Self-employed individuals receive guidance for Paycheck Protection Program participation

On April 14, 2020, the Small Business Administration released much-anticipated guidance on how self-employed individuals as well as partners in partnerships can participate in the Paycheck Protection Program enacted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Background                                                                                              

Paycheck Protection Program (PPP) loans are small business loans issued by private lenders and fully guaranteed by the federal government. The principal purpose of these loans is to help employers retain their employees. The loans are intended to cover eight weeks of payroll expenses, applied for any date between Feb. 15, 2020, and June 30, 2020.

Under the PPP, an eligible recipient includes:

• Small business concerns (as defined under the Small Business Act), plus
• Other business concerns as long as such business concern employs not more than the greater of:
  – 500 employees; or
  – If applicable, the size standard in number of employees established by the SBA for the industry in which business concern operates

Others eligible to receive a covered loan include: (a) individuals who operate as sole proprietors, independent contractors or as self-employed persons; and (b) any business concern that employs not more than 500 employees per business location and that is assigned a North American Industry Classification System (NAICS) code beginning with 72 (Accommodation and Food Services).

Key takeaways

• Partners in a partnership, solely in their capacity as partners, cannot qualify for the PPP loan program. Qualification for the program is determined solely at the partnership level. Up to $100,000 (annualized) in self-employment income of a “general active partner” can be included in payroll costs in the partnership’s loan application.
• Individual self-employed Schedule C filers are eligible for PPP loans if they were in business on Feb. 15, 2020, their principal place of business is in the U.S., and they filed or will file a Form 1040 Schedule C for 2019.