AN INDEPENDENT CONTRACTOR’S GUIDE TO CARES ACT RELIEF

April 17, 2020 11:00 AM | Connie Shipley (Administrator)

If you are an independent contractor or self-employed individual, you may be eligible for Paycheck Protection Program (PPP) loans/grants, SBA’s Economic Injury Disaster Loans (EIDL), and/or Unemployment Compensation for losses of income related to the coronavirus pandemic.

If you are an independent contractor or are self employed and don't have any employees, here's what you need to know about each program.     

Am I eligible?

  • You are eligible to apply for a PPP loan as an independent contractor or self-employed individual who has been or will be harmed by the pandemic if all of the following are true:

1. You were in operation on February 15, 2020,

2. Your primary place of residence is the United States

3. You filed or will file a Form 1040 Schedule C for 2019 showing self-employment income.

NOTE: The SBA will issue additional guidance for those individuals with self-employment income who were not in operation in 2019 but were in operation on February 15, 2020. NOTE: As of April 16, 2020, the PPP program was running out funds. Congress may replenish funding; in which case this guide will be updated.

What will lenders BE LOOKING FOR?

  • First, you will need to fill out the PPP application available on the Treasury’s Website (click here). You also will need all of the following:
  • 1. Your 2019 1040 Schedule C (even if you haven’t filed it with the IRS yet)
  • 2. A 2019 1099-MISC, invoice, bank statement, or book of record that shows you were self-employed in 2019
  • 3. A 2020 invoice, bank statement, or book of record establishing that you were in operation on or around February 15, 2020       

How much can I BORROW?
  • For most independent contractors, calculating your PPP borrowing limit is a 3-step process:
  • Step 1: Find line 31 on your 2019 IRS Form 1040 Schedule C  (If you haven’t filed yet for 2019, go ahead and fill it out).  If the amount on Line 31 is over $100,000, write $100,000.
  • Step 2: Divide the amount from Step 1 by 12.
  • Step 3: Multiply the amount from Step 2 by 2.5. For most borrowers, this will be your maximum PPP loan amount NOTE: If you received an EIDL loan between January 31, 2020 and April 3, 2020 you can refinance that as part of your PPP loan (minus any amount received as an EIDL grant).
How can I use my PPP LOAN?
  • You can use your PPP loan to do any of the following:
  • 1. Replace your compensation (based on your 2019 income)
  • 2. Pay interest payments on a mortgage or loan (such as an auto loan) you use to perform your business*
  • 3. Make business rent payments*
  • 4. Make business utility payments*
  • 5. Make interest payments on any other debt incurred before February 15, 2020 (but such amounts are not eligible for loan forgiveness) * You must have claimed a deduction on your 2019 taxes for expenses described in 2, 3, and 4 above.
How much CAN BE FORGIVEN?
  • Borrowers are eligible to have some, or all of their loan forgiven.
  • How much? An amount equal to how much you spent in the eight weeks following receipt of the loan for:
  • Owner compensation replacement, but not to exceed eight weeks of your 2019 compensation up to $100,000  (8/52 of the 2019 net profit up to $100,000)
  • Plus Interest on mortgages on real or personal property incurred before February 15, 2020 to the extent deductible on the 1040 Schedule C
  • Plus Rent on lease agreements in effect before February 15, 2020 to the extent deductible on the 1040 Schedule C
  • Plus Utility payments under service agreements dated before February 15, 2020 to the extent deductible on the 1040 Schedule C
  • Equals Potential Forgiveness Amount
  • NOTE: Not more than 25% of the forgiven amount may be for non-compensation
What lenders will NOT LOOK FOR
  • • • That the borrower sought and was unable to obtain credit elsewhere.
  • • • A personal guarantee is not required for the loan.
  • • • No collateral is required for the loan

Loan Terms

  • Payments deferred for six months
  • 1.00% fixed interest rate
  • Loan is due in two years

IMPORTANT Because many independent contractors do not have deductible expenses for interest, rent, or utilities, their loan forgiveness will be limited to eight weeks’ worth of their 2019 net profit (replacement compensation).

However, they can borrow 2.5 months’ worth of their 2019 net profit. That is, if an independent contractor borrows the full amount, they may have a loan balance that needs to be repaid.

Prepared by the U.S, Chamber of Commerce

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