If you’re self-employed and qualified for a Paycheck Protection Program (PPP) loan, then no doubt you are hoping you can get as much of it forgiven as possible. We’ll walk through that process in this article.
This article discusses forgiveness only for those who are:
- Have no (zero) W-2 employees and
- Filed (or will file) Schedule C with their Form 1040 to report their business income to the IRS.
Please note, the material contained in this article is for informational purposes only, is general in nature, and should not be relied upon or construed as a legal opinion or legal advice. 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.
If you are self-employed with no employees, the forgiveness application is not as complicated as it first seems. We’ll do our best to make filling it out as simple as possible.
Calculate Your Forgiveness Amount
You can use Nav’s Free Self Employed PPP Forgiveness Calculator to estimate how much you may be eligible for in forgiveness:
Try Nav’s Self-Employed PPP Loan Forgiveness Calculator HERE
However, you’ll still need to fill out the application with your lender. Keep in mind that ultimately your lender will process your forgiveness application so you will need to follow their instructions.
Tip: To follow along with this information, print out or download the PPP Loan Forgiveness Application (SBA Form 3508 05/20) from the SBA before you start.
All borrowers must submit the following to their lender:
- The PPP Loan Forgiveness Calculation Form
- The PPP Schedule A
- Documentation required by the lender
The PPP Borrower Demographic Information page on page 11 is optional and does not affect forgiveness.
As you follow along here, note that we have copied actual fields and their instructions from the SBA application. Tips in italics below those fields are our comments, based on our understanding of the current guidance.
Chat with our Credit & Lending Experts
Get free, unbiased financing recommendations based on your business needs from our team of Credit & Lending Experts.Schedule a call
PPP Schedule A form
Let’s start with the worksheet PPP Schedule A form on page 6 of the application.
Lines 1 – 8: Enter 0 for each.
You enter zero for these questions because they apply to employees, but no owners.
Compensation to Owners
Line 9. Total amount paid to owner-employees/self-employed individual/general partners: _____________________
This amount may not be included in PPP Schedule A Worksheet, Table 1 or 2. If there is more than one individual included, attach a separate table that lists the names of and payments to each.
Enter the amount you calculated for owner’s compensation, which follows.
This is your main focus here, as it will allow you to calculate the amount of owner’s compensation (the amount you pay yourself) for forgiveness purposes.
Based on the guidance from Treasury, a self employed individual with no employees can apply for forgiveness for owner’s compensation paid during the covered period using 8 weeks of net profit from line 31 of the 2019 Schedule C, minus any FFCRA credit for the covered period. The basic calculation is this:
2019 Schedule C Line 31 net profit divided by 52 then multiplied by 8
However, the maximum compensation for forgiveness purposes is up to $100,000 of annualized pay for an employee or owner so that means for one owner-employee or partner, the most you can enter here is $15,385.
Also, if you claim, or will claim, a credit for sick or family leave under the Family’s First Coronavirus Response Act you must subtract that amount from owner’s compensation for forgiveness purposes.
Total Payroll Costs
Line 10. Payroll Costs (add lines 1, 4, 6, 7, 8, and 9):____________
You’ll enter the same amount from Line 9 on Line 10.
Full-Time Equivalency (FTE) Reduction Calculation
If you have not reduced the number of employees or the average paid hours of your employees between January 1, 2020 and the end of the Covered Period, check here ☐, skip lines 11 and 12 and enter 1.0 on line 13.
Follow the instructions here. If you’re just paying yourself owner’s compensation (and not paying any W-2 employees) check the box and skip to Line 13 and Enter 1
Line 13. FTE Reduction Quotient (divide line 12 by line 11) or enter 1.0 if FTE Safe Harbor is met: ___________________
Enter 1 here
PPP Loan Forgiveness Calculation Form
Now you can move on to the PPP Loan Forgiveness Calculation Form found on page 3 of the application.
First you’ll fill out some basic loan information about your business:
This information should be straightforward, and you will generally use the information you used to apply unless it has changed from the time you applied.
SBA PPP Loan Number: ________________________
This is the number assigned by the SBA to your loan. Request it from your lender if you don’t have it.
Lender PPP Loan Number: __________________________
Enter the loan number assigned to the PPP loan by the lender. Again, request it from your lender if necessary.
PPP Loan Amount: _____________________________
This is the amount you received from the lender.
PPP Loan Disbursement Date: _______________________
Enter the date PPP loan funds were deposited in your bank account. If you received more than one disbursement, use the date of the first one.
Employees at Time of Loan Application: ___________
Enter the total number of employees at the time of the Borrower’s PPP Loan Application.
The application is not clear whether an applicant filing as self-employed with no employees should enter 0 or 1 here. Ask your lender. (It should not affect forgiveness.)
Employees at Time of Forgiveness Application: ___________
Enter the total number of employees at the time the Borrower is applying for loan forgiveness.
Same as the question above.
EIDL Advance Amount: ______________________
If you have received an Economic Injury Disaster Loan grant (advance), enter it here. This amount does not have to be repaid. (Note that the direct deposit notation from the SBA should include EIDG for the grant.)
EIDL Application Number: __________________________
If you applied for an EIDL, enter your application number. (If you don’t have this number or can’t find it, try contacting the SBA Office of Disaster Assistance.)
Payroll Schedule: The frequency with which payroll is paid to employees is: ☐ Weekly ☐ Biweekly (every other week) ☐ Twice a month ☐ Monthly ☐ Other _____________
Note: Self employed individuals don’t often pay themselves on a regular schedule. If that’s the case you can check “other” and enter a description such as varies. It should not affect forgiveness in this case.
Covered Period: _________ to __________
Generally the covered period is the eight-week (56-day) covered period of your PPP loan and it starts on the PPP loan disbursement date. (The disbursement date is the date you received your PPP loan.) For example, if you received your PPP loan proceeds on Monday, April 20, the first day of the “covered period” is April 20 and the last day of the covered period is Sunday, June 14 (which is 56 days later).
Alternative Payroll Covered Period, if applicable: _________ to __________
This calculation provides some flexibility in case the employer pay period doesn’t match up well with the covered period. It won’t apply to most self-employed individuals who simply pay themselves on a more informal basis from business revenues. However, if you normally pay yourself on a set schedule, you can review the definition of the Alternative Payroll Covered Period on page 1 of the SBA application to see if you want to use the alternative covered period.
If Borrower (together with affiliates, if applicable) received PPP loans in excess of $2 million, check here: ☐
This should not apply to a self-employed individual with no employees, as their maximum loan amount is $20,833. If you received more than $2 million in PPP funds this article does not apply to you.
Self-Employed PPP Loan Forgiveness Calculator – Estimated your Forgivable Amount
Use this calculator if you are self-employed with no employees and filed or will file Schedule C for 2019.Get Estimate
Forgiveness Amount Calculation
Payroll and Nonpayroll Costs
Line 1. Payroll Costs (enter the amount from PPP Schedule A, line 10): _____________________
Enter the owner’s compensation amount from PPP Schedule A, Line 10, which we calculated above.
24/7 business and personal credit alerts
Nav is the ONLY source for both personal and business credit scores. Get alerts, advice and monitoring today.Sign up for free
For the next three nonpayroll costs (line 2-5), a few instructions are in order. First, only include them if you want to apply for forgiveness for those amounts. As with payroll, there is a little flexibility in the event that the billing period for your mortgage, rent or utilities doesn’t match up perfectly with the covered period.
The instructions clarify that, “An eligible nonpayroll cost must be paid during the covered period or incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period. Eligible nonpayroll costs cannot exceed 25% of the total forgiveness amount. Count nonpayroll costs that were both paid and incurred only once.”
Note that the Interim Final Rule states:
“You must have claimed or be entitled to claim a deduction for such expenses on your 2019 Form 1040 Schedule C for them to be a permissible use during the eight-week period following the first disbursement of the loan (the ‘‘covered period’’). For example, if you did not claim or are not entitled to claim utilities expenses on your 2019 Form 1040 Schedule C, you cannot use the proceeds for utilities during the covered period.”
Line 2. Business Mortgage Interest Payments: _____________________
Enter the amount of business mortgage interest payments during the covered period for any business mortgage obligation on real or personal property incurred before February 15, 2020. Do not include prepayments.
Line 3. Business Rent or Lease Payments: _____________________
Enter the amount of business rent or lease payments for real or personal property during the covered period, pursuant to lease agreements in force before February 15, 2020.
Line 4. Business Utility Payments: _____________________
Enter the amount of business utility payments during the covered period, for business utilities for which service began before February 15, 2020. Under the CARES Act, utility includes payment for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access.
Adjustments for Full-Time Equivalency (FTE) and Salary/Hourly Wage Reductions
Line 5. Total Salary/Hourly Wage Reduction (enter the amount from PPP Schedule A, line 3): _____________________
This amount reflects the loan forgiveness reduction required for salary/hourly wage reductions in excess of 25% for certain employees as described in PPP Schedule A.
You will enter 0 here
Line 6. Add the amounts on lines 1, 2, 3, and 4, then subtract the amount entered in line 5: _____________________
If this amount is less than zero, enter a zero.
Line 7. FTE Reduction Quotient (enter the number from PPP Schedule A, line 13): _____________________
Enter the number from PPP Schedule A, line 13.
You will enter 1 here.
Potential Forgiveness Amounts
Line 8. Modified Total (multiply line 6 by line 7): _____________________
This amount will be the same as line 6.
Line 9. PPP Loan Amount: _____________________
Enter the loan amount you received.
Line 10. Payroll Cost 75% Requirement (divide line 1 by 0.75): _____________________
Divide the amount on line 1 by 0.75, and enter the amount. This determines whether at least 75% of the potential forgiveness amount was used for payroll costs.
Forgiveness Amount Line 11. Forgiveness Amount (enter the smallest of lines 8, 9, and 10): _____________________
Follow the instructions here and enter the smallest of lines 8, 9 and 10 to determine your forgiveness amount.
In addition, there’s a caveat to the forgiveness amount on Line 11. The application does not require you to subtract the amount of an EIDL grant you received here, though previous guidance indicates the grant should be subtracted from the PPP for forgiveness purposes. In fact, the instructions for Line 11 in the application note that “If applicable, SBA will deduct EIDL Advance Amounts from the forgiveness amount remitted to the Lender.” If you received an EIDL grant, don’t be surprised if the amount of forgiveness is reduced by that amount.
Documenting Forgiveness For Self-Employed
The application includes instructions for documenting payroll expenses for employees. But it doesn’t describe how to document owner’s compensation for the self employed. So instead we’ll return to the Interim Final Rule that describes the PPP for the self-employed. There it states:
“The 2019 Form 1040 Schedule C that was provided at the time of the PPP loan application must be used to determine the amount of net profit allocated to the owner for the eight-week covered period.”
This seems to imply that no further documentation beyond the 2019 Schedule C will be required to document the owner’s compensation portion of forgiveness. However, it may not hurt to pay yourself the amount of owner’s compensation from your business bank account (if you have one) during the covered period and keep a record of that payment (or payments).
If you apply for forgiveness for nonpayroll expenses you’ll need to be able to document those expenses. According to the application (page 10) you will need:
Documentation verifying existence of the obligations/services prior to February 15, 2020 and eligible payments from the covered period.
a. Business mortgage interest payments: Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments from the covered period; or lender account statements from February 2020 and the months of the covered period through one month after the end of the covered period verifying interest amounts and eligible payments.
b. Business rent or lease payments: Copy of current lease agreement and receipts or cancelled checks verifying eligible payments from the covered period; or lessor account statements from February 2020 and from the covered period through one month after the end of the covered period verifying eligible payments.
c. Business utility payments: Copy of invoices from February 2020 and those paid during the covered period and receipts, cancelled checks, or account statements verifying those eligible payments.
Finally, note the instructions state you must retain PPP documentation for six years after the date the loan is forgiven or repaid in full. In addition, you permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.
What Happens if The Entire Loan Isn’t Forgiven?
Don’t be surprised if your entire PPP loan amount is not forgivable. If you work from home and have few qualifying non-payroll expenses, for example, you’re likely to find that your forgiveness amount is smaller than your loan amount.
If that’s the case, any remaining balance will become a loan at 1% interest for two years. There is no prepayment penalty if you want to pay that back right away. A small amount of interest may have accrued in the meantime and you’ll need to also pay that. If you keep the loan, the guidance seems to suggest you should still spend those funds for authorized purposes, namely the payroll and nonpayroll expenses described here.