borrowers who received

Static or fixed-date conformity states conform to the IRC on a given date, or conform to specifically enumerated provisions. Accordingly, in the states with static or fixed-date conformity, taxpayers receiving loan forgiveness could face substantial state income tax liabilities as a result. Since the EIDL grants and Targeted EIDL advances do not contain a prohibition against “ineligible entities,” taxpayers are not required to meet the 25% reduction in gross receipts test to deduct expenses paid with by these specific loans or advances. Employee payroll costs for employees whose principal place of residence is in the United States, if you have employees. With independent contractors and self-employed individuals becoming eligible to apply for U.S.

What is total PPP amount?

The amount of a PPP loan is approximately equal to 2.5 times the applicant's average monthly payroll costs.

Again, this overview is for borrowers who must use Form 3508 for PPP loan forgiveness. With the Paycheck Protection Program back in action, you may be wondering how much money your business is eligible for. Although determining the amount may seem complicated, it’s actually rather straightforward when you follow our 4 basic steps. We’ve created the easy-to-use guide below to help you calculate the maximum PPP loan amount that your business may potentially be eligible for. If you use 2020 to calculate your loan amount, this is all required even if you have not yet filed your 2020 tax return; you must provide a 2020 invoice, bank statement, or book of record showing that you were in operation “on or around” Feb. 15, 2020. Recall also that the maximum loan amount for second-draw loans is $2 million, instead of the $10 for first-draw loans. Note that this change applies only to PPP loans approved after March 4, 2021; those whose loans had already been approved cannot increase their loan amounts based on the new calculation.

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Section 7A of the Small Business Act specifically requires certain reductions in a borrower’s loan forgiveness amount based on reductions in full-time equivalent employees. It includes an important statutory exemption for borrowers that have eliminated the reductions on or before December 31, 2020 (or for a PPP loan made on or after December 27, 2020, not later than the last day of the loan’s Covered Period). The Small Business Act also allows exemptions from reductions in loan forgiveness amounts based on employee availability and business activity.

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However, any paid using the proceeds of the PPP loan that are deducted for federal tax purposes are not deductible when calculating North Carolina taxable income. As a note of caution, this position may change through subsequent legislation. To avoid double counting, the expenses reported on lines 14, 19, and 26 of IRS Form 1040, Schedule C must be subtracted from the owner compensation share of payroll costs if the owner uses gross income to calculate its loan amount. Schedule C filers that report over $150,000 in gross income to calculate their first-draw PPP loan will not be able to claim the safe harbor provided for borrowers that, together with their affiliates, received PPP loans of less than $2 million. The SBA said it is eliminating the safe harbor for these borrowers because they may be more likely to have other available funds to support their business’s operations than Schedule C filers with lower gross income. All borrowers that received First Draw PPP Loans before December 27, 2020 are required to submit the form.

For taxpayers who do not meet the 25% gross receipts test, does California still follow Rev. Rul. 2020-27?

Plus, it’ll take time for banks to implement these changes—leaving a narrow gap for sole proprietors to really take advantage of this opportunity. The American Institute of Certified Public Accountants has called on Congress for a60-day deadline extension, but there’s been no official response yet. The $20,833 total also includes any Economic Injury Disaster Loans you received between January 31, 2020, and April 3, 2020 .

  • If these circumstances apply to you, contact your Adams Brown advisor to determine your eligibility for a PPP loan.
  • Because the company met all the criteria for loan forgiveness, the entire $70,000 loan is eligible for forgiveness.
  • Employer paid health insurance premiums included in Schedule C line 14, retirement benefits included in Schedule C line 19 and unemployment taxes paid on employees are then added to the gross earnings for calculating average monthly payroll costs used in the loan amount calculations.
  • It’s also worth noting that the IFR changed eligibility rules to allow more small business owners to apply.
  • That additional cost to you was not part of their gross wages and is not included in the calculation under the statute.
  • You must supply your 2019 Form 1040 Schedule C, Form 941 and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or equivalent payroll processor records, along with evidence of any retirement and health insurance contributions, if applicable.

Most states calculate state income using some connection or conformity to the IRC. Accordingly, even in states that conform to the IRC, the federal loan forgiveness provisions may not apply to the state calculation of taxable income, resulting in the forgiveness included in state taxable income. While some states do conform to the IRC and other federal code provisions, others may only conform to the IRC, or Title 26. While highly nuanced, taxpayers should be aware that states may need to provide additional guidance clarifying that PPP loans are also forgiven for state tax purposes. It’s important to acknowledge that PPP was primarily designed to incentivize business owners to keep their employees on payroll. For self-employed borrowers that file IRS Form 1040, Schedule F and have employees, the difference between gross income and employee payroll costs may be used instead of net profit. For self-employed borrowers with no employees that file IRS Form 1040, Schedule C, that used gross income to calculate the loan amount, proprietor expenses equals gross income.

Paycheck Protection Program: How to calculate if your business experienced at least a 25% revenue decrease

As a result of new legislation in late 2020, an second round of How To Calculate Gross Income For The Ppp loans will be available through March 31, 2021. And any businesses didn’t receive a loan a first draw loan also have another opportunity to apply. Additionally, businesses electing to use gross income to calculate their first-draw PPP Loan will only have a safe harbor presumption of making the necessary certification of economic necessity if they reported $150,000 or less in gross income on their Schedule C being used to apply for a first-draw PPP loan. Borrowers with reported gross income greater than $150,000 will be subject to additional SBA review. Schedule C loans that use gross income and have over $150,000 of gross income reported on their Schedule C will not be eligible for the SBA safe harbor for the good faith certification. The borrower may be subject to a review by the SBA of its certification for necessity before the loan is granted. The SBA considers Schedule C borrowers with gross income over $150,000 as having access to other liquidity support for their businesses.

  • For borrowers that use gross income to calculate the loan amount, proprietor expenses , calculated based on 2019 or an amount equal to the gross income from line 7 of Schedule C. This amount cannot exceed $20,833.
  • If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan.
  • If the employee declined the rehire offer, will my PPP loan forgiveness amount still be reduced?
  • For example, if the borrower did not claim or is not entitled to claim utilities expenses on the borrower’s 2019 or 2020 IRS Form 1040, Schedule C, the borrower cannot use the proceeds for utilities.
  • If you are taxed as a corporation, your salary is dependent on running payroll for yourself—meaning you must be remitting federal and state payroll taxes.

If the borrower is submitting the forgiveness application through the SBA Platform, the borrower must complete all required fields, initial all representations and certifications, sign the form, and, if required, upload revenue reduction documentation to complete submission of the application in the SBA Platform. The forgiveness application must be completed, signed, submitted, and accepted by the SBA Platform in order to continue the deferment of the loan.

The five-year lookback restriction for those felonies involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance are still in place. SBA Form 2483-C will be used by such borrowers when applying for First Draw PPP Loans and SBA Form 2483-SD-C will be used by such borrowers when applying for Second Draw PPP Loans. Limited liability company members are subject to the rules based on their LLC’s tax filing status in the reference year used to determine their loan amount. Add the outstanding amount of any EIDL made between January 31, 2020 and April 3, 2020 that the borrower desires to refinance. Do not include the amount of any advance under an EIDL COVID-19 loan. Add the outstanding amount of any Economic Injury Disaster Loan made between January 31, 2020 and April 3, 2020 that the borrower seeks to refinance. Please note that a new round of PPP loans and additional small business relief rolled out in January 2021.See all the details here.


If you own an S corporation and have not been paying yourself a salary through payroll, meaning you have not been remitting payroll taxes on your wages, you are not eligible to have a salary covered through the PPP. If your self-employment income for 2019 or 2020 is above $100,000, the maximum amount you can include for yourself is $100,000. Remember that single-member LLCs are going to be considered sole proprietors here, similar to when you file your taxes. It’s also worth noting if you share a sole proprietorship with a spouse, you cannot include your spouse in this application unless they are a W2 employee. Without W2 employees, you apply on behalf of the legal owner of the sole proprietorship only.

For example, if you sell ceramic mugs for $20 and the clay you use to make them costs $5, you would make $15 gross income on each sale. Read on for how to calculate gross income and how it affects your PPP application. For example, if your income was $40,000 but your expenses amounted to $42,000, the amount recorded on Line 31, a negative prevented you from getting PPP proceeds. That has all changed with the move to Line 7 on 1040 schedule C for figuring taxes. Be advised that the new tax law does not apply to anyone previously approved for a PPP loan. You can only take advantage of this new ruling for your taxes if you apply for a new PPP loan.


The borrower is to receive a confirmation when the SBA Platform has accepted the forgiveness application. If the borrower does not receive a confirmation, the loan will no longer be deferred beginning 10 months after the end of the Covered Period, unless the borrower submits a forgiveness application to the lender before the end of the deferment period. The covered period is the period beginning on the date the lender disburses the PPP loan and ending on the date selected by the borrower that is at least 8 weeks following the date of loan disbursement and not more than 24 weeks after the date of loan disbursement (the “Covered Period”). Please note that the option to elect an alternative covered period was removed because the Economic Aid Act provided borrowers flexibility to choose the end of their Covered Period. The Covered Periods for a First Draw PPP Loan and a Second Draw PPP Loan cannot overlap; the borrower must use all proceeds for the First Draw PPP Loan for eligible expenses before disbursement of the Second Draw PPP Loan. Do all payroll costs need to be paid within the Covered Period or Alternative Payroll Covered Period? The latest guidance from the government indicates that borrows are eligible for forgiveness for payroll costs paid and payroll costs incurred, but not yet paid, during the Covered Period or Alternative Payroll Covered Period.