PPP Loans for the Self-Employed: Everything You Need to Know

10 min read • Apr 22, 2021 • Mary Kate Miller

Over the past year, the SBA has rolled out a series of updates and adjustments to better serve the self-employed who need/want a Paycheck Protection Program (PPP) loan. Here’s everything you need to know: 

How Can You Apply for PPP If You’re Self-Employed?

You can apply for PPP via any lender participating in PPP whether or not they are your primary bank. Online applications make it easy and accessible, in addition to limiting exposure with an in-person application. To apply for a PPP loan online, you’ll need to calculate your payroll costs and gather the required documentation to complete the application successfully. 

For full instructions for how to apply online, consult our Step-by-Step Guide to Applying for a PPP loan

Who Can Qualify for a Self-Employed PPP Loan?

To qualify for a PPP loan, self-employed individuals must meet the following criteria: 

  • You were in operation as of February 15, 2020
  • You are an independent contractor, sole proprietor, or other qualifying business classification with self-employment income
  • In 2020, you filed a Schedule C or Form 1040
  • Your primary place of residence is the United States
  • You meet other program requirements 

How Much Money Can You Get?

You can qualify for 2.5 times your monthly payroll costs— based on either your net profit or gross income during the calculation period. 

In March 2021, the SBA released new guidance allowing the self-employed to choose whether they want to calculate their PPP loans based on net profit or gross income. Previously, calculations were limited to net profit, which limited the funds you could access if you’re in the habit of maximizing tax deductions. 

If you have additional employees on your payroll, their payroll can be used to calculate payroll numbers. You cannot include 1099 workers in your payroll calculations, as they are entitled to apply for their own PPP loans. 

How Can You Calculate Payroll Expenses If You’re Self-Employed?

There are 2 different methods for calculating your PPP loan depending on whether you employ other people. 

How to Calculate a PPP Loan If You’re Self-Employed and Have No Employees

  • Retrieve your Schedule C from either 2019 or 2020. If you’re using 2020 to calculate your payroll costs and have not yet filed your 2020 return, you can fill out your 2020 Schedule C and calculate the value.
  • Choose the number you’ll use to calculate payroll. This will either be gross income (found on line 7 of the Schedule C) or net profit (found on line 31 of the Schedule C). If the amount is greater than $100,000/year, reduce to $100,000/year. If neither number is greater than $0, you do not qualify for a PPP loan. 
  • Take that number and divide by 12 to calculate your monthly payroll costs. 
  • Multiply the monthly total by 2.5.

How to Calculate a PPP Loan if You’re Self-Employed and Have Additional Employees

  • Choose whether you will use net profit (line 31) or gross income (line 7) on your Schedule C from 2019 or 2020—depending on which period you’re using to calculate payroll. 
    • You will then subtract the following from your net profit or gross income total. Add employee payroll from: line 14—employee benefit programs, line 19—pension and profit-sharing plans, and line 26—wage (less employee credits).
    • The maximum total for this step is $100,000/year. If greater than $100,000/year, reduce to $100,000. If the number is less than $0, set the amount to $0. 
  • Calculate your gross wages and tips paid to employees who live principally in the US (line 5c, column 1). If the total for any employee is in excess of $100,000/year, reduce to $100,000. Add this number to the total from the previous step. If you have employees who live primarily outside of the US, subtract their wages.
  • Add employer contributions from 2019 or 2020 to employee group insurance (line 14), retirement (line 19), and state/local taxes on employee compensation. 
  • Divide the total amount by 12. 
  • Multiply that number by 2.5.

If You Have an EIDL That Will Be Financed By the Loan

Whether or not you have employees, you must take an additional step of adding the outstanding amount of any Economic Injury Disaster Loan (EIDL) awarded between January 31, 2020, and April 3, 2020, which must be refinanced into your PPP loan, although if you only received an EIDL advance, you will not need to refinance the advance amount into your PPP loan. 

What Documents Do You Need to Apply for PPP If You’re Self-Employed?

To complete your PPP application, you will need the following documentation. We recommend gathering this information prior to starting the application. 

    • Copy of government-issued ID for all owners with 20%+ share in the business
    • Proof that you were in business as of February 15, 2020:
      • If you have W2 employees: IRS Form 941 from Q1 2020 or a third-party processing report from February 2020. 
      • If you do not have W2 employees: February 2020 bank statement or a customer invoice from February 2020
    • Tax documentation: 
      • Form 1040 with a Schedule C, or:
      • 1099
  • If you have employees, you’ll need to provide proof of payroll costs. Choose one:
    • W2s and W3 for your employees
    • IRS Form 944
    • IRS Form 941 (all 4 quarters)
    • 3rd-Party Payroll Processing Report

Can You Use a PPP Loan to Pay Yourself?

Yes, you can use your PPP loan for payroll-related expenses, including paying yourself. To qualify for loan forgiveness, individual payroll amounts cannot exceed the calculation limits, meaning you can pay yourself a maximum of $8,333/month ($100,000/year) to be eligible for forgiveness. 

What Can You Use PPP For?

The allowed uses for PPP loans have been expanded. Due to high demands for the loan, it’s expected that you will still need to spend 60% of loan funds on payroll-related expenses, but you can now use the other 40% on a variety of uses. 

Payroll Costs

  • Compensation in the form of salaries, wages, commissions or similar compensation up to $100,000
  • Payment of cash tips or equivalent
  • Payment for vacation, parental, family, medical, or sick leave
  • Allowance for dismissal or separation
  • Payment of retirement benefits
  • Group vision, dental, disability, or life insurance
  • Payment of state or local taxes assessed on the compensation of employees

Other PPP Uses for the Self-Employed

  • Healthcare costs related to the continuation of group healthcare benefits during periods of sick, medical, or family leave, as well as insurance premiums
  • Mortgage interest payments (but not prepayment or payment of the mortgage principal)
  • Rent
  • Utilities
  • Interest on any other debt obligations incurred before February 15, 2020
  • Refinancing an SBA EIDL received between January 31, 2020, and April 3, 2020
  • Covered expenditures such as business software or cloud computing services that facilitate: business operations; product or service delivery; the processing, payment or tracking or payroll expenses, human resources, sales, and billing functions; accounting or tracking of supplies, inventory, records, or expenses
  • Covered property damage costs
  • Covered supplier costs
  • Covered worker protection expenditures

What Documents Do the Self-Employed Need to Apply for a PPP Loan?

  • 1040 Schedule C for 2019
  • Your birth date
  • A color copy of your Driver’s License (front and back)
  • 1099-MISC, if you have them
  • 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 step-by-step guide on completing the PPP application for full instructions. 

Can You Get a PPP Second Draw?

Self-employed individuals can apply for a Second Draw on their PPP loan if you’ve experienced a revenue reduction of 25%+ due to the pandemic and you meet the other Second Draw qualifications. Learn more about how to qualify and apply for a PPP Second Draw. 

How Much Can a Self-Employed Individual Claim for Payroll Expenses?

The maximum amount for a PPP loan is 2.5 times your average monthly payroll costs. Income listed on a Schedule C in your personal tax return is the only payroll that can be used to calculate your PPP loan amount. If you’ve hired 1099 workers, they cannot be included in your PPP loan calculation and may apply for their own PPP loans. 

Do You Need to Take the Full Amount You Qualify For?

No, you may apply for a PPP loan that is smaller than the maximum you qualify for (2.5 times your monthly payroll costs). 

How Can You Get Your PPP Loan Forgiven?

The SBA has simplified loan forgiveness applications for PPP loans less than $50,000. This provision was specifically designed to support independent contractors and the self-employed. Loans that meet this threshold will not have to meet the employee retention requirements of larger loans, 

If your First Draw loan is $50,000 or less, you can not apply for forgiveness using the simplified Form 3508S

The SBA has not yet indicated whether or not this guidance will apply to PPP Second Draw loans. 

What If Your PPP Loan Is Not Forgiven?

If your loan forgiveness application is denied, you will be required to repay the loan. PPP comes with a 1% interest rate and a maximum loan term of 5 years. 

Is Loan Forgiveness Automatic?

No, you must apply for loan forgiveness through your lender. 

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.