With the passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Congress established the Paycheck Protection Program (PPP). The PPP provides qualifying small businesses impacted by the COVID-19 pandemic with SBA loans that can be used to cover payroll as well as other operational costs. The best part is, these loans are potentially forgivable. While traditional small businesses with less than 500 employees will significantly benefit from PPP, so can sole proprietors and independent contractors. PPP loans are also available for “eligible self-employed individuals” which are defined as individuals who regularly carry on a trade or business and would otherwise be able to receive paid leave if employed by someone other than himself or herself.
Eligible self-employed individuals, sole proprietors, or independent contractors can apply for a PPP loan and use the proceeds just like any other qualifying business. An overview of the terms of the loan under the program is as follows:
Maximum loan amount: Qualifying borrowers can obtain a PPP loan for 2.5 times their average monthly payroll costs (not to exceed $100,000.00/year for each employee) based upon the prior year’s expenses, up to a maximum of $10,000,000. UPDATE: Gross or Net Payroll Under the Paycheck Protection Program?
What if you file a Schedule C? In typical government fashion, the definition of payroll costs has led to some confusion. One portion of payroll costs is:
“the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000.00 in 1 year, as prorated for the covered period”
So what does that mean? As defined, this seems to indicate that you include people you are paying as an independent contractor (up to $100,000.00 per contractor) and whatever your Schedule C profit was (up to $100,000.00).
UPDATE: How to Obtain a PPP Loan if You Receive a K-1
Allowable uses for PPP proceeds: Loan proceeds can be used for the same specific “allowable uses” that apply to other small businesses. The uses include: payroll costs; costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave and insurance premiums; employees’ salaries, commissions, or similar compensations; payment of interest on any mortgage obligation; rent; utilities; and interest on any other debt obligations incurred prior to the covered period.
PPP loans used for the allowable purposes and that meet other simple requirements may be eligible for forgiveness and may not need to be repaid. The CARES Act and specifically the Paycheck Protection Program, provide a great opportunity for businesses to continue to operate amidst the Coronavirus pandemic. Burke Costanza & Carberry remains committed to providing guidance and counsel to its clients as we all move forward in these unprecedented times. Should you have any question regarding the CARES Act or Payroll Protection Program, please contact Chad Nally at email@example.com, for additional information.
“Net earnings from self employment” that come from a partnership K-1. Looks like they forgot to include these good people? As a self employed CPA, most of the partner K1’s I prepare are subject to SE tax. Clearly they should be eligible for PPP? But the bankers are saying “no” 🙁
Guidance? Thank you
Gary Ebdon. Kemah, Tx. 281 221 2808
Gary, I will get an email out to you with my position on how to handle the K-1s; however, you are correct, the assistance for K-1 partnerships is a bit of a mess.
I have the same question
Chad, can you shoot me over the same info?
As a physician in a two doctor practice, this info would be very helpful to me as well (re: k-1 partnerships) Thanks in advance.
i am a sole practicing attorney and i came across this article; a portion of my income comes from k1, any suggestions? i would appreciate an email. Than you ,
Could you share the K-1 Information with me as well. Thank you in advance.
I would like to learn more about the Sch. K as I am being told no-go by the local bank as well.
How do we apply with a K1?
Would you please share your thoughts on PPP for those filing a K-1?
Possible to send me the k1 info as well?
So me and my brother have k1
And bank is telling us no how can we do this or are we just left out in the cold
Chad, I am having the same issue with K1s, can you also email me the information. Much appreciated.
Chad, if this information is still available can you email it to me. I am unable to find anyone here that knows anything in relationship to PPP and K-1s
The information Chad was sharing is located on this post: K-1s and PPP LoansK-1s and PPP Loans
I have the same issue regarding K-1 income. If you would please send me the info as well. Thank you.
Chad, I am in the same position. 3 partner LLC -K1 and bank is telling me no. Please forward me whatever info you have. Much appreciated.
I have the same question. Chad, can you shoot me over the same information? Thank you
Would you mind sending me the K1 info as well? Thank you so much!
I would also love the same info please. I am a K1 partner and pay a ton of SE tax.
Can u please send info on k1 please
I have the same question as the bank is trying to disallow the Self-employment earnings less section 179 for the partner. Thanks!
I have the same question re partners who only take a draw and then settle up on income at end of year. Please send me an email on what to do with a partnership distribution.
Chad could you please send the same info to me as we are in the same position.
Thanks So Much
Hi, Chad, I’m having the same issue with K-1. None of the banks I’ve talked to has an answer for me. If you could get me that info too I would really appreciate it. Thanks!
Hi Chad, Can you send the k-1 information? We are also having our clients with Schedule C and employees being told they can not include the owner self employment in the calculation. Only paid employees….
I have a Real Estate Brokerage LLC with 3 partners K1’s I’m not sure where I should apply for PPP. I have 6 employees W2’s and 19 sales brokers independent contractors with 1099’s.
I can file PPP form 6 employees. My sales brokers are filing as independent contractor and my partners and I are left in the dark. Some how this seems very unfair. Any advice appreciated.
I am a broker as well with the same issue. Any advice on k1’s is appreciated. I have employees, independent contractors, and then me with a K1. Any advice?
We are having the same issue with K-1 can we get the information too please?
Chad I am having the same issue with K1. Could you send to me also?
I too am having the same issue with banks and K-1 earnings. Any advice?
My husband is a sole proprietor–he has a medical practice and reports his earnings on a Schedule C. We want to get the PPP loan for his employees and for him (capped at the $100,000) but the bank we are using says this loan is only for “W-2 paycheck” employees, and since he did not give himself a W-2 he was not eligible! What recourse do we have? Should we try to find another lender? He is not incorporated and has no partners.
Having the same issue with the K1, could you please shoot me an email. Thanks
We are in the same boat with 2 employees on payroll and 2 partners who get K-1s. Please email any advice. Thanks
Same issue with a K1. The local banks say that I don’t qualify.
If a person receives a K1 and reports that as Income on 1040 ,,
that is certainly self employed Income,
and should be treated as such by the CAREs PPP.
I understand Language from Schedule C definition of payroll costs being :
“the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation…. ” I would presume that would apply to partnerships also , otherwise, why report K1’s?
While the language of the CARES Act is somewhat vague, I agree completely with your comment. A partner with a K-1 is akin to a sole proprietor and in the spirit of the CARES Act should be treated similarly.
I can have contact with my Congressman.
Comments on MSLP & possibly PPPLP are due by April 16th.
Do you have any Language you would like to submit?
Hi Chad — Could you email me your info about K1s / LLC parters and draws as well? I’m confused about what to submit. Thank you so much in advance!!!
I have also been fighting with the K1 issue with my bank. Can you please email me your info as well? firstname.lastname@example.org
Thanks so much!
Can you please share the K1 guidance info with me as well. Thanks in advance for your support!
Chad, I’m in the same boat as many of the previous inquiries. Kindly forward K-1 guidance info when you have a moment. TIA
I too, am seeking your guidance on using our self-employment income reported on K-1 in our bank’s PPP Application
I too am interested to see what you find out about self-employed individual LLC/K-1. SBA says we do not qualify for PPP.
I too am a member of an LLC and am getting pushback from bank re: K1 distributions
Would appreciate any guidance or advice you have
can you please send me the imformation you have on k1 partners?
Can you please share with me your information on K-1’s . Thank you
please share the information for me as well. I am am K1 partner. it would be extremely helpful for me.
i need the info on k1s as well thank you
Hi. I am having problem with my bank in regards to the K1’s. They approved ppp money but did not include my K1’s. What should I do ? Should I not accept the altered amount and reapply at another institution that recognizes K1’s and recognizes that SE taxes are paid on K1’s and we can not receive schedule C’s . The bank has disregarded all of their LLC business customers . Please help me .
Thank you .
Could you please email the info on the K1’s as well.
Could you send me the info too? My business partner and myself get K1’s and we have 2 people that are 1099’s, can we use the PPP for any of these?
I’ve written a new blog post with the details on how to obtain a PPP loan if you receive a K-1. You can check it out here: https://www.bcclegal.com/2020/04/23/k-1s-and-ppp-loans/
I have a K-1 Partnership with no employees. Would you please share your information with me as well.
Please see this article: https://www.bcclegal.com/2020/04/23/k-1s-and-ppp-loans/