Two things to know about the Paycheck Protection Program (PPP) first draw enacted on December 27, 2020:
- The first draw is for those who missed getting in on the original PPP, which expired on August 8, 2020.
- Don’t think of a PPP draw as a loan. It’s not a loan. It’s a cash infusion. You have to repay a loan. You don’t have to repay the PPP funds.
Who qualifies for first-draw PPP money today? You, most likely—if you file a business tax return and have not yet received any PPP monies.
But don’t wait. The money is going to run out fast, and once it’s gone, so is the PPP. And the new PPP ends March 31, even if the money is not gone by then.
Here’s how the PPP cash infusion works for the various business entities:
Form 1040 Schedule C Business with No Employees
If you file your business taxes on Schedule C of your Form 1040, you calculate your first-draw PPP cash infusion money using the following three-step formula:
Step 1. Go to either your 2019 or 2020 Schedule C and find your net profit on line 31. If the profit is more than $100,000, reduce it to $100,000. If you have no profit or show a loss, you are not eligible for PPP monies.
Step 2. Divide the Step 1 profit by 12 to find your average monthly profit.
Step 3. Multiply the Step 2 average monthly profit by 2.5.
Partnership with No Employees
Individual partners do not qualify for the PPP monies. The PPP first draw for partnerships with no employees is at the partnership level and follows the three-step process below:
Step 1. Add the net earnings from self-employment of the individual general partners in 2019 or 2020, as reported on IRS Form 1065 K-1, reduced by section 179 expense deductions claimed, unreimbursed partnership expenses claimed, and depletion claimed on oil and gas
properties, multiplied by 0.9235. If the result exceeds $100,000 for any partner, reduce the result to $100,000 for that partner.
Step 2. Divide the amount from Step 1 by 12.
Step 3. Multiply the amount in Step 2 by 2.5 to find your PPP cash infusion amount
S Corporation with Owner-Employee Only
The one-person S corporation with the owner as the sole employee computes its first-draw PPP infusion of
monies as follows:
Step 1. Select either 2019 or 2020 and take the sum of the gross wages paid to the owner-employee from box 1 of the W-2. If the wage exceeds $100,000, reduce it to $100,000.
Step 2. Add to the result in Step 1 any retirement contributions (line 17 of the 1120-S) and any state and local taxes assessed to the employer on employee compensation, primarily state unemployment insurance tax.
Step 3. Divide the amount from Step 1 by 12.
Step 4. Multiply the amount in Step 2 by 2.5 to find your PPP cash infusion amount.
Takeaways
You qualify for the PPP if any of the following are true:
- You file your taxes on Schedule C of your tax return. Businesses that file on Schedule C include independent contractors (often called 1099 folks), single-member LLCs, proprietorships, and statutory employees such as life insurance salespeople.
- You file your taxes on Schedule F (ranchers and farmers).
- You are a general partner in a partnership, but the partnership asks for and receives the money based on your and the other partners’ combined self-employment incomes, as adjusted.
- You operate as an S corporation.
- You operate as a C corporation.
- You are the only worker in the business—and if you have employees in the business, you qualify on both your ownership worker status and your employees’ W-2 status.
If you would like to discuss the PPP, please call me on my direct line at 509-543-7600 or send a request HERE.
March 2021
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