PPP Update: Change for Schedule C Filers

By: Jessica A. Distel, CPA, MBA - Director of Tax and Business Services

On Wednesday, March 3, 2021, the Small Business Administration (SBA) released new applications with revised calculations for the Paycheck Protection Program (PPP) loans specifically for self-employed individuals who file their business operations on Form 1040 Schedule C.  Previously, Schedule C filers were to use their net profit when calculating their PPP loans, but now have the option to use their gross income for the calculation.   According to the SBA, this change is intended to aid those self-employed individuals who were not able to benefit from the PPP based on the calculation in the previously released applications, especially those with very little or negative net profit.

If you are a Schedule C filer, below is a summary of what you need to know now:

1.    Timing. The last day to apply for and receive a PPP loan is currently March 31, 2021. If you believe you may benefit from this revision to the PPP program, do not delay reaching out to your bank or accountant.
   
   
2.    New Application Forms.  Released on March 3, 2021, were the Form 2483-C (First Draw Borrower Application Form for Schedule C Filers Using Gross Income), which can be downloaded at Form 2483-C, and the Form 2483-SD-C (Second Draw Borrower Application Form for Schedule C Filers Using Gross Income), which can be downloaded at Form 2483-SD-C.  These forms walk you through step-by-step of how to calculate the PPP loan for a Schedule C filer, with or without payroll expenses, and either using 2019 or 2020 data. 
   
   
3.    Already received a PPP loan?  Unfortunately, if a borrower has already been approved for a PPP loan, it cannot increase its existing PPP loan amount based on this new calculation method.  However, if the borrower has only been approved for the PPP First Draw as of the effective date of this new rule and is eligible to apply for a PPP Second Draw, it can use the new Form 2483-SD-C to apply for a PPP Second Draw using either the net profit or new gross income method.  Keep in mind, if a borrower has not been approved for a PPP First Draw as the effective date of the this new rule, it can use the new Form 2483-C to apply for a PPP First Draw using the net profit or new gross income method.   
   
   
4.    Be aware if your Schedule C reports more than $150,000 in gross income.  In an effort to mitigate the increased risk of abuse of the PPP program due to this new gross income method, according to the SBA, “the borrower will not automatically be deemed to have made the statutorily required certification concerning the necessity of the loan request in good faith, and the borrower may be subject to a review by the SBA of its certification.  The safe harbor that SBA previously provided for borrowers that, together with their affiliates, receive PPP Loans with an original principal amount of less than $2 million, will not apply to Schedule C filers that elect to use gross income to calculate their loan amount on a First Draw PPP Loan if they report more than $150,000 in gross income on the Schedule C that was used to calculate the borrower’s loan amount.”  It is important to understand that if your Schedule C reports more than $150,000 in gross receipts, there is a heightened risk that the SBA will review the eligibility criteria and the good faith loan necessity certification, as such borrowers “may be more likely to have other available sources of liquidity to support their business’s operation than Schedule C filers with lower levels of gross income.” 

As always, our experienced team at Buckingham Advisors is here to help!  If you have questions or need assistance with filing your PPP application, please reach out to one of our team members.  

Small Business Administration 13 CFR Part 120 [Docket Number SBA-2021-0010] RIN 3245-AH67
https://www.sba.gov/sites/default/files/2021-03/SBA%20PPP%20IFR%20Loan%20Amount%20Calculation%20and%20Eligibility%20%283-3-21%29.pdf?utm_medium=email&utm_source=govdelivery