COVID-19 Relief Options for Self-employed Individuals
This letter provides updates on benefits for self-employed individuals under the Families First Coronavirus Response Act (FFCRA) and the CARES Act during the COVID-19 Pandemic. 


Paycheck Protection Program (PPP) Loans


Please note the Paycheck Protection Program program has run out of funds as of April 16. At the time of the press, the Senate has passed a $480 billion "Interim" Stimulus bill. $380 billion of which is dedicated to small business loan programs. This bill now heads to the House, which is slated to consider it in a couple days. We suggest you prepare to submit your application when funding is available.

Self-employed individuals who file a Schedule C (with or without employees) on their federal income tax return, and who were in operation on February 15, 2020, are eligible for PPP loans.

Applications can be submitted through your bank or other SBA lender. See this  link  to find your local SBA lender. 

NOTE: Partners in a partnership are NOT eligible for the self-employed PPP loan since partnerships can apply separately as a business.


PPP Self-employed Loan Calculation – No Employees:
  1. Take your Net Profit from 2019 Form 1040 Schedule C Line 31, limited to $100,000 (net loss is not eligible). 
  2. Divide by 12, then multiply by 2.5. 
  3. Add outstanding Economic Injury Disaster Loan (EIDL) to be refinanced, less any EIDL COVID advance.


PPP Self-employed Loan Calculation – With Employees:
  1. Take your Net Profit from 2019 Form 1040 Schedule C Line 31, limited to $100,000 (net loss is not eligible).
  2. 2019 gross wages/tips paid to US employees from IRS Form 941 Medicare wages (line 5c-column 1) from each quarter, plus pretax employee contributions excluded from Medicare (limited to $100,000 per employee)
  3. 2019 employee health insurance (Sched C, Line 14), retirement contributions (Sched C, Line 19), and state and local taxes (SUTA).
  4. Calculate average monthly income by adding up steps 1, 2, and 3 above, then divide by 12.
  5. Multiply the amount from step 4 by 2.5. This is your maximum loan amount.
  6. Add outstanding EIDL to be refinanced, less any EIDL COVID advance.


Paycheck Protection Program Loan Calculator:
 
The American Institute of Certified Public Accountants (AICPA) has provided an excel file that can help you calculate your eligible PPP loan. Here is a link to the excel file.
 
These resources are based on interpretations of the CARES Act; U.S. Treasury guidance released March 31, 2020; U.S. Treasury guidance released April 2, 2020; FAQs released April 7, 2020 and updated April 15, 2020; and U.S. Treasury Guidance released April 14, 2020. There are areas of the Act where additional clarification from the Treasury and SBA is needed. Your judgement and interpretations of the Act and supplemental guidance may be necessary.


Documents to Provide for Loan Application:  

If you have not filed your 2019 tax return yet, fill out a 2019 Schedule C to compute the value. SBA will issue additional guidance for those individuals who were not in operation in 2019 but who were in operation on February 15, 2020.

Each lender is requiring different documentation for each loan application. We suggest you contact your lender to determine the applicable documents required.

For more information on this loan, please see our previous newsletter :  CARES Act Update


Forgiveness of PPP Loan:

If the monies are used properly, the entire amount of the PPP loan plus interest will be eligible to be forgiven. When calculating the loan forgiveness, the amount forgiven will depend on the following expenditures during the 8 week covered period**:
  1. Payroll costs as defined by the interim rule currently up $15,385 8 week maximum per employee (does not include benefits for owners)
  2. Owner compensation replacement (limited to 8/52 of 2019 net profit and excluding any qualified sick or family leave equivalent amount for which a credit was claimed under FFCRA) up to a maximum of $15,385 for the 8 week period.
  3. Interest payments on mortgage obligations for real/personal property incurred before February 15, 2020
  4. Rent payments on lease agreements in force before February 15, 2020
  5. Utility payments under service agreements dated before February 15, 2020

Note that for interest, rent and utility payments, the amounts must be deductible on Form 1040 Schedule C.

**Note the 8 week covered period begins the day monies are deposited in your bank account.

Specific guidance will be provided by your lender regarding the mechanics of loan forgiveness. If additional guidance is released by the SBA we will continue to keep you updated.


Economic Injury Disaster Loans (EIDL) and Loan Advance

Self-employed individuals are eligible to apply for these SBA disaster loans, which offer an advance of $1,000 per employee, up to $10,000 per applicant. For more information, please see our previous newsletter:  SBA Highlights of the CARES Act

To apply, please visit the SBA’s website here: EIDL Application


Self-Employment Tax Deferral
 
If you are subject to the 12.4% self-employment tax on your net self-employment income earned between 3/13/20 – 12/31/20, you may defer half of it (6.2% total) until 12/31/2021 and 12/31/2022, with 50% of the deferred tax due at each date.

If you have applied for a PPP loan, you may defer payroll taxes through the date the lender issues a decision to forgive the loan. After confirmation of loan forgiveness, you will not be eligible for payroll or self-employment tax deferral.


Economic Impact Payment (Recovery Rebate)

Reminder that individuals with qualifying Adjusted Gross Income (AGI) levels will automatically receive a rebate check from the IRS. No action necessary if your 2018 or 2019 tax return (Form 1040) has been filed. Please visit our previous newsletter for more details on the Recovery Rebate:  Tax Highlights of the CARES Act

 
FFCRA Paid Sick Leave & Family Leave

Families First Coronavirus Response Act (FFCRA) Sick Leave and Family Leave benefits are available for self-employed individuals who regularly carry on a trade or business and would otherwise be entitled to receive paid leave under the EPSLA or Expanded FMLA if employed by someone other than himself or herself.

These benefits come in the form of tax credits that offset your federal self-employment tax by your “qualified sick leave equivalent amount” or “qualified family leave equivalent amount.”

The refundable credits can be claimed on the self-employed individual’s tax return for the 2020 tax year. Effectively, your current estimated income tax payments can be reduced to account for the credits to be claimed later. Detailed IRS guidance on eligibility and the calculation of these tax credits can be found here .


Unemployment Insurance – EDD

The CARES Act temporarily expands unemployment insurance to cover individuals who are not traditionally covered, including the self-employed, gig-workers, independent contractors, and workers with irregular work histories.

California’s Employment Development Department (EDD) has announced that its new Pandemic Unemployment Assistance program for self-employed individuals would launch on April 28, 2020 . For more information, visit the EDD’s webpage on Pandemic Unemployment Assistance .

Californians can apply for unemployment benefits here: EDD UI
NOTE: Unemployment compensation will be considered taxable income and taxed on your individual tax return.


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We wish you and your loved ones continue to stay safe and well. We are grateful that everyone at MGGGY is still able to connect with you during these unprecedented times. Please don't hesitate to contact us if you have any questions and concerns. We are here for you.

You can reach our COVID-19 team via email at  COVID19@MGGCPA.COM


CC mgggy newsletter release 2020-11
Mann Gelon Glodney Gumerove Yee LLP | (310) 277-3633