Until the most recent revision to the PPP loan forgiveness rules, there was a potential PPP pitfall for self-employed individuals who have no staff nor pay rent or utilities for office space. Having 100% of their PPP loan forgiven would have been virtually impossible.
Remember, small business owners calculated the amount of their PPP loan they would receive based on up to $100k of 2019 Schedule C profit or W2 salary. The calculation then divides that $100k figure by 12 months to come up with $8,333 per month, then multiplies the $8,333 by a factor of 2.5. This math yields a PPP loan of $20,833 for sole proprietors with no staff or facility costs.
The forgiveness calculation, however, was originally based on only 8 weeks of owner compensation at a maximum of $1,923 per week ($100k/52 weeks), or $15,385. Assuming a self-employed individual has no employees and pays no rent or utilities, their portion of the $20,833 that could be forgiven was capped at $15,385, leaving an excess of $5,448. And unlike those business owners who are W2 employees of their practices, sole proprietors can’t include retirement plan contributions or health insurance premiums paid on their behalf, leaving $5,448 to be repaid to their lender instead of forgiven.
Fortunately, the SBA issued guidelines last week allowing sole proprietors to include compensation of $20,833 in their PPP loan forgiveness calculation which eliminates this pitfall. More info is available at: