• Finance

How to apply for a PPP loan

One of the key provisions of the new HEALS Act is a second round of the Paycheck Protection Program (PPP) loans, On January 9, the Small Business Administration (SBA) released its application for businesses to apply to receive “PPP2” funding. There is more than $284 billion allocated for forgivable PPP2 loans. Second PPP loans are capped at $2 million, a reduction from the $10 million available for first-time loans.

The good news is that PPP2 also includes freelancers. Per The Wall Street Journal, the PPP2 loan application process will start this Wednesday, January 13, to be launched initially from community-based lenders, followed soon after by other banks.

If you did not get a PPP loan in 2020, you can apply starting Monday, January 11, for a first PPP loan. These loans are obtained from banks who act as agents for the Small Business Administration of the United States.

Here are some of the key things you need to know if you are considering applying for this round of PPP loans:

· Self-employed and members of partnerships and LLCs (active partners who pay self-employment tax on their income) are eligible.

· You can use 2019 or 2020 payroll numbers to substantiate your loan application. It may be better to use 2019 if your income was higher that year. Freelancers can use income tax Form 1040 Schedule C to show income.

· You can apply for 2.5 times your salary, up to $100,000 per person, as the owner of a business. This is the same rule as last time.

· The salary amount you can claim for industries with NACIS classification beginning with 72 (Accommodation and Food Services Sector Businesses) is 3.5 times regular salary. This primarily applies to restaurants and other food service businesses.

· Borrowers can set their PPP loan’s covered period to be any length between 8 and 24 weeks to best meet their business needs.

· PPP loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures, according to the SBA.

If you have a business that received PPP funding before and you have eligible expenses, you may be able to receive a second round of funding, but only if you meet these criteria:

· The business employs no more than 300 employees per physical location;

· The business has used or will use the full amount of its first PPP loan; and

· The business has experienced at least a 25% reduction in quarterly revenues in at least one quarter of 2020, as compared to the same quarter of 2019.

For loans of $150k or more, you need to prove the revenue decline prior to receiving the loan; for loans below $150k, you will need to show this decline when you apply for forgiveness.

If you spend the loan on qualified expenses, it can be forgiven. The definition of qualified expenses has been expanded for both first and second-time borrowers. Previously you were able to use PPP funds for payroll, rent, utilities, and mortgage payments. You can now also have your loan forgiven for software, cloud computing, and other human resources and accounting needs, property damage costs due to public disturbances that occurred during 2020 that are not covered by insurance, covered supplier costs for goods essential to operations, covered worker protection expenditures, and personal protective equipment (PPE).

If you borrow under $150,000, your loan can be forgiven using a simple one-page form.

The Payroll Protection Program loan forgiveness amount will not be considered taxable income at the federal level. This could be a significant tax saving for your business. However, there is not any change in the guidance for state and local tax treatment of PPP funds. Therefore, be sure to check with your own state and local tax authorities for additional information.

Paycheck Protection Program loans can help your freelance business if your income has been negatively impacted by the pandemic. However, you should always be aware of how participating in these programs (now or if you accessed them previously) may impact your freelance taxes.

Jonathan Medows is a New York City-based CPA who specializes in taxes and business issues for freelancers and self-employed individuals across the country. He provides tax, accounting and business articles for freelancers on his website,, which also features a blog and a comprehensive freelance tax guide. Please note, due to the high volume of inquiries in regard to COVID-19, Jonathan is not able to respond to individual requests for information at this time.

Jonathan Medows Jonathan Medows is a NYC-based CPA who specializes in taxes for consultants across the country. His website has a resource section with how-to articles and information for freelancers.

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