The Coronavirus Aid Relief and Economic Security Act (CARES Act) includes a number of programs to help small business owners. There are still details being worked out, but our goal here is to answer common questions about the Paycheck Protection Program Loans that will be made available soon under that law. These loans are a modification of the popular SBA 7(a) loan program for the specific purposes of assisting small businesses affected by coronavirus.
This article has been updated April 3, 2020 with information from the Treasury Department, including the interest rate of 1% and guidelines about 1099-workers, and a clarification that the Economic Injury Grant is for up to $10,000.
Please keep in mind:
- This article is not about the Economic Injury Disaster Loans (EIDL) which is a separate loan program. Read our FAQs about Disaster Loans due to coronavirus here.
- Lenders will begin to accept applications beginning April 3 for small businesses and sole proprietors and April 10, 2020 for independent contractors and self-employed individuals. Nav will match borrowers to SBA lenders through its lending marketplace, so sign up for your free Nav account now and we’ll let you know when these loans are available through our lending partners.
Please keep in mind this information is changing rapidly and is based on our current understanding of the programs. It can and likely will change. Although we will be monitoring and updating this as new information becomes available, please do not rely solely on this for your financial decisions. We encourage you to consult with your lawyers, CPAs and Financial Advisors. To review your real-time funding options with one of Nav’s lending experts, please contact us.
Do I Qualify for The Small Business Stimulus Loans?
To qualify for SBA funding under this new program, you must be a small business as defined by the SBA. This includes:
- Small businesses or non-profit 501(c)(3) organizations with 500 or fewer employees
- Small businesses, 501(c)(19) veteran’s organizations or tribal concerns that meet the SBA size standards (See SBA size standards here.)
- Sole proprietors or independent contractors
Businesses in the food or hospitality industry (NAICS codes beginning in (72) may be eligible on a per location basis.
In addition the normal affiliation rules are waived for franchises or businesses receiving financial assistance from a Small Business Investment Company.
The business must be in operation by February 15, 2020.
I Don’t Have Employees. Can I Still Qualify?
Yes you may. The CARES Act states: “…individuals who operate under a sole proprietorship or as an independent contractor and eligible self-employed individuals shall be eligible. Applicants who fall in this category will need to provide documentation such as “payroll tax filings reported to the Internal Revenue Service, Forms 1099–MISC, and income and expenses from the sole proprietorship, as determined by the (SBA) Administrator and the (Treasury) Secretary.”
What If I Have A Franchise?
Franchises and hospitality businesses (NAICS code 72) with multiple locations, even if they have more than 500 employees, may be eligible on a per location basis as well as any businesses receiving financial assistance from a Small Business Investment Company (SBIC).
How Much Money Can I Borrow?
The basic answer is that the maximum loan amount is 2.5 times the average monthly payroll for the 12 months preceding the date the loan is made, up to a maximum of $10 million.
Use our free CARES Act SBA Calculator to see how much you may be able to borrow.
However, if you are a seasonal business, you can apply to borrow 2.5 times your payroll for either the 12-week period beginning February 15, 2019 and ending May 10, 2019, or the period of March 1, 2019 through June 30, 2019.
What if you are a newer business? If you were not in business for the time period beginning on February 15, 2019 and ending on June 30, 2019, then you can use your average total monthly payroll costs incurred from January 1, 2020 to February 29, 2020 and multiply that by 2.5.
Payroll does not include salaries above $100,000 or qualified sick leave pay under the Families First Coronavirus Response Act. (See What Does Payroll Include? below.)
Is This The Free SBA Grant Money I Heard About?
No. The advance of up to $10,000 is part of the Economic Injury Disaster Loan program, not Paycheck Protection Program Loans. Read about Disaster Loans here.
Where Can I Get One of These Loans?
Individual lenders, including many banks, credit unions and some online lenders will make these loans.
Nav will be helping match small business owners to lenders making SBA loans through Nav’s online Marketplace. Sign up for a free Nav account now to be notified when these loans become available through our lending partners.
See How Much SBA Loan Money You Qualify For
Use our CARES Act SBA loan calculator to see how much money your business may qualify to get.
Use the Calculator
What Can I Use the Funds For?
You can use the loan proceeds for:
- payroll costs;
- costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
- employee salaries, commissions, or similar compensations;
- payments of interest on any mortgage obligation (but not to pay principal or to prepay a mortgage)
- rent (including rent under a lease agreement);
- utilities;
- interest on any other debt obligations that were incurred before the covered period,
- refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020
How Fast Can I Get a Loan?
This legislation was specifically designed to make these loans faster and easier for lenders to approve and fund. (Traditionally SBA 7(a) loans can take anywhere from a few weeks to a couple of months.) The relaxed standards are designed for fast approval, but keep in mind there will be unprecedented demand and lenders must implement the new rules.
How Fast Will I Have to Repay It?
These loans have a maximum term of two years. You can prepay at any time without penalty.
What Is the Interest Rate and Fees?
The interest rate for these loans will be 1% for all lenders that make them. Normal 7(a) loan fees are waived.
Is there a Personal or Business Credit Check?
None is required.
Is There a Personal Guarantee?
No. There is no personal guarantee required. In addition, these will be non-recourse loans as long as proceeds are used for covered purposes. (Non-resource means the government won’t be able to collect if you default.)
Is Collateral Required?
No. Normally SBA loans for more than $25,000 require collateral. That requirement is waived for these loans.
How Soon Do I Have to Start Making Payments?
Payments will be deferred for six months (though interest will accrue).
Do I Have to Prove I Can’t Get Credit Elsewhere?
No. Normally SBA loans require a “credit elsewhere” test to determine whether the borrower can get similar credit at another financial institution. This is waived here.
How Do I Get Loan Forgiveness?
If you get one of these loans, you can request forgiveness of the principal portion of the loan for the eight week period after you get the loan that covers:
- Payroll costs
- Interest on a mortgage
- Rent
- Utilities
However, no more than 25% of the forgiven amount can be attributed to non-payroll costs.
Your loan forgiveness will be reduced if you decrease your full-time employee headcount. It will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annually in 2019. You may also receive forgiveness for additional wages paid to tipped workers.
In addition:
- Payroll includes the costs listed under the section “What Does Payroll Include?” below.
- Forgiven debt will not be taxable.
- The mortgage, rent and utilities covered in this section must be in place before February 15, 2020.
Please note: there are specific and technical calculations included in this section of the law, and you should not rely on this description to determine whether to keep employees, reduce employee wages or to determine your eligibility for loan forgiveness.
Do Independent Contractors Count as Employees?
No. Independent contractors can apply for a PPP loan on their own so they do not qualify for purposes of a borrower’s PPP loan forgiveness.
Can I Get More Than One PPP Loan?
No.
What Happens if PPP Loan Funds are Misused?
If you use PPP funds for unauthorized purposes, SBA will direct you to repay those amounts. If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud. If one of your shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member, or partner for the unauthorized use.
Keep good records of how you use these funds. Sloppy record keeping may prove costly!
What If I Have Already Laid Off Employees or Cut Pay?
If you have already laid off workers, you have until June 30, 2020 to restore full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.
Again, you should not rely on this description to determine whether to lay off or hire employees.
What Does Payroll Include?
The CARES Act states that payroll includes:
- Salary, wages, commissions or similar compensation,
- Payment of cash tips or equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips),
- Payment for vacation, parental, family, medical, or sick leave;
- Allowance for dismissal or separation;
- Payment required for the provisions of employee benefits including insurance premiums;
- Payment of any retirement benefit;
- Payment of State or local tax assessed on the compensation of employees; plus
- For sole proprietors or independent contractors, wages, commission, income, or income from net earnings from self-employment, or similar compensation.
It does not include:
- The compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period;
- Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees;
- Any compensation of an employee whose principal place of residence is outside the United States;
- Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.
Are Employee Benefits In The $100,000 Salary Cap?
No. The CARES Act excludes from the definition of payroll costs any employee compensation in excess of an annual salary of $100,00. According to the SBA, the exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to non-cash benefits, including:
- employer contributions to defined-benefit or defined-contribution retirement
plans; - payment for the provision of employee benefits consisting of group health care
coverage, including insurance premiums; and - payment of state and local taxes assessed on compensation of employees.
What Do Utilities Include?
Utilities include electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.
Do Independent Contractors Count as Employees?
No, independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation.
How Do I Document Payroll?
You must submit such documentation such as payroll processor records, payroll tax filings, or Form 1099- MISC, or income and expenses from a sole proprietorship. For borrowers that do not have any such documentation, the borrower must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.
Are There Disqualifiers?
Yes. You are ineligible for a PPP loan if, for example:
- You are engaged in any activity that is illegal under federal, state, or local law;
- You are a household employer (individuals who employ household employees such as nannies or housekeepers);
- An owner of 20 percent or more of the equity of the applicant is incarcerated, on probation, on parole; presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of a felony within the last five years; or
- You, or any business owned or controlled by you or any of your owners, has ever obtained a direct or guaranteed loan from SBA or any other Federal agency that is currently delinquent or has defaulted within the last seven years and caused a loss to the government.
What’s the Difference Between the Payroll Protection Act and Disaster Assistance loans?
The CARES Act includes a number of relief programs for small businesses. The one we are focusing on in this article is the Paycheck Protection Program Loans. As part of the new law, businesses will be able to more easily get certain SBA guaranteed 7(a) loans. Borrowers will then be able to apply for forgiveness of certain portions of the loan if they meet requirements by keeping employees on payroll.
The Economic Injury Disaster Loan is a separate loan altogether and you apply directly to the SBA, not to individual lenders.
Can I Apply For This Loan and Disaster Assistance?
Yes but you cannot “double dip” and get funds from both loan programs for the same purpose. Furthermore, according to the Interim Rules, “If you received an SBA EIDL loan from January 31, 2020 through April 3, 2020, you can apply for a PPP loan. If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.”
This guidance does not address what happens if you applied for an EIDL before April 3, 2020 but received one after that date.
Can I Apply For This Loan and the Payroll Tax Credit?
There is a payroll tax credit of up to 50% of qualified wages for certain businesses whose operations have been fully or partially suspended by a government order or whose gross receipts in a quarter have fallen by at least half compared to a similar quarter the year before.
Your business cannot receive both the Employee Retention Payroll Tax Credit and a Paycheck Protection Program Loan, so if you are considering both make sure you consult with your legal or financial advisor.
What Can I Do Right Now?
While you wait for these loans to become available there are several things you can do right now:
- Gather payroll documentation. You’ll need documents such as payroll tax filings verifying the number of full-time employees on payroll and how much they were paid during the applicable time period. (See “How Much Can I Borrow” above.) If necessary, contact your accountant, bookkeeper or payroll processing firm to make sure you have the documents you need. If you are self-employed, see “I Don’t Have Employees.”
- Check your credit. These loans may still require a credit check even if the SBA doesn’t require it to qualify. If you don’t know where you stand, it’s a good idea to check your personal and business credit. You can do that for free at Nav.com and we will also alert you when our lending partners begin to make these loans and help match you to lenders.
- Get clear on your finances. If you have let your bookkeeping fall behind, catch up. You need a clear picture of your income and expenses to make decisions about how your business will weather the crisis. If you hope to apply for loan forgiveness you’ll also need documentation of the expenses you will pay during the eight weeks after you get the loan, including mortgage interest and/or rent and utilities.
Paycheck Protection Program Loans may prove to be a crucial tool helping some small businesses survive this crisis. Although this may seem overwhelming, it’s worth taking the time to find out how they may help your business.
This article was updated April 8, 2020 to reflect that borrowers may not get more than one PPP loan and to add information about how benefits affect the $100,000 salary cap.
Like an earlier person wrote, I have taken draws from my company on a sporadic basis – not under a W2, but under a 1099, which my business (“FCA”) already filed with the IRS. In other words, even though I own the company, I would be classified as a 1099 contractor. However, in order to satisfy the repayment provisions of the PPP, I was planning to pay myself as a W2 employee for the 8 weeks following receipt of the loan to avoid any question that it be classified as payroll. So my question is, can my business still apply for the PPP loan as I planned?
Second question: I have another business (“TSI”) that also paid an outside contractor on a 1099 basis (1099 already filed with the IRS, as with FCA). FCA and TSI are affiliated by virtue of common ownership (me). Moving forward, I am planning to shut down TSI and wish to pay the outside contractor under FCA. Can I use the 1099 from TSI as proof of payment (I’m not even sure I have to show such proof of payment at this early stage of application), and then pay the outside contractor as a W2 employee for the 8 weeks following the loan to satisfy the repayment provisions of the PPP (much like I was planning to do for myself) – even though the payments would be made by the affiliated company (FCA), not TSI?
Should I just get the application process going now and wait for further guidance, or should I just hold off on doing anything for the moment? Thank you for any help and guidance you can provide me.
Hi Jay, realizing that some of these rules have changed over the course of the last few weeks, here are my comments based upon my understanding of having lived with the legislation.
1. If you haven’t been paying yourself as an employee, collect any information you have available that would indicate that you have been paying yourself. That could include the tax forms you would file that reflected the 1099 income, they will likely need your P&L, income statements, and expense statements for the past 12 months to make your application.
2. You cannot claim any independent contractors are part of your payroll. They are able to apply for PPP funds themselves.
I hope that helps.
Do I get a paycheck protection loan if my business is still open but slower and may need to reduce employees,
Brenda, The purposes of PPP is to keep employees on the payroll. You can apply but keep in mind your loan forgiveness will depend on employment levels. There is an opportunity to rehire employees to qualify for loan forgiveness. I realize this is confusing you may want to read the section above on How Do I Get Loan Forgiveness? –
I have a trucking business with only 3 drivers I issue them a 1099 at the end of the year. I pay them weekly as full time employees. . Do I qualify for the payroll protection?
Although you qualify for a PPP loan, because you pay your drivers payroll is reflected in a 1099, you may not include them in your payroll calculation. You can count the payroll you pay yourself.
Are wages for part time employees covered in the payroll protection program – rules refer to full time employees’ salaries only. We have a business that employs 70 plus caregivers, many of whom work between 10 and 30 hours/week. We also have four full time staff and many caregivers that consistently work at least 40 hours.
Pat – Do you pay them via 1099 or W2s? It is our understanding that you can include W2 employees in your payroll calculation but not 1099 contractors. The section above where we talk above about What is Payroll is based on the legislation and final interim rule. We are not able to provide legal or financial advice or specific situations and recommend you talk with your accountant or attorney.
Hello,
We have a winery and have 18 employees. Since we had to close our doors I only kept 2 of my salaried employees on and 2 part-timers to help with shipping orders and had to lay everyone else off. We did already apply for the ppp loan Friday, if we get it, Does this mean I have to bring all 18 employees back onto payroll? Since we are closed though I won’t have work for them, so would they be getting paid to not work, while The others I kept on are working? Or can I increase salaries for those actually working to meet the % of the loan that needs to go to payroll to be considered for forgiveness? For forgiveness to be considered how much of your actual headcount comes into play if we just simply don’t have the work to bring everyone back? I’ve called all employees also to let them know I might be able to bring them back and some want to stay home on unemployment because they say they will be making more (with that extra $600/week) so not too sure what to do there. Thanks so much for your help.
Jenny – We wish we could advice. The only guidance we have to far on questions like yours is the actual legislation and the Final Interim rule from Treasury. Unfortunately we don’t have an answer to your question about employees who do not want to come back to work. Here’s what the PPP Factsheet from Treasury says. You may want to let your Senators/ Representative in Congress know the confusion you’re facing here as no doubt additional rules will be written. ” How much of my loan will be forgiven? You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. You will also owe money if you do not maintain your staff and payroll.
Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.
I am self-employed and receive 1099 income sporadically and quite unevenly throughout the year. I don’t pay myself a set salary, but take regular draws from my net business income to support my family (like any regular employee does with their paychecks). Any idea how forgiveness approval would work for people like me? Bank statements will show my usual monthly draws, but there are no “payroll filings” (I pay self employment tax on my 1040, calculated on Sch SE once a year). “Proof” of the proper use of the loan seems tricky… thank you!!
It is tricky Melinda and we don’t have guidance yet on your specific question yet from Treasury or the SBA. There is a new application that is supposed to come out on April 10th for contractors and self employed. Hopefully it will provide more guidance. In the meantime, you may want to let your Senators and Representatives in Washington know how you are finding the application confusing as more rules are likely to be written to clarify these kinds of questions.
Great article, thanks! I have 5 full-time people in a property mgmt company. 4 of the 5 are 1099. What are we supposed to do, lay them off so they can apply and then ask them to work? Why on earth would they exclude 1099 from payroll? There is no incentive for the 1099 to even work? We need them and revenues are down as tenants cannot be evicted. SBA at our rescue again!
Craig – that’s a good question that doesn’t seem to be thought through here. You may want to share your situation with your elected officials in Washington.
Do temp employees a company hires frequently from a tem agency get counted towards the 500 size limit that a company can not exceed.
Second question: Everything else being equal: Firm A employs 480 $250,000 compensated professionals and business dropped significantly. Firm A employs 1250 low wage earners (say all in $35K) and live paycheck to paycheck. Is it true Firm A would qualify for the full 10 million loan and Firm B would not qualify for anything??? And say you had 500 low earners, as per above, this firm would only qualify for $3,645,833 loan. I am a CFO/CPA and I must be missing something. Firm A, say a group of wealthy workers (not owners) would get a free loan and the workers on a paycheck to paycheck loose their job. Which will not be there after their unemployment runs out because the company could not hold out for things to return to normal. I must be missing something.
To clarify – firm B is the firm with the low wage earners.
You raise important questions and we don’t have an answer. They have appropriated separate funds for helping mid to large sized businesses. These programs are falling under the SBA loan umbrella which usually helps small businesses based on SBA size standards.
Hi,
I’m an employee who just this week was told my salary would be cut. I asked the owner 3 different times about PPP and he’d convinced the program isn’t forgiven or free. I’m mystified at why we wouldn’t apply or take advantage of the funding. He said there are many calculations and it was complex. I don’t believe any of the legal or loan default disqualifications apply, but that’s my only logical answer at this point. My intuition is they’re preparing to let me go regardless.
Is there anything an individual employee can do?
Unfortunately Aaron not that I am aware of. Maybe share this article with him?
I applied for a loan before seeing that the SBA clarified the rules to not include independent contractor payments. Thus, my payroll is too high. There is no way for me to go back into the loan application to modify, so I emailed the bank to let them know I need to reduce the amount of loan requested. I have not yet heard back from them. I’m sure they must have a thousand emails to respond to . . . At this time, they have not yet requested the 941s, etc, and I’m assuming that will be sent at a later date, once I hear back from them. At that time, I am assuming I can then modify the loan requested amount if I can’t do so before then.. Do you think this is the case? I just want to be sure that we do not request more than what we are entitled to and I don’t know how to modify this amount.
I don’t know how your bank will handle it but I wouldn’t worry too much. If you applied before they had that guidance then they know the issue exists as well. You’ll have to get loan documents at some point and you can likely amend it then. Everyone’s trying to navigate this and changes frequently.
I’m an independent contractor, can you explain how or what we can do to get this loan? I’m not 100% clear on what independent contractors will need to do to qualify for this loan program.
As an independent contractor you can apply for the Paycheck Protection Program loan. You will be treated as any other sole proprietor by the SBA. You can start the application process at Nav and a lending specialist will help you make sure your app is ready and help you choose the right lender for your SBA loans based upon your needs.
I have 2 employees that are 1099 workers. What does this mean for me? Can they file for their own PPP loan with their 1099s?
You will need this information regarding your 1099 employees. You must also submit such documentation as is necessary to establish eligibility such as payroll processor records, payroll tax filings, or Form 1099- MISC, or income and expenses from a sole proprietorship. For borrowers that do not have any such documentation, the borrower must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.
Crissy – Just to add to what Ty said. Your 1099 employees can apply on their own. The application for contractors is not available from the Treasury Dept yet (as of today April 3, 2020) but if you fill out our
Payment Protection Program loan form we’ll let you know as these become available.
I see rent listed on the application. Does rent figure into the calculation for the amount of the loan or is it limited to payroll and payroll related expenses
Rent can be covered but it is not part of the calculation of how much you can qualify for. The legislation is primarily to keep employees on the payroll. Treasury has said that “due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.”
Hi – I am a 100% LLC business owner and pay myself a salary of about $60K a year, and also take consistent draws of about another $2K a month. Under the PPP, can I also include my draws? Wondering if we know how this would work. Last, how certain are we that someone could apply for the $10K Advance EDIL, and also the PPP. I am reading that you can as long as there for different purposes. For example, someone could use the EDIL to pay for contractors that they use to run their business. Am I correct in these thoughts?
We do not have an answer on the draws. That guidance has not been provided. Currently, it appears you can get both EIDL and PPL for different purposes. (No double dipping.) The PPL application will ask you whether you have received an EIDL.
It does not make sense. I own a LLC with my husband. We both receive distributions, but because we are not an S corp, we do not receive salaries and have no guaranteed payments. So, why should the LLC member who receives a salary be treated differently than the LLC member who receives distributions? In addition the language in the regulation on not including 1099-MISC into the payroll calculation directly contracts the CARES Act. The statute trumps the regulation.
I agree it’s very confusing. I’m quoting here from the Final Interim rule that came out 4/3/2020 from Treasury. I’d recommend you talk with your elected officials in Washington and share your concerns. No doubt more rules are coming!
Item included in payroll, “Payment of State or local tax assessed on the compensation of employees;” Does this mean State and local withholding for income taxes and for disability payments?
Item excluded from payroll, “Certain taxes imposed or withheld during the time period” Is there any contradiction with the above included taxes in terms of state and local taxes imposed or withheld or does the exclusion just apply to federal withholding, FICA and Medicare taxes
Thank you for your detailed and crystal clear article
What you quoted is from the legislation and we have not seen specific guidance on your question yet. As soon as we do we will post it. Sorry we can’t be more specific yet John!
Thank you for the article.
I own a small business (a single-member LLC). I have 12 people that work for me as contractors (i.e., they are sent a 1099) each year.
Would the wages paid to these contract workers be considered “payroll” for the purpose of the PPA, and therefore be eligible for loan forgiveness? If yes, can you provide a link or passage to something official that makes this clear?
Thank you in advance for your help.
I have the same question, but I don’t see that anyone has replied to this comment.
John – the Interim Rules that came out yesterday specify that you will not count contractors you pay by 1099 in your payroll. They can apply on their own. I updated the article last night to reflect that latest information.
But the CARES Act says the opposite. The Statute trumps.
What about people who own multiple businesses? Can this be applied for both? Let’s say someone owns a dental practice but also owns a restaurant.
The SBA has affiliation rules that may affect your ability to get a loan for multiple businesses.
My gross payroll for 2019 was $551,930, my tipped employees claimed $198,118 in tips received. For the calculation, do I use $551,930 (without claimed tips) or $750,048 (with claimed tips)? While we are closed, I would be paying my tipped employees their pay plus an average of what tips they would have made, correct?
Michele – Absent further guidance from the SBA or Treasury the only information I can share right now is what the legislation says. I’ve included language from the legislation in the article. In addition, it says: (4) TIPPED WORKERS.—An eligible recipient with tipped employees described in section 3(m)(2)(A) of the Fair Labor Standards Act of 1938 (29 U.S.C. 203(m)(2)(A)) may receive forgiveness for additional wages paid to those employees. I truly wish I could be more specific. As new information comes in we will continue to update these articles!
Here’s an update Michele. The Interim Final Rule came out yesterday (4/2) and included the following language:
What qualifies as “payroll costs?”
Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips);
Hope it helps.
Thank you for the information. As a contractor we have many 1099 subcontractors, we those be considered “employees” or does “employee” mean only those receiving W2s?
Thanks for the super clear article. As a sole proprietor, it appears that your explanation says that my income, even though not employee payroll per se, is a qualified “payroll” expense for this loan and thus for the Loan Forgiveness. Is that correct?
In the CARES Act, it doesn’t seem to be so clear. I just wanted to be sure. Thanks. Here’s the CARES reference I found :
SEC. 1102. 7(a) LOAN PROGRAM. // (d) Allowable Uses Of Program Loans.— // (1) IN GENERAL. //
(A) payroll support, including paid sick, medical, or family leave, and costs related to the continuation of group health care benefits during those periods of leave;
(B) employee salaries;
Yes sole proprietor income (not to exceed $100,000 annually) is included. Have you tried out our new calculator? The SBA Cares Loan Act calculator will help you understand what you may qualify for.
I have s small business I opened in January this year, it’s an online but I sell 80% locally through new type, selling out of other businesses. My products are bath and body, since it is new I did not do taxes yet and I am a sole proprietor and pay myself. Thanks for any help on if I qualify or where to turn to. I also have not setup a business account and see every bank requires you to have a business account with those banks to be able to do anything.
Melanie – Are you trying to get a PPP loan? I updated this story last night with the latest from SBA. But keep in mind the application for self employed individuals is not yet available. If you fill out the
Payment Protection Program loan form we will let you know when they become available. In the meantime, I’d recommend you read this article so you understand the differences between the two programs that may be available: COVID Relief Loans: Economic Injury Disaster Loans Vs. Paycheck Protection Loans