As of June 26, 2020
PAYCHECK PROTECTION PROGRAM
HOW TO CALCULATE MAXIMUM LOAN AMOUNTS – BY BUSINESS TYPE
The Small Business Administration (SBA), in consultation with the Department of the Treasury,
is providing this guidance to assist businesses in calculating their payroll costs for purposes of
determining the amount of a Paycheck Protection Program (PPP) loan businesses can apply for.
Borrowers and lenders may rely on the guidance provided in this document as SBA’s
interpretation of the CARES Act and of the Paycheck Protection Program Interim Final Rules.
The U.S. government will not challenge lender PPP actions that conform to this guidance
1
and to
the PPP Interim Final Rules and any subsequent rulemaking in effect at the time.
1.
Question: I am self-employed and have no employees, how do I calculate my maximum
PPP loan amount? (Note that PPP loan forgiveness amounts will depend, in part, on the
total amount spent during the 24-week period following the first disbursement of the PPP
loan.)
Answer: The following methodology should be used to calculate the maximum amount
that can be borrowed if you are self-employed and have no employees, and your principal
place of residence is in the United States, including if you are an independent contractor
or operate a sole proprietorship (but not if you are a partner in a partnership):
• Step 1: Find your 2019 IRS Form 1040 Schedule C line 31 net profit amount (if you
have not yet filed a 2019 return, fill it out and compute the value). If this amount is
over $100,000, reduce it to $100,000. If this amount is zero or less, you are not
eligible for a PPP loan.
• Step 2: Calculate the average monthly net profit amount (divide the amount from
Step 1 by 12).
• Step 3: Multiply the average monthly net profit amount from Step 2 by 2.5.
• Step 4: Add the outstanding amount of any Economic Injury Disaster Loan (EIDL)
made between January 31, 2020 and April 3, 2020 that you seek to refinance, less the
amount of any advance under an EIDL COVID-19 loan (because it does not have to
be repaid).
Your 2019 IRS Form 1040 Schedule C must be provided to substantiate the applied-for
PPP loan amount. You must also provide a 2019 IRS Form 1099-MISC detailing
nonemployee compensation received (box 7), invoice, bank statement, or book of record
establishing you were self-employed in 2019 and a 2020 invoice, bank statement, or book
of record establishing you were in operation on February 15, 2020.
1
This document does not carry the force and effect of law independent of the statute and regulations on which it is
based.
As of June 26, 2020
2.
Question: I am self-employed and have employees, how do I calculate my maximum
PPP loan amount (up to $10 million)? (Note that PPP loan forgiveness amounts will
depend, in part, on the total amount spent during the 24-week period following the first
disbursement of the PPP loan.)
Answer: The following methodology should be used to calculate the maximum amount
that can be borrowed if you are self-employed with employees, including if you are an
independent contractor or operate a sole proprietorship (but not if you are a partner in a
partnership):
• Step 1: Compute your 2019 payroll costs by adding the following:
o
2019 IRS Form 1040 Schedule C line 31 net profit amount (if you have not
yet filed a 2019 return, fill it out and compute the value); if this amount is
over $100,000, reduce it to $100,000; and if this amount is less than zero, set
this amount at zero;
o
2019 gross wages and tips paid to your employees whose principal place of
residence is in the United States, which can be computed using 2019 IRS
Form 941 Taxable Medicare wages & tips (line 5c-column 1) from each
quarter plus any pre-tax employee contributions for health insurance or other
fringe benefits excluded from Taxable Medicare wages & tips, subtracting any
amount paid to any individual employee in excess of $100,000 and any
amounts paid to any employee whose principal place of residence is outside
the U.S;
o
2019 employer contributions for employee health insurance (portion of IRS
Form 1040 Schedule C line 14 attributable to health insurance);
o
2019 employer contributions to employee retirement plans (IRS Form 1040
Schedule C line 19); and
o
2019 employer state and local taxes assessed on employee compensation,
primarily state unemployment insurance tax (from state quarterly wage
reporting forms).
• Step 2: Calculate the average monthly payroll costs amount (divide the amount from
Step 1 by 12).
• Step 3: Multiply the average monthly payroll costs amount from Step 2 by 2.5.
• Step 4: Add the outstanding amount of any EIDL made between January 31, 2020
and April 3, 2020 that you seek to refinance, less the amount of any advance under an
EIDL COVID-19 loan (because it does not have to be repaid).
Your 2019 IRS Form 1040 Schedule C, IRS Form 941 and state quarterly wage
unemployment insurance tax reporting form from each quarter (or equivalent payroll
processor records or IRS Wage and Tax Statements), along with documentation of any
retirement or health insurance contributions, must be provided to substantiate the applied-
for PPP loan amount. A payroll statement or similar documentation from the pay period
that covered February 15, 2020 must be provided to establish you were in operation and
had employees on that date.
As of June 26, 2020
3.
Question: I am a self-employed individual who reports my income on IRS Form 1040
Schedule F. What documentation must I provide in place of Schedule C and how should
my maximum loan amount be determined (up to $10 million)?
Answer: Self-employed farmers (i.e., those who report their net farm profit on IRS Form
1040 Schedule 1 and Schedule F) should use IRS Form 1040 Schedule F in lieu of
Schedule C, and Schedule F line 34 net farm profit should be used to determine their loan
amount in place of Schedule C line 31 net profit. The calculation is otherwise the same
as for Schedule C filers above. The 2019 IRS Form 1040 Schedule 1 and Schedule F
must be included with the loan application.
4.
Question: How do partnerships apply for PPP loans and how is the maximum PPP loan
amount calculated for partnerships (up to $10 million)? Should partners’ self-
employment income be included on the business entity level PPP loan application or on
separate PPP loan applications for each partner? (Note that PPP loan forgiveness
amounts will depend, in part, on the total amount spent during the 24-week period
following the first disbursement of the PPP loan.)
Answer: The following methodology should be used to calculate the maximum amount
that can be borrowed for partnerships (partners’ self-employment income should be
included on the partnership’s PPP loan application, individual partners may not apply for
separate PPP loans):
• Step 1: Compute 2019 payroll costs by adding the following:
o
2019 Schedule K-1 (IRS Form 1065) Net earnings from self-employment of
individual U.S. based general partners that are subject to self-employment tax,
computed from box 14a (reduced by any section 179 expense deduction
claimed, unreimbursed partnership expenses claimed, and depletion claimed
on oil and gas properties) multiplied by 0.9235,
2
up to $100,000 per partner (if
2019 schedules have not been filed, fill them out);
o
2019 gross wages and tips paid to your employees whose principal place of
residence is in the United States, if any, which can be computed using 2019
IRS Form 941 Taxable Medicare wages & tips (line 5c-column 1) from each
quarter plus any pre-tax employee contributions for health insurance or other
fringe benefits excluded from Taxable Medicare wages & tips, subtracting any
amounts paid to any individual employee in excess of $100,000 and any
amounts paid to any employee whose principal place of residence is outside
the U.S;
o
2019 employer contributions for employee health insurance, if any (portion of
IRS Form 1065 line 19 attributable to health insurance);
o
2019 employer contributions to employee retirement plans, if any (IRS Form
1065 line 18); and
2
This treatment follows the computation of self-employment tax from IRS Form 1040 Schedule SE Section A line 4
and removes the “employer” share of self-employment tax, consistent with how payroll costs for employees in the
partnership are determined.
As of June 26, 2020
o
2019 employer state and local taxes assessed on employee compensation,
primarily state unemployment insurance tax (from state quarterly wage
reporting forms), if any.
• Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1
by 12).
• Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5.
• Step 4: Add any outstanding amount of any EIDL made between January 31, 2020
and April 3, 2020 that you seek to refinance, less the amount of any advance under an
EIDL COVID-19 loan (because it does not have to be repaid).
The partnership’s 2019 IRS Form 1065 (including K-1s) and other relevant supporting
documentation if the partnership has employees, including the 2019 IRS Form 941 and
state quarterly wage unemployment insurance tax reporting form from each quarter (or
equivalent payroll processor records or IRS Wage and Tax Statements) along with
records of any retirement or health insurance contributions, must be provided to
substantiate the applied-for PPP loan amount. If the partnership has employees, a payroll
statement or similar documentation from the pay period that covered February 15, 2020
must be provided to establish the partnership was in operation and had employees on that
date. If the partnership has no employees, an invoice, bank statement, or book of record
establishing the partnership was in operation on February 15, 2020 must instead be
provided.
5.
Question: How is the maximum PPP loan amount calculated for S corporations and
C corporations (up to $10 million)? (Note that PPP loan forgiveness amounts will
depend, in part, on the total amount spent during the 24-week period following the first
disbursement of the PPP loan.)
Answer: The following methodology should be used to calculate the maximum amount
that can be borrowed for corporations, including S and C corporations:
• Step 1: Compute 2019 payroll costs by adding the following:
o
2019 gross wages and tips paid to your employees whose principal place of
residence is in the United States, which can be computed using 2019 IRS
Form 941 Taxable Medicare wages & tips (line 5c-column 1) from each
quarter plus any pre-tax employee contributions for health insurance or other
fringe benefits excluded from Taxable Medicare wages & tips, subtracting any
amounts paid to any individual employee in excess of $100,000 and any
amounts paid to any employee whose principal place of residence is outside
the U.S;
o
2019 employer health insurance contributions (portion of IRS Form 1120 line
24 or IRS Form 1120-S line 18 attributable to health insurance);
o
2019 employer retirement contributions (IRS Form 1120 line 23 or IRS Form
1120-S line 17); and
o
2019 employer state and local taxes assessed on employee compensation,
primarily state unemployment insurance tax (from state quarterly wage
reporting forms).
As of June 26, 2020
• Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1
by 12).
• Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5.
• Step 4: Add the outstanding amount of any EIDL made between January 31, 2020
and April 3, 2020 that you seek to refinance, less the amount of any advance under an
EIDL COVID-19 loan (because it does not have to be repaid).
The corporation’s 2019 IRS Form 941 and state quarterly wage unemployment insurance
tax reporting form from each quarter (or equivalent payroll processor records or IRS
Wage and Tax Statements), along with the filed business tax return (IRS Form 1120 or
IRS 1120-S) or other documentation of any retirement and health insurance contributions,
must be provided to substantiate the applied-for PPP loan amount. A payroll statement or
similar documentation from the pay period that covered February 15, 2020 must be
provided to establish you were in operation and had employees on that date.
6.
Question: How is the maximum PPP loan amount calculated for eligible nonprofit
organizations
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(up to $10 million)? (Note that PPP loan forgiveness amounts will
depend, in part, on the total amount spent during the 24-week period following the first
disbursement of the PPP loan.)
Answer: The following methodology should be used to calculate the maximum amount
that can be borrowed for eligible nonprofit organizations (eligible nonprofit religious
institutions, see the next question):
• Step 1: Compute 2019 payroll costs by adding the following:
o
2019 gross wages and tips paid to your employees whose principal place of
residence is in the United States, which can be computed using 2019 IRS
Form 941 Taxable Medicare wages & tips (line 5c-column 1) from each
quarter plus any pre-tax employee contributions for health insurance or other
fringe benefits excluded from Taxable Medicare wages & tips, subtracting any
amounts paid to any individual employee in excess of $100,000 and any
amounts paid to any employee whose principal place of residence is outside
the U.S;
o
2019 employer health insurance contributions (portion of IRS Form 990 Part
IX line 9 attributable to health insurance);
o
2019 employer retirement contributions (IRS Form 990 Part IX line 8); and
o
2019 employer state and local taxes assessed on employee compensation,
primarily state unemployment insurance tax (from state quarterly wage
reporting forms).
• Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1
by 12).
• Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5.
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“Eligible nonprofit organization” means an organization that is described in section 501(c)(3) of the
Internal Revenue Code of 1986 and that is exempt from taxation under section 501(a) of such Code.
As of June 26, 2020
• Step 4: Add the outstanding amount of any EIDL made between January 31, 2020
and April 3, 2020 that you seek to refinance, less the amount of any advance under an
EIDL COVID-19 loan (because it does not have to be repaid).
The nonprofit organization’s 2019 IRS Form 941 and state quarterly wage unemployment
insurance tax reporting form from each quarter (or equivalent payroll processor records
or IRS Wage and Tax Statements), along with the filed IRS Form 990 Part IX or other
documentation of any retirement and health insurance contributions, must be provided to
substantiate the applied-for PPP loan amount. A payroll statement or similar
documentation from the pay period that covered February 15, 2020 must be provided to
establish you were in operation and had employees on that date. Eligible nonprofits that
do not file an IRS Form 990, typically those with gross receipts less than $50,000, should
see the next question.
7.
Question: How is the maximum PPP loan amount calculated for eligible nonprofit
religious institutions, veterans organizations, and tribal businesses (up to $10 million)?
(Note that PPP loan forgiveness amounts will depend, in part, on the total amount spent
during the 24-week period following the first disbursement of the PPP loan.)
Answer: The following methodology should be used to calculate the maximum amount
that can be borrowed for eligible nonprofit religious institutions, veterans organizations
and tribal businesses:
• Step 1: Compute 2019 payroll costs by adding the following:
o
2019 gross wages and tips paid to your employees whose principal place of
residence is in the United States, which can be computed using 2019 IRS
Form 941 Taxable Medicare wages & tips (line 5c-column 1) from each
quarter plus any pre-tax employee contributions for health insurance or other
fringe benefits excluded from Taxable Medicare wages & tips, subtracting any
amounts paid to any individual employee in excess of $100,000 and any
amounts paid to any employee whose principal place of residence is outside
the U.S;
o
2019 employer health insurance contributions;
o
2019 employer retirement contributions and
o
2019 employer state and local taxes assessed on employee compensation,
primarily state unemployment insurance tax (from state quarterly wage
reporting forms).
• Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1
by 12).
• Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5.
• Step 4: Add any outstanding amount of any EIDL made between January 31, 2020
and April 3, 2020 that you seek to refinance, less the amount of any advance under an
EIDL COVID-19 loan (because it does not have to be repaid).
The entity’s 2019 IRS Form 941 and state quarterly wage unemployment insurance tax
reporting form from each quarter (or equivalent payroll processor records or IRS Wage
and Tax Statements), along with documentation of any retirement and health insurance
As of June 26, 2020
contributions, must be provided to substantiate the applied-for PPP loan amount. A
payroll statement or similar documentation from the pay period that covered February 15,
2020 must be provided to establish you were in operation and had employees on that
date.
8.
Question: I am an LLC owner. Which set of instructions apply to me?
Answer: LLCs should follow the instructions that apply to their tax filing situation, for
example, whether they file as a sole proprietor, a partnership, or a corporation.
9.
Question: What other documentation can be provided for the purpose of substantiating
the applied-for PPP loan amount?
Answer: IRS Form W-2s and IRS Form W-3 or payroll processor reports, including
quarterly and annual tax reports, can be used in place of IRS Form 941. Additionally,
very small businesses that file an annual IRS Form 944 instead of quarterly IRS Form
941 should rely on and provide IRS Form 944. Similarly, records from a retirement
administrator can be used to document employer retirement contributions while records
from a health insurance company or third-party administrator for a self-insured plan can
document employer health insurance contributions.
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10.
Question: I am self-employed and was in operation on February 15, 2020, but was not in
operation between February 15, 2019, and June 30, 2019. I will file a Form 1040
Schedule C or Schedule F for 2020. What is my maximum PPP loan amount?
Answer: In this case, your maximum PPP loan amount is generally equal to 2.5 times
your average monthly payroll costs incurred in January and February 2020, plus the
outstanding amount of any EIDL loan received between January 31, 2020, and April 3,
2020, that will be refinanced by the PPP loan.
The following methodology should be used to calculate the maximum amount that you
can borrow:
• Step 1: Fill out an IRS Form 1040 Schedule C (or Schedule F, if applicable) for
January and February 2020. The entries on the schedule must reflect all business
income and expenses from those two months, with the exception that on Schedule
C line 13 (or Schedule F line 14):
o you must include only 1/6 of the amount of any annual depreciation and
section 179 expense deduction attributable to investment made in those
months, and
o you must include 1/6 of the amount of the 2020 depreciation deduction
attributable to investment made in prior years.
• Step 2: Take the net profit amount for January and February on Schedule C line 31
(or Schedule F line 34). If this amount is more than $16,667 for the two months
combined, set it to $16,667.
1
Questions 1 – 9 published April 24, 2020. Questions 1, 2, 4, 5, 6 and 7 revised on June 26, 2020 by changing “eight-
week” to “24-week.” The Paycheck Protection Program Flexibility Act of 2020, which became law on June 5, 2020,
extended the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks
after the date of loan disbursement, providing substantially greater flexibility for borrowers to qualify for loan
forgiveness. The 24-week period applies to all borrowers, but borrowers that received an SBA loan number before
June 5, 2020, have the option to use an eight-week period.
As of June 26, 2020
• Step 3: If you have employees, add your employee payroll costs for January and
February 2020 to the result in Step 2. Only include payroll costs for those
employees whose principal place of residence is in the United States and up to
$16,667 of cash compensation per employee.
• Step 4: Divide the total by 2, and then multiply it by 2.5.
• Step 5: Add the outstanding amount of any EIDL made between January 31, 2020
and April 3, 2020 that you seek to refinance, less the amount of any advance under
an EIDL COVID-19 loan (because it does not have to be repaid).
Your IRS Form 1040 Schedule C (or Schedule F, if applicable) as completed must be
provided to your lender when you apply for a PPP loan. This information should be
consistent with what you will submit to the IRS and must be true and accurate in all
material respects. You must also supply bank statements from your business account(s)
for the months of January and February 2020 to substantiate your net profit amount
from Schedule C or F, as applicable. If you have employees, you also must provide
payroll records from those two months and your IRS Form 941 for the first quarter of
2020.
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Question 10 published June 26, 2020.
