave, sick or sick leave, separation or termination benefits, payment of benefits such as health insurance premiums and retirement, and state and local taxes levied on employee compensation. The same definition also provides that independent contractors or sole proprietors may include their salaries, commissions, income, net income or “similar remuneration”. Previously, assuming that this loan amount with a covered period of eight weeks, $15,385 was automatically eligible for the rebate in lieu of the owner`s remuneration, as this represents 75% of the loan proceeds. Now, thanks to the new preliminary final rule, you can get your entire loan forgiven as an income replacement if you use the 24-week covered period. You can also stick to the 60-40 rule and use up to 40% of your loan for other business expenses such as rent while receiving a full discount. At this point, you will not be eligible for a full loan forgiveness if you apply for it if you are using an 8-week covered period. Assuming you don`t have any other expenses eligible for the rebate and you have taken out the maximum PPP loan you have, you have 25% of the total proceeds of your loan that is not forgiven. In many ways, the self-employed have struggled to access and use Paycheque Protection Program loans than other small businesses. From the application process to the remittance guidelines, the self-employed have tried to understand how this forgivable loan program works for them. Limiting the remittance to eight weeks of net profit from the owner`s 2019 Form 1040 is consistent with the structure of the law, which provides for a credit remittance based on eight weeks of expenses.
This limitation will also help to ensure that limited resources are directed towards the protection of wages in accordance with the central objective of the law. Finally, 75% of the amount awarded must be attributable to salary costs for the reasons set out in the first interim final rule of the PPP. On February 22, President Biden announced changes to the paycheck protection program that affect self-employed workers who applied for a PPP loan after March 3, 2021. This article breaks down the remittance process for loan applications made before and after March 3, 2021. Watch the video below for an overview of the changes. You must prove your expenses for labor costs and other expenses covered. However, for the owner`s compensation portion, you only need to provide your Schedule C for 2019 or 2020 to claim the amount of the rebate. Once your 24-week “covered period” ends, you`ll have 10 months to apply for a rebate or start making loan payments – whether you decide to repay your loan immediately or as a lump sum over the next few years.
If you don`t apply for a discount, you can also carry forward the loan balance for two to five years with 1% interest. This interest rate would probably be the lowest you could get on the open market by a wide margin. While PPP loans have always been meant to be forgiven and you may not prefer to pay interest on a loan, the option is there if for some reason you may not qualify for loan forgiveness. It`s always better than applying for a regular SBA or a bank loan. Self-employed workers are subject to different PPP rules than other small businesses. This is because they probably have different needs and work according to different business models. To be eligible for a full credit rebate, you must meet a few criteria. The provisional rules also provide borrowers with the necessary guidance on eligibility, calculating the maximum loan amount and the maximum amount of PPP loan issuance. And while the provisional rules take into account many scenarios, some aspects of small businesses can upset applicants when navigating these rules. To survive, some small businesses have a mix of full-time, part-time employees, and independent contractors. Some even hire independent contractors to do much, if not all, of their necessary work.
Small businesses that have a mix of employees and independent contractors may view some aspects of the interim rules as confusing or even contradictory. In this article, we look at how the provisional rules treat independent contractors. In addition, you will also need to fill out an official PPP loan forgiveness application form. Self-employed individuals without employees can complete Form SBA 3508EZ, which is an abbreviated and simplified version of the complete PPP pardon application. Your lender may have a digital version of the form that you can also fill out. Can lenders rely on the borrower`s documentation to obtain a loan forgiveness? Form 1040 Appendix C of 2019 provided at the time of the PPP loan application must be used to determine the amount of net profit allocated to the owner for the eight-week period covered. The Administrator, in consultation with the Secretary, has determined that for the purposes of the credit remittance, it is appropriate to require self-employed persons to rely on Form 1040, Schedule C 2019, to determine the amount of net profit allocated to the owner during the period covered for the reasons described in paragraph 1.d. above. The owner`s compensation portion allows you to claim a discount for the 2.5-month gross profit without having to spend it on anything. The amount of the portion of the landlord`s compensation that you can claim for the pardon depends on whether you make the pay. Typically, lenders need up to 60 days to evaluate the credit remittance. “Are independent contractors considered employees for the purposes of calculating PPP loans? If you have received a paycheque program (PPP) protection loan, you must ensure that you are using the funds for eligible expenses and that you meet other requirements to maximize the amount of your loan forgiveness.
To get a full PPP rebate, you must spend at least 60% of your loan on eligible labor costs during your 24-week coverage period. According to the Provisional Rules, PPP loans may be granted up to the total amount of the principal amount of the loan and accrued interest. 13 CFR Part 120, Interim Final Rule, Section III, (2)(h), p. 13 CFR Part 120, Interim Final Rule, Section III, (2)(h), p. 13 CFR Part 120, Interim Final Rule, Section III, (2)(h), p. 1 13 of 31.To be eligible, but a borrower must use the loan proceeds for forgiveness purposes and maintain the level of employees and compensation. The provisional rules provide that remittance purposes include salary costs, interest payments on mortgage obligations incurred before February 15, 2020 or rents for leases before February 15, 2020, pension payments before February 15, 2020, and proceeds from an EIDL loan used for wage costs. With the exception of a borrower`s ability to pay interest on other (non-mortgage) debt securities contracted before February 15, 2020, the remittance purposes are consistent with the permitted uses of PPP loans.
And while the interim rules state that the SBA will issue further guidelines on credit forgiveness, it currently states that no more than twenty-five percent (25%) of the loan funds can be used for non-labor costs. .
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