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Sole Proprietors and the Paycheck Protection Program Loan – Includes Latest SBA Guidance Released April 14, 2020 –

Updated April 15, 2020 to Include Latest SBA Guidance Released April 14, 2020

Sole proprietors, independent contractors and self-employed individuals (hereafter referred to collectively as “Self-Employed Individuals”) are eligible for the Paycheck Protection Program (PPP) loan from the recent Coronavirus Aid, Relief and Economic Security (CARES) Act.

Application Opens April 10, 2020

The application process opened on April 10th for Self-Employed Individuals. The Small Business Administration (SBA) issued another “Interim Final Rule” on April 14, 2020 that provides further details on the PPP loan for Self-Employed Individuals. This article includes information from this latest SBA guidance.

To be eligible for the loans, the Self-Employed Individuals: (1) must file a Form 1040 Schedule C for 2019; (2) must have been in operation as of February 15, 2020; and (3) must have a principal place of residence in the United States.

Documentation to establish eligibility includes the 2019 Form 1040 Schedule C (whether already filed or yet to be filed), Form 1099-MISC, and payroll records and payroll tax filings.

Ineligible borrowers include:

  • Those engaged in illegal activities under federal, state or local law;
  • Household employers;
  • Any business with a 20% or more owner that is indicted, incarcerated or on probation within the last five years;
  • Individuals whose principal place of residence is outside the United States; and
  • Anyone who is delinquent or previously defaulted on an SBA loan within the last seven years.

The Interim Final Rule prohibits partners in a partnership from filing their own PPP application.  Instead, the partnership should file the application and claim the partner’s share of self-employment income from the partnership as “payroll costs.” The Interim Final Rule also does not address farmers who file a Form 1040 Schedule F for 2019.

Determining Loan Amount – Calculating Costs

Payroll costs are the main criteria for determining the amount of the PPP loan. Payroll costs for Self-Employed Individuals include net earnings from self-employment, as well as any wages, commissions, income, or similar compensation paid to employees. The net earnings from self-employment are determined based on the net profit on the 2019 Form 1040 Schedule C. Compensation and self-employment earnings in excess of $100,000 per person are excluded from the calculation.

Payroll costs also include certain benefit costs paid for by the employer, including health insurance, retirement benefits, and unemployment benefits.

Based on the reliance upon the net profit from the 2019 Form 1040 Schedule C to determine the amount of the PPP loan that can be applied for, Self-Employed Individuals may want to consider maximizing their 2019 net profit. Some potential steps to do this include: electing out of bonus depreciation; forgoing Section 179 expense deduction for assets placed in service in 2019; and minimizing the deduction for other 2019 expenditures. The trade off with this approach is that the individual will most likely incur a higher tax liability and self-employment tax for 2019.

The maximum amount that can be borrowed under the program is still the lesser of: (1) $10 million; or (2) 2.5 times the average monthly payroll costs (as defined above). 

PPP Loan Forgiveness

The amount of the PPP loan that is forgiven will depend on the amount spent over the eight-week period in 2020 following the first disbursement of loan proceeds, including:

  • Owner compensation replacement, calculated based on the net profit from the 2019 Form 1040 Schedule C, up to a maximum of 8/52 of the 2019 net profit;
  • Amount of gross salary, wages, and tips, up to $15,385 per individual ($100,000 annualized);
  • Covered benefits for employees (but not owners) including health care, retirement, and state taxes imposed on employee payroll paid by the employer;
  • Payments of interest on mortgage obligations on real or personal property incurred before February 15, 2020;
  • Business rent payments; and
  • Business utility payments.

You must have claimed or be entitled to claim a deduction for such expenses on your 2019 Form 1040 Schedule C for these expenses to be considered for forgiveness in 2020. 

To be eligible for PPP loan forgiveness, the amount spent by the Self-Employed Individual must consist of at least 75% payroll costs (including self-employment income) and a maximum of 25% for non-payroll costs. 

Contact Your Advisors

Further rules apply for a PPP loan, including it being a “first-come-first-serve” program. We encourage you to reach out to your lender or financial advisor to help you navigate this loan program.


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This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. In addition, this publication may contain certain content generated by an artificial intelligence (AI) language model. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

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