Can Independent Contractors and Self-Employed People Apply for the Paycheck Protection Program?

Updated as of December 29, 2020: On December 27, 2020, President Trump signed a new bill into law called the Consolidated Appropriations Act, 2021. Within this bill there is new PPP legislation. Stay up-to-date and learn everything you need to know about PPP Round 2 here.

Yes. As of April 10, independent contractors who receive 1099-MISC forms, sole proprietors, and self-employed individuals are eligible to apply for the Paycheck Protection Program (PPP), which offers billions in forgivable loans to small businesses.

PPP lenders first began accepting applications from certain small business entities, including S corps and C corps, on April 3, 2020. The application process for self-employed individuals is similar to that of small businesses. These applicants can use their reported income to access PPP funds.

Here’s what you can expect if you’re an individual entrepreneur applying for a PPP loan.

What loan amount am I eligible for?

If you qualify as a borrower, you can get a loan for up to 2.5 times your average monthly wage, commission, 1099-MISC income, net self-employment income, or similar compensation based on your prior year’s expenses. The maximum loan amount is $10 million.

PPP loan forgiveness

If you use funds from your PPP loan for allowable purposes during the first eight weeks after you receive loan funding, the amount you use may be eligible for forgiveness. In other words, you won’t have to repay it. Allowable purposes include:

  • Wages, commissions, income, or net earnings from self-employment (capped annually at $100,000 per individual)
  • State and local taxes that are assessed on compensation
  • Payments of interest (but not principal) on a mortgage
  • Business rent
  • Business utilities

Be aware that if you use more than 25% of the loan amount for interest on mortgages, rent, or utilities, the entire amount may not be eligible for forgiveness. At least 75% of your loan must go towards income for the self-employed person or independent contractor in order for the full loan amount to be forgiven. Be sure to track and document your eligible overhead expenses for the eight-week period; you’ll need those records if you want that portion of the loan to be forgiven.

Who is eligible? 

You are eligible to apply if:

  • You were in operation on or before February 15, 2020
  • You were an individual with self-employment income
  • Your principal place of residence was the United States
  • You filed a 1040 Schedule C for 2019

This includes gig workers, too. 

How do I apply? 

If you want to apply for one of these loans, lenders may request the following or other documents and information:

  • PPP loan application
  • Payroll tax filings that you’ve reported to the IRS (some lenders are requesting state returns, too)
  • Records of your income and expenses
  • A bank statement to show you were operating on February 15, 2020
  • Form 1040 Schedule C for 2019
  • Form 1099 MISC for 2019

In order to determine your maximum loan amount, you will need to provide your Form 1040 Schedule C. If you have not yet filed a 2019 return, you should complete it and calculate the net profit for your business, regardless of whether you have filed your IRS tax return yet. Depending on your circumstances and the requirements of your lender, you may need to provide additional documents.

We encourage you to apply as soon as possible as the loans are first come, first served. So gather your relevant documentation and find an approved PPP lender via the Small Business Administration (SBA)’s lender match tool. You can also check Gusto’s running list of PPP lenders to find out if your bank is accepting PPP applications.

The SBA also published additional guidance for self-employed individuals; we recommend that you review it carefully and discuss with an attorney or your accountant if you have any questions.

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