Favorable New PPP Rules for Proprietors

April 21, 2021, 8:00 AM

Good news! The U.S. Treasury and Small Business Association (SBA) made another round of valuable changes to the Paycheck Protection Program (PPP).

Although the application window closed on March 31, the House of Representatives voted to extend the application period by two months. The Senate is expected to approve the measure.

Sole proprietors, self-employed individuals, and independent contractors who file a Schedule C (the “Profit or Loss from Business” part of your Form 1040) are now eligible for the higher loan and forgiveness amounts.

We’ll break down changes—and possible modifications to the new rules.

Eligible for more PPP money

Eligibility and potential loan amounts have increased for many people. And it’s all forgivable! Previously, Schedule C filers could only apply based on their net income—your income after taxes and deductions—which tends to be small for many sole proprietors.

However, you can now apply based on your gross income—your total pay from Line 7 of your Schedule C.

This change means the amount sole proprietors can apply for has expanded significantly. Take someone who netted $12,000 on their Schedule C but had a gross income of $100,000. Previously, they could only apply for $2,500. But under the new rule, they can apply for the maximum available amount of $20,833. That’s a big difference!

That $20,833 is per PPP round—so our hypothetical sole proprietor, if qualified, can apply for that amount for both the first and second draws, clocking in at $41,666 in forgivable loans.

These new rules aren’t currently retroactive. So, if you already applied for and received a PPP loan for $2,500, and now you’d be eligible for a loan of $20,833, you can’t make adjustments and get that additional $18,333.

But the American Institute of Certified Public Accountants (AICPA) is fiercely lobbying Congress to make the rules retroactive. If you did get loans for rounds one and two, there’s a chance you could still get the remaining $36,666.

And if you only applied for one round of PPP loans, you can currently apply for the second round under the new rules—and at least get some of the money now.

Expanded eligibility

Eligibility has expanded, too. Business owners with non-financial fraud felony convictions and those who are delinquent or in default of their federal student loans can now apply for PPP loans.

The fine print

Under the new rules, $100,000 of gross income is the cap. But if you have W-2 employees, you can apply for more, based on payroll. Amounts can be based on either your 2019 or 2020 income. You don’t have to “prove” anything—you can simply submit your Schedule C.

If your gross income is $150,000 or more, you can still borrow—but safe harbor parameters don’t apply. Instead, you must submit a good-faith certification saying that you need the money.

The deadline to apply was March 31—but that may be about to change. The Senate is expected to approve the PPP Extension of Act of 2021, making the new application deadline for the program May 31.

The AICPA—and small business owners—are putting a lot of pressure on Congress to make adjustments. They’re asking for the loan program to be extended for at least an additional 60 days to the end of May.

What to do

Your next steps will depend on whether or not you’ve already applied for PPP loans. If you haven’t—or if you only applied for one round of PPP loans—get in touch with an accountant and get your paperwork ready for when your bank starts accepting applications.

If you did already apply for both rounds, keep an eye on the news—and be ready to contact a CPA. You may end up being able to make adjustments and access a higher amount.

There’s still money available in the federal budget for both PPP rounds that could cover the new sole proprietor loans being opened retroactively. The funds are there—it’s more a question of how Congress responds to the political pressure.

If you are newly eligible to apply for PPP loans—or eligible to apply for a larger amount—an accountant can answer questions and help you with the paperwork. The same goes for the loan forgiveness application and process.

Whatever your next steps, we hope the news of expanded access to PPP support for your business brings a little smile after 12 long months.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Thomas Cole is a licensed Certified Public Accountant in Florida and New Jersey and a Member of the Firm at Smolin Lupin. With more than 33 years of public accounting experience, Tom provides companies and their owners with accounting, tax, and management consulting support. Tom is a member of the American Institute of Certified Public Accountants, the Florida Institute of Certified Public Accountants, and the New Jersey Society of Certified Public Accountants.

Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. To contribute, please contact us at TaxInsights@bloombergindustry.com.

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