Paycheck Protection Program Loans Q&A

 July 28, 2020

There are lots of questions about the Paycheck Protection Program loan forgiveness.

Question: I am an independent contractor who uses a single household checking account only. No payroll account or separate business account. How do I document that my PPP loan was used for ‘payroll’?

Answer: As an independent contractor, sole proprietor, or self-employed individual, if your covered period is eight weeks, you get eight weeks of your 2019 net profit (as reported on your Form 1040 Schedule C) forgiven, capped at $15,385 per individual. If your covered period is 24 weeks, you get 2.5 months of your 2019 net profit (as reported on your Form 1040 Schedule C) forgiven, capped at $20,833 per individual. This is called the Owner Compensation Replacement and was recently introduced by the SBA. To get your remaining PPP funds forgiven, you will need to spend it on business utilities, rent, and mortgage interest expenses (to the extent such expenses are deductible on your Form 1040 Schedule C). Telephone and internet bills are considered utilities costs. Other types of expenses appear to be ineligible for forgiveness at this time. Make sure to keep your documents showing your payments for these expenses during the covered period.

Question: I have a sole proprietorship and received the PPP. When I was offered the loan it gave me two amounts. One smaller and one bigger. I chose the smaller amount as it said it did not have to be repaid. Is this true?

Answer: If you chose the smaller amount, it is likely that most, if not all, of this amount will be eligible forgiveness when you apply.

For PPP forgiveness, “owner compensation replacement” counts as an eligible payroll cost, because - in effect - you are paying yourself by replacing the net profits that your business would otherwise have earned without the crisis. If you had the choice between two loan sizes and you chose the smaller one, then your loan size was equal to 8 weeks of your business’s 2019 net profits, which is the cap on owner compensation replacement. As a result, 100% of your loan proceeds will be considered a payroll cost and the entire loan amount should be eligible for forgiveness, regardless of what you spend the money on. Please note that you still need to submit a forgiveness application through Square Capital in order to get the loan forgiven, but we will know ahead of time that this was the case and set up your application appropriately. Watch out for an email and an update to your Square Dashboard for when the forgiveness application is ready.

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