Business Loans

PPP Loans and 1099 Employees: What to Know

Jan 15, 2021 • 8 min read
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      UPDATE: The PPP loan application period ended May 31, 2021. Apply for the Employee Retention Credit today through Lendio.


      If you’re a 1099 worker (or a small business that employs 1099 workers) seeking a Paycheck Protection Program (PPP) loan, you likely have questions about whether or not you qualify for a PPP loan, what you need to apply, and how potential loan forgiveness will work. We’ve put together some of the most common questions we’ve received surrounding PPP and 1099 workers to give you the information you need. 

      How Can 1099 Workers File for a PPP Loan?

      Independent contractors can submit a PPP loan application through their bank or a lending marketplace. Given that many banks aren’t prioritizing the smallest loans, we’ve stepped up to help independent contractors secure funding. We’ve partnered with multiple PPP lenders to maximize your chances of funding, and we’ve streamlined the application to make it fast and simple. 

      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.

      Can 1099 Workers Receive a Second Draw?

      Yes, qualifying independent contractors can receive an additional disbursement of funds by applying for a Second Draw. Just like the First Draw, a borrower can receive up to 2.5 times their monthly payroll costs through a Second Draw. To qualify you must meet the following criteria:

      • Have received a First Draw through the PPP program
      • Have used all First Draw funds (or plan to use them)
      • Have used First Draw funds only for allowed uses
      • Experienced a 25%+ reduction in revenue in 2020 compared to 2019

      Will You Need to Provide Documentation to Prove a 25%+ Revenue Reduction for Second Draws?

      Documentation proving revenue reduction is only required for loans over $150,000. It’s unlikely that most 1099 workers would have a loan more than that amount, given that independent contractors may only claim payroll for themselves (in addition to other payroll-related expenses) as a part of their payroll calculations and the SBA has capped salaries for individual employees at $8,333/month ($100k/year). It is likely that you will be required to certify this revenue reduction instead. 

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

      • 1099-MISC
      • 2019 Schedule C, which is now required. If you haven’t yet filed a Schedule C, you must complete one and submit it with your 1099-MISC
      • Your birth date
      • A color copy of your Driver’s License (front and back)
      • A voided check for your business bank account
      • If you have 941 Quarterly Tax Filings (2019, 2020 Q1) or 944 Annual Tax Filings (2019), they should be submitted

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

      Why is a Voided Check Required in the Lendio Application?

      A voided check is required to demonstrate business revenue deposits.

      Will a PPP Loan for a 1099 Worker Be Forgivable?

      If PPP funds are used for allowed uses during the covered period of the loan (the 24 weeks immediately following disbursement of funds), then a borrower will likely qualify for loan forgiveness. 

      The SBA has streamlined the forgiveness with a one-page application for loans under $150,000. Additionally, for loans under $150,000, you will not be required to submit documentation on your forgivable expenses. Instead, you will be asked to certify that funds were used for forgivable expenses. 

      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. 

      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. 

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      About the author

      Lendio's team of experts is here to help you with every nook and cranny of your business. We'll make sure you have the best advice for financing, operations, management, hiring, and much more.

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