Instead, take the value of line 7 and subtract lines 14, 19, and 26. The maximum of this value is $100,000. By subtracting these lines, you remove all labor costs from your gross income so you don`t dive twice. For more information on the classification of independent contractors, see IRS.gov. All self-employed individuals with labour costs (because they have employees) must file payroll tax returns for 2019 or 2020, by . B quarterly forms 941 and state unemployment insurance forms reported to the Internal Revenue Service. Short answer: No, the provisional rules explicitly state that employers are not allowed to include independent contractors in their credit calculations. Any amount paid by an applicant to an independent contractor or an individual entrepreneur should be excluded from the salary costs of the eligible business. The Paycheck Protection Program (PPP) is designed to support U.S. small businesses with immediate cash support during the COVID-19 pandemic. If you`re a sole proprietor, independent contractor, or gig worker, here`s what you need to know and what you need to apply. This guide has been updated to reflect the new distinctions between the first and second draws.
Some businesses use independent contractors who pay them with Forms 1099 instead of Forms W-2 for their businesses. Unfortunately, independent contractors are not employees and so you cannot include their salary in your monthly pay for the PPP. You will also not be taken into account in the number of employees you have for the application. You will need to provide payroll/accounting documents to prove your salary costs. Your average monthly labor costs are your annual gross profit divided by 12. If your annual gross profit is more than $100,000, you can only claim up to $100,000 divided by 12. While both types of workers can perform similar work, how you pay them and how they affect your payroll liabilities helps determine in part whether or not they are a contractor or an employee, and whether you can include them in your labor costs. When applying for the PPP loan from lenders, the borrower must provide the necessary documents to determine eligibility. The Provisional Rules describe these documents as «payroll documents, payroll tax returns or Form 1099-MISC, or the income and expenses of a sole proprietorship.» 13 CFR Part 120, Interim Final Rule, Section III, (2)(a)(ii), p. 13.
6 out of 31 (emphasis added). Borrowers who do not have this information must provide other supporting information, such as bank records, that is sufficient to prove an eligible salary amount. When calculating your labor costs, you cannot include contractors because contractors are their own unit and can apply for a PPP loan themselves. 13 CFR Part 120, Interim Final Rule, Section III, (2)(p), p. 15 of 31. Unless the SBA provides additional guidance on the granting of PPP loans, payments to independent contractors are not included in the review of the loan waiver and are not included in the list of permitted uses of PPP loan proceeds. 13 CFR Part 120, Interim Final Rule, Section III, (2)(h), p. 11 of 31. Unless the SBA provides additional guidance on the calculation of PPP loans, small businesses should not include independent contractors in their labour costs for the calculation of PPP loans.
It is important to note that the independent contractor (1099) and/or the sole proprietor himself may be eligible for a PPP loan if he meets the requirements of the application. With your Pay cheque Protection Program loan application, you can only include the salary cost for employees* who receive W-2s. Independent contractors collect Forms 1099-MISC (but for the PPP, you must submit a Schedule C, not your 1099). Short answer: No, the provisional rules explicitly state that independent contractors are not considered employees for the purposes of issuing PPP loans. If the replacement amount of your homeowner`s indemnity exceeds the amount of your PPP loan, simply enter this amount in «Salary Costs» and you will be entitled to a full remission of your PPP loan. However, if you want your loan to be forgiven, you`ll need to spend 60% of the loan funds on labor costs (and the remaining 40% on rent, mortgage interest, and utilities). Your approach to payroll depends on whether or not you have employees: For salary costs, you should consider both traditional salary costs and replacement of the owner`s remuneration: If the replacement amount of your homeowner`s indemnity does not exceed the amount of your PPP loan, you should determine whether your non-payment costs paid or incurred during the period covered are eligible for the rebate. and add them to your «salary costs» when you ask for a pardon amount. Eligible non-payment costs include: This program is designed to help Americans stay employed and keep their salaries.
As the name suggests, this is a payroll-focused program. The payment you receive is based on your average monthly salary cost multiplied by 2.5. Under the PPP, your salary costs may include your salary costs and health insurance premiums. Before you can determine how to manage payments and how it may affect your salary obligations, you must first understand the business relationship that exists between you and the person providing the services. The provisional rules caused some surprises. For example, PPP loans to eligible businesses are paid on a first-come, first-served basis, and a PPP borrower can only receive one loan. This surprise led to a rush for PPP borrowers and lenders to bring their applications to the SBA portal. In addition, the interest rate is 1% and has a term of two (2) years. These are surprises, because the CARES law provided that the interest rate could go up to 4% and have a maximum duration of ten (10) years. And while the CARES Act has limited opportunities to facilitate small businesses, the interim rules permanently limit PPP loans to a single first-come, first-served loan, so they explicitly state that «if you`re applying for a PPP loan, you should consider applying for the maximum amount.» 13 CFR Part 120, Interim Final Rule, Section III, (2)(k), p. 12 of 31. While CARES lists several «permitted uses» of PPP loans, the provisional rules specify that at least 75% of ppp loan proceeds must be used exclusively for the «labour costs» category.
Sole proprietorships and independent contractors must submit a Schedule C for 2019 or 2020 showing the income and expenses of the sole proprietorship. If you work as a 1099 independent contractor, you are considered a sole proprietor by default in the eyes of the IRS. This means that your freelance income will be reported annually on a Schedule C of your personal tax return. You have a C schedule, even if you take odd jobs or do freelance work, and this schedule is based on the 1099-MISC forms you collect from companies or people you have hired as a contractor. The biggest advantage of this program is that it can be awarded almost completely. If you keep your labour costs at pre-COVID-19 levels, including salary paid and number of employees paid, you may be eligible for these expenses to be offset from your loan amount, as well as certain other expenses such as rent and utilities. No, independent contractors have the option to apply for a PPP loan themselves, so they are not credited for the purpose of calculating a borrower`s PPP loan. Take this value, add up your labor costs for 2019 or 2020, and then divide your average monthly labor costs by 12. If you multiply this by 2.5, you will get the amount of your PPP loan. The question of how to treat independent contractors is reflected 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». Applications for the Paycheque Protection Program (PPP) will be posted online for most lenders on Tuesday. If you are preparing to apply for a PPP, the first step is to determine your monthly payroll and the number of employees for the application (you are eligible for 2.5 times your monthly payroll in PPP). But which workers are included in the payroll and the number of employees? Here`s what you need to know. This content is provided for informational purposes only and should not be construed as legal, accounting or tax advice or as a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or location. No guarantee is given that the information is complete or that it is adapted to the particular situation of a customer. Intuit Financing Inc.
(d/b/a QuickBooks Capital) assumes no responsibility for updating or revising the information contained herein. Therefore, the information provided should not be used as a substitute for independent research […].