As expected, the U.S. Small Business Administration (SBA) issued new Paycheck Protection Program (PPP) rules that allow self-employed individuals who file Form 1040, Schedule C to calculate their maximum loan amount using either gross income or net profit instead of just net profit. The limit of $100,000 of PPP eligible income or a loan amount $20,833 still exists for Schedule C filers with no employees.

This change in not retroactive. If the loan has already been approved as of the effective date of this rule (3/3/21) the borrower cannot increase their PPP loan amount based on the new calculation methodology.

If a Schedule C filer has employees, the borrower may elect to calculate the owner compensation share of its payroll costs based on either net profit or gross income minus expenses reported on lines 14 (employee benefit programs), 19 (pension and profit-sharing plans), and 26 (wages (less employment credits)) of Schedule C. If a Schedule C filer has no employees, the borrower may simply choose to calculate its loan amount based on either net profit or gross income.

The calculation change is detailed in the SBA Interim Final Rule. Click here to view. Additionally, the SBA released an updated set of frequently asked questions and six updated or new application forms.

  • Updated PPP borrower first-draw (Form 2483) and second-draw (Form 2483-SD)  application forms.
  • New PPP first-draw (Form 2483-C) and second-draw (Form 2483-SD-C) borrower application forms for Schedule C filers using gross income.
  • A revised lender application form for PPP loan guaranty (Form 2484)
  • A revised PPP second-draw lender application form (2484-SD)

To learn more visit the Journal of Accountancy article below or contact your advisor at Ketel Thorstenson.

This change is effective immediately.