On Monday, February 22, President Biden announced an important new opportunity for micro-businesses to more easily access the Paycheck Protection Program (PPP), which provides loans to businesses who have experienced a loss of revenue due to the COVID-19 pandemic. The changes create a 14-day window during which the only PPP applications that will be processed are from businesses with fewer than 20 employees, starting Wednesday, February 24, 2021.
The opening of this special PPP access period may help freelancers get loans through the PPP more easily than before. The PPP offers forgivable loans to small businesses through the Small Business Administration to help them recover from the financial impact of COVID-19. The overall PPP program is currently slated to end March 31, 2021. The SBA has also earmarked $1 billion of PPP funding for applicants with no employees who are also located in low- and moderate-income communities.
The updates to the PPP program also changes how sole proprietors, independent contractors and self-employed workers will have the amount of their loans determined. Instead of calculating the loan amount using the net profit listed on their 2019 income tax Form 1040 Schedule C, freelancers can now calculate the loan amount using their gross income. This has the potential to increase your PPP loan amount by thousands of dollars.
As a reminder, PPP loans can be used to cover expenses including payroll, rent, operations expenditures, property damage costs, supplier costs, and worker protection expenditures.
The Payroll Protection Program (PPP) 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.
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, http://www.cpaforfreelancers.com, 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 COVID related requests. However, he is more than happy to chat about 2020 tax filings.