Self-employed people face uphill battle over PPP loan cancellation
Self-employed people who have borrowed from the Paycheck Protection Program may have trouble getting the full balance back.
The PPP is a federal forgivable loan program established by the CARES Act. It is intended to cover up to eight weeks of salary, mortgage interest and other expenses in the event of business disruption during the coronavirus pandemic.
The loan is supposed to be forgivable if at least 75% of the proceeds are used to cover payroll, according to the Small Business Administration. No more than 25% can be used for other items.
Borrowers have two years to repay amounts that are not remitted, at an interest rate of 1%.
Although the Treasury Department and the SBA have issued a request for forgiveness last week additional directives are yet to arrive.
Currently, the pardon provisions are less generous for entrepreneurs who do not have employees.
For example, the amounts these people pay for retirement and health care benefits are not counted in reimbursable labor costs, but only the amount they pay themselves.
“It looks like the self-employed will only get credit for their wages,” said Greg Zbylut, tax lawyer at Breyer Andrew in Burbank, Calif. “We still have people who did not apply for the PPP loan for these same reasons.”
Typically, the amount that a company can borrow under the PPP is based on the company’s payroll, including contributions to the health care and pension plan.
It’s a little different for independent contractors and the self-employed. They often manage their business income through a checking account; they have no pay.
In turn, the maximum amount of discount these people will receive to pay themselves is the lesser of the eight weeks of their 2019 net profit, which is specified in Schedule C of last year’s income tax return, or a maximum of $ 15,385, depending on Provisional final settlement of April 20 of SBA.
As it is, pension plan contributions and health care premiums are not eligible for a payroll rebate if you are self-employed, according to the rule.
In addition, Directive 75/25 does not take into account self-employed workers in high-rent areas, said Katie Vlietstra, vice-president of government relations at the National Association of Self-Employed Workers.
“Rent and mortgage far exceed 25% of the costs for locations in cities,” she said. “They have a low payroll and high overheads.”
The SBA predicted that the primary costs for the self-employed would be borne by them, in accordance with its interim final rule of April 20.
“Many self-employed people have low overhead costs that qualify for a rebate under the law,” the SBA said.
“For example, many such people operate from their home, vehicle or shed and therefore incur no mortgage interest, rent or eligible utilities,” the agency said. “As a result, most of their revenue will be net income.”
The pardon request does not address any of these outstanding issues, but lawmakers hope to address some of these issues with the proposed new legislation.
Representatives Chip Roy, R-Texas, and Dean Phillips, D-Minn., Are propose a bill this would give borrowers up to 24 weeks to use the P3 proceeds and lift restrictions that cap non-salary spending at 25%.
In the meantime, the self-employed are encouraged to borrow wisely from PPP, keep the money in a separate bank account, and continue to carefully document how the funds are used.
Learn more about smart tax planning:
Businesses with a PPP loan of less than $ 2 million are taking a break
Tax Crater As Americans Wait Until July 15
The HEROES law may allow you to cancel this retirement withdrawal
“Even before the pardon was released, we anticipated these issues with the Schedule C applicants,” said Dawn Minotas, CPA and General Manager, Outsourced Managed Services and Consulting Group at Marcum LLP in Mayfield Village. , Ohio.
“Don’t ask for the maximum amount you are entitled to; ask for what you think you need,” she said.
The fact that forgiveness is still so obscure prompts entrepreneurs to take a break before applying.
“With all these changes to PPP, the rattling of cages with certify the need?Zbylut said. “It scared a lot of people.
“I think for the self-employed, they had a somewhat crude deal, which could not include health insurance or pensions,” he added. “We still need more clarification on this.”