The Coronavirus Aid, Relief and Economic Security (CARES) Act signed into law by President Trump on March 27,2020 included the Paycheck Protection Program. The program was intended to provide small businesses with assistance through federally guaranteed loans backed by the Small Business Administration.
Who is eligible?
- All small businesses
- Sole proprietorships (will need to submit a Schedule C from their tax return filed (or to be filed) showing the net profit from the sole proprietorship)
- Independent contractors (will need to submit Form 1099-MISC (now 1099-NEC in 2020) in addition to their Schedule C)
- Self-employed individuals (will need to submit payroll tax filings reported to the Internal Revenue Service)
Additional qualification for second draw PPP loan (2021)
Businesses that apply for their second PPP loan will need to show reduction in revenue of 25% or more for the same quarter in 2020 as compared to 2019. For example, a business earned $40,000 in revenue of in Quarter 1 of 2019. The business would qualify for the PPP funding if they earned $30,000 in revenue or less in Quarter 1 of 2020.
Are there restrictions on what the PPP can be used for?
Originally, at least 75% of the PPP loan had to be spent on payroll. The other 25% on rent, utilities and mortgage interest to have the loan forgiven.
The PPP Flexibility Act (June 5, 2020) changed the restrictions. At least 60% of the PPP loan must be used for payroll and employee benefits. The remaining 40% can be used for:
- Worker protection (to be COVID compliant)
- Rent and lease
- Supplier costs
- Mortgage Interest
- Operations expenses (software and accounting needs)
How do I report my PPP loan forgiveness on my taxes?
Forgiven PPP loan amounts will not be considered taxable income. Any expenses covered by a PPP loan will still be tax deductible: https://www.irs.gov/newsroom/eligible-paycheck-protection-program-expenses-now-deductible
Use this IRS link for information: https://www.irs.gov/pub/irs-drop/n-20-32.pdf
Visit the US Department of the Treasury for full plan information.