Paycheck Protection Program: SBA clarifies treatment of self-employed and independent contractors

Attorney Rebecca L. Simpson

Some of the most common questions about the Paycheck Protection Program (PPP) over the last couple of weeks have been how it applies to those who are self-employed and/or receive 1099 income.  The Small Business Administration (SBA) has now issued an “Interim Final Rule” addressing many of these questions.  Here are some highlights:


Those who have income from self-employment and file a Form 1040, Schedule C for tax purposes are eligible for the PPP if:

  1. You were in operation on February 1, 2020;
  2. You are an individual with self-employment income (such as an independent contractor or sole proprietor);
  3. Your principal place of residence is in the United States; and
  4. You filed or will file a form 1040 Schedule C for 2019.

One exception applies to partnerships and LLCs filing taxes as a partnership. In general, the partnership must file for the PPP rather than the individual partners.

Calculation of Maximum PPP Loan

  • If you have no employees, in general, your maximum loan amount will be 2.5 times your average monthly net profit, which is calculated using the amount on your 2019 IRS Form 1040 Schedule C Line 31 (the Line 31 amount is capped at $100,000)
  • If you have employees, you will also add in eligible amounts of your W2 payroll to employees in calculating your maximum loan amount
  • If you received and Economic Injury Disaster Loan (EIDL) between January 31, 2020 and April 3, 2020 that may impact your loan amount as well.

Forgiveness of PPP

The rules with respect to how self-employed individuals and independent contractors must spend the funds are similar to the rules for small businesses with one significant exception.  The amount that self-employed and independent contractors can spend on “payroll” for themselves (meaning net profits in their case) is capped at an amount equal to eight weeks worth of net profit (8/52 of 2019 net profits).


This new SBA Interim Final Rule also indicates the SBA will issue further guidance for individual with self-employment income who were not in operation in 2019, but who were in operation on February 15, 2020.

The Finney Law Firm will continue to post updates on the PPP.  If you have questions or need help with your particular situation, please feel free to contact Rebecca L. Simpson (513.797.2856).

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