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SBA Provides Self-Employed and Partners Guidance on PPP Loans

PPP loan calculations for self-employeds and partnerships (04-27-20)

The SBA has finally issued guidelines on calculating monthly payroll costs for Paycheck Protection Program loans for all entities, including self-employed taxpayers and partnerships.

Self-employed individuals

Self-employed individuals with no employees determine their monthly payroll costs by dividing their Schedule C, line 31 net profit amount, up to a $100,000 maximum, by 12. If the line 31 net profit amount is zero, the individual is ineligible for a loan.

If the self-employed individual has employees, add the monthly employee payroll costs to the amount above. These payroll costs are based on the 2019 IRS Form 941 taxable Medicare wages and tips (line 5c, column 1), plus any excluded pre-tax employee contributions for health insurance or other fringe benefits, up to a $100,000 maximum per employee.

To this amount, add the following 2019 costs:

  • Employer contributions for employee health insurance (portion of Schedule C, line 14 attributable to health insurance);
  • Employer contributions to employee retirement plans (Schedule C, line 19); and
  • Employer state and local taxes assessed on employee compensation (UI, ETT, and SDI).

Partnerships

The application for partnerships should be completed at the partnership level. Individual partners may not apply for separate PPP loans.

The maximum loan amount is based on 2.5 times the 2019 monthly self-employment earnings reported to U.S.-based general partners on the 2019 Schedule K-1, Box 14a, net earnings from self-employment tax, with a maximum of $100,000 per partner. If the 2019 K-1s have not yet been completed, they must be completed for purposes of the loan application.

This amount must be reduced by any claimed IRC §179 expense, unreimbursed partnership expenses, and depletion on oil and gas properties. The result is then multiplied by 0.9235 (to remove the “employer” share of self-employment tax).

To this amount, add any 2019:

  • Monthly employee payroll costs based on the 2019 IRS Form 941 taxable Medicare wages and tips (line 5c, column 1), plus any excluded pre-tax employee contributions for health insurance or other fringe benefits, up to a $100,000 maximum per employee; 
  • Employer contributions for employee health insurance (portion of Form 1065, line 19, attributable to health insurance);
  • Employer contributions to retirement plans (Form 1065, line 18); and
  • Employer state and local taxes assessed on employee compensation (UI, ETT, and SDI).

LLCs

LLCs compute their payroll costs based on whether they are taxed as a sole proprietorship (SMLLC), partnership, or corporation.

Additional guidance

The guidance also specifies how nonprofit organizations and C and S corporations should calculate their maximum loan amounts, as well as the documentation each entity type must provide with its application.

The guidance is available at:

https://home.treasury.gov/system/files/136/How-to-Calculate-Loan-Amounts.pdf

Partners and Self-Employed – New guidance for PPP Loans

PPP guidance for self-employed borrowers (04-15-20)

The SBA has issued a second set of Interim Final Rules for the Paycheck Protection Program (PPP), this time focusing on how these loans work for self-employed individuals. The guidance clarifies the following issues:

  • Individuals who are partners in a partnership (or LLC taxed as a partnership) should include their self-employment income from the partnership in the payroll costs of the partnership (up to $100,000) when applying for loans and calculating loan forgiveness. The partners will not qualify for loans individually based on the self-employment earnings from the partnership. The guidance does not provide any further definition of what should be included in self-employment income for the partners. For example, there is no discussion of guaranteed payments, etc. However, under IRC §707(c) guaranteed payments are subject to self-employment tax unless they are payments to limited partners.
  • For Schedule C filers, the guidance is clear that the maximum loan amount (and loan forgiveness) will be based on the taxpayer’s 2019 Schedule C, even if they haven’t filed their 2019 return yet. They will be required to complete a 2019 return to apply for the loan.
  • For determining the loan amount, the Schedule C filers will take the net profit from line 31 of the Schedule C (limited to $100,000), divide it by 12, and multiply it by 2.5 for the loan application. If they have employees, they will add the employees’ wages (limited to $100,000 each) and other payroll costs.
  • Schedule C filers will also be required to provide a 2020 invoice, bank statement, or book of record to prove they were in business on February 15, 2020.
  • Loan forgiveness for Schedule C filers will also be based on their net earnings from 2019 (8/52 of that amount, to reflect eight weeks of earnings), plus amounts paid for employee payroll costs, interest on mortgages (for real and personal property), rent, and utilities. There are no additions for health insurance premiums or retirement contributions of the self-employed individual.
  • Self-employed individuals who take credits for sick time or family leave under the Families First Coronavirus Response Act will reduce their loan forgiveness by those amounts.
  • Self-employed individuals who receive these loans may not qualify for unemployment. 

To view the full text of the interim rules, go to:

http://home.treasury.gov/system/files/136/Interim-Final-Rule-Additional-Eligibility-Criteria-and-Requirements-for-Certain-Pledges-of-Loans.pdf

Tax Season is Coming – Are You Ready?

With the end of the 2016 year quickly approaching, it means that tax season is right around the corner. Are you ready?

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December 15th 6:30pm-9:00pm Intro to QuickBooks

mst-quickbooks
Mr. Smart Tax, Inc. is excited to present an introductory course on the basics of accounting and Quickbooks software geared for small businesses and self-employed individuals. Learn how to quickly and efficiently gain control over your finances with this powerful accounting software program.

MUST bring your own laptop. You will be provided with all other course materials and free trial of QuickBooks.

Call to register today:
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Time: 6:30pm-9:00pm Thursday December 15, 2016

Location: Mr. Smart Tax, Inc.
4590 MacArthur Blvd., 5th Floor
Newport Beach, CA 92660

Directions: We are located in Wells Fargo building at the corner of MacArthur and Birch. Parking lot entrance off of Birch. Take the elevator in the main lobby to the 5th floor and go right to reception desk on 5th floor.