Apr 22, 2020

PPP Loans and 1099 Employees: What to Know

Now that we’ve been through the first round of Paycheck Protection Program (PPP) loans, we have more of an understanding of how they work. Some of the most common questions we’ve gotten from small business owners have surrounded 1099 employees. We’ve put together everything we know to help guide your PPP application. 

Can a Small Business Include 1099 Employees in Their Payroll Calculations?

No, 1099 employees should not be included in a small business’s payroll calculations for their PPP loans. 1099 employees are considered their own businesses under the PPP. As of April 10, 2020, 1099 employees are eligible to apply for their own PPP loan. 

Why Does the Application Ask If You Have 1099 Employees If You Can’t Include Them?

Guidance for PPP loans asks if a small business was open as of February 15 and “had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on Form(s) 1099-MISC.” 

Treasury guidance regarding 1099 employees pertains to eligibility. You need to either have employees who receive a salary or 1099 employees who you pay in order to qualify for the loan. It does not pertain to loan size calculations. 

How Can 1099 Employees File for a PPP Loan?

PPP applications opened for 1099 employees on April 10, 2020. 1099 employees are now eligible to apply for their own PPP loans through their banks or a loan marketplace.

Banks that were previously approved SBA lenders have prioritized funding loans for their customers, so you should check with your bank to see if they’re an approved SBA lender and are funding PPP loans. If not, we can help you get matched with a lender.

What Documents Do 1099 Employees Need to Apply for a PPP Loan?

You can visit our complete step-by-step guide to completing an application for full instructions. 

Will a PPP Loan for a 1099 Employee Be Forgivable?

Any funds used for forgivable uses in the first 8 weeks should be forgivable. Because PPP loans are based on 2.5 times your payroll costs as a 1099 employee, theoretically you would use 2 times your monthly payroll costs to cover 8 weeks of your pay, starting from the date your loan is getting funded. 

Due to the demand for PPP loans, it’s estimated that 70% of the total loan amount will need to be used for payroll expenses in order for the entirety of the loan to be forgiven. If a 1099 employee receives a loan for 2.5 times their average monthly income and uses 2 times their average monthly income over 8 weeks, 66% of the loan would be used for payroll. The amount used on payroll will be eligible for forgiveness, but it remains a mystery if the 66% used to replace 1099 wages will be enough to satisfy the requirements for the full loan, so you may be expected to repay some of it. 

As a conservative approach, 1099 employees can apply for a PPP loan amount less than the maximum. If you applied for a loan that was only 2 times your average monthly payroll costs, theoretically the whole thing would be forgivable. 

Are PPP Loans Automatically Forgiven for 1099 Employees?

No. All PPP loan recipients must apply for loan forgiveness through their lender. We don’t know exactly what that process looks like yet because the SBA hasn’t released guidance. 

Can You Receive Unemployment at the Same Time as Your PPP Loan?

No. PPP loans cannot be used for the same purpose as other government funds at the same time. So you cannot receive unemployment at the same time as you’re using PPP funds to cover lost payroll. 

If you are currently receiving unemployment, you will have to cancel it starting on the date your PPP loan is funded. If you are still suffering from lost wages after PPP funds have been exhausted, you can apply for unemployment through your state agency. 

Can You Choose the Start Date For the Loan?

You cannot choose the start date for the loan. The loan term begins the day you receive funds. 


While every effort is made to ensure the accuracy of information when a story is published, the coronavirus pandemic and Paycheck Protection Program (PPP) have caused details to change at a rapid pace. Additional guidance from the government may change or clarify certain aspects of the forgiveness process and could result in changes to the information contained in these pages. For the most up-to-date information, please visit the COVID-19 section of our website. For more information, you can call us at (855) 853-6346. Lendio is not responsible for and provides no warranty as to the accuracy of this content. Lendio does not provide legal, accounting or tax advice. The information and services Lendio provides should not be deemed a substitute for the advice of such professionals who can better address your specific concern and situation.

About the author

Mary Kate Miller
Mary Kate Miller
Mary Kate Miller is a writer based in Chicago, IL. She specializes in covering finance (personal and business), investing, and real estate. Her mission in life is to give readers the confidence and the knowledge needed to grow their wealth by making financial topics more accessible. When she's not writing about topics like business loans, you can find her playing armchair financial advisor to the Real Housewives.


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