PPP Loan Forgiveness May Be Hard To Win For Self-Employed Workers

The self-employed might regret getting one of the Paycheck Protection Program (PPP) loans from the Small Business Administration (SBA).

CNBC reported these independent contractors who borrowed from the PPP face the prospect of not getting the balance forgiven.

Under the terms of the CARES Act, businesses don’t have to repay the loan if they spent at least 75 percent of the proceeds on payroll and no more than 25 percent for other items.

If they can’t convince the SBA they met those requirements,  borrowers have two years to repay it at a 1 percent interest rate.

The measure limits independent contractors and the self-employed to borrow up to two months of their pay based on their 2019 income tax return or $15,385, whichever is less, toward forgiveness. Retirement plan contributions and health insurance premiums are not forgivable unless a business has employees.

The way the law is written, forgiveness provisions are less generous for entrepreneurs who lack employees, the network reported.

“It seems like self-employed people won’t get credit for anything other than salary,” Greg Zbylut, a tax attorney at Breyer Andrew in Burbank, California, told CNBC. “We still have some people who haven’t applied for the PPP loan for these very reasons.”

Another factor that makes the 75/25 guideline impossible to meet for self-employed people who conduct their business in cities with high rents, said Katie Vlietstra, vice president for government relations at the National Association for the Self-Employed.

“Rent and mortgage far exceed 25 percent of costs for locations in cities,” she told the network. “They have low payroll and high overhead expenses.”

CNBC reported the SBA expected the major costs for the  self-employed would be paying themselves.

“Many self-employed individuals have few of the overhead expenses that qualify for forgiveness under the Act,” the SBA said. “For example, many such individuals operate out of either their homes, vehicles or sheds and thus do not incur qualifying mortgage interest, rent or utility payments. As a result, most of their receipts will constitute net income.”

But Dawn Minotas, CPA and managing director at Marcum LLP in Mayfield Village, Ohio told the news service her company anticipated these issues with Schedule C applicants.

“Don’t apply for the maximum amount you’re eligible for; apply for what you feel you need,” she said.

Zbylut said many entrepreneurs were frightened to apply for the second round of PPP funding.

“I think for the self-employed people, they got a bit of a raw deal, not being able to include health insurance or pensions,” he said. “We still need more clarification on this.”