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A Guide to PPP Loan Forgiveness for the Self Employed

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A Guide to PPP Loan Forgiveness for the Self Employed

Updated: October 20th, 2023

A Guide to PPP Loan Forgiveness for the Self Employed

Congress rolled out the Paycheck Protection Program (PPP) to help small businesses retain jobs and avoid closures. And it worked—for the most part. However, the program initially kinda-sorta forgot about America’s 10 million self-employed workers. Whoops.

Originally, the SBA made PPP loans only available to business owners with employees. Later, they corrected themselves and made it available to sole proprietors and self-employed workers, too, but the processes and guidelines have been poorly explained and disseminated.

If you don’t know how PPP loan forgiveness works as a self-employed worker, don’t beat yourself up—it’s not your fault. The process is confusing at best and downright frustrating at worst. Fortunately, we can help you out a bit.

We’ve compiled everything you need to know about loan forgiveness for the self-employed in this quick-and-easy guide. We’ll walk you through PPP loan basics, terms for self-employed workers, and how to apply for loan forgiveness.

PPP Loan Terms for Self-Employed Workers

The PPP loan program’s original rules made it difficult for self-employed workers to qualify for any meaningful size loan, and the payroll ratio requirements made it impossible to receive complete forgiveness on the loans. However, new changes to the program impact how self-employed worker loans are calculated and forgiveness criteria.

Maximum PPP Loan Calculation Change

If you’re applying for a PPP loan now or anytime since the Interim Final Rule (IFR) went into effect, then you can use the new method for loan amount calculation. Initially, loan maximums were determined by a sole proprietor’s total profits—but that meant new and struggling businesses qualified for little-to-no cash.

The IFR changed the rules to calculate self-employed worker loans based on gross income (not net income). Under this new rule, Schedule C filers could earn loans for as much as $20,833.

Forgiveness Eligibility

There are lots of rules to achieving total forgiveness, but here are the most important ones to keep in mind:

  • Covered Period
  • 60/40 Rule
  • Employment and Salary Maintenance
  • Eligible Spending

Covered Period

You choose either an 8-week or 24-week coverage period for your PPP loan. That window starts on the day your lender disburses money into your bank account. To be eligible for full forgiveness, any PPP loan funds must be used during that covered.

Keep in mind that the timing is focused on when the costs were incurred, not necessarily when they were spent—so you don’t need to prepay any payroll or rent payments for those expenses to be eligible. 

60/40 Rule

The 60/40 rule states that 60% of your PPP loan must be used on payroll costs, and the remaining 40% can be used on other eligible expenses (rent, mortgage interest, utilities, etc.). However, as a self-employed worker, you can claim all 100% of your PPP loan as payroll under compensation replacement. Forgivable cash compensation is limited to $100,000 per employee on an annualized basis, which means you can use all $20,833 on your personal salary.

Employment and Salary Maintenance

Businesses must retain their headcount and 75% of employee salary to be eligible for complete forgiveness. If you have no employees, you don’t have to worry about either of these—you still qualify for 100% forgiveness.

Eligible Spending

Businesses can spend PPP loan funds on the following expenses:

  • Payroll costs: Wages, tips, salary, commissions, bonuses, paid leave, retirement benefits, and group insurance benefits
  • Rent: Costs for any equipment, real estate, or vehicles with lease dates signed before February 15, 2020
  • Utilities: Fees for gas, electricity, water, transportation, internet service, and telephones for agreements made before February 15, 2020
  • Mortgage interest: Interest payments on mortgage debts made before February 15, 2020
  • Property damage costs: Expenses for damages done due to 2020 public disturbances that your insurance didn’t and won’t cover.
  • Operations expenditures: Expenses for software, cloud computing, human resources, accounting, and services enabling remote work
  • Supplier costs: Payments for agreements made to your suppliers—before obtaining a PPP loan—that are necessary to continue operations
  • Worker protection expenses: Costs to purchase protective equipment and adaptive investments to comply with federal health and safety guidelines

However, some of these rules change for self-employed workers. Self-employed workers cannot receive forgiveness on expenses for retirement benefits or health insurance premiums.

How to Apply for PPP Loan Forgiveness as a Self-Employed Worker

You’ll work with your lender on your PPP loan forgiveness application. They should have sent you follow-up information on how to submit your forms and paperwork. You’ll need to submit this application within 10 months of the end of your covered period—if not, your loan payment deferment will end, and you’ll have to start making monthly payments on your PPP loan.

After you submit your application, your lender will review your documentation and get back to you within 60 days. Once approved, the SBA will refund the portion of your loan that was deemed forgivable.

Theoretically, yes. A minimum of 60% of your PPP loan expenses must be spent on payroll to be eligible, but there’s no maximum. Therefore, you could spend 100% of your PPP loan on compensation replacement, and it’d still be forgivable.
If you spent more than 40% of your loan on non-payroll-related costs, then that portion over 40% will not be eligible for forgiveness. The unforgivable part will be converted into a loan with 1% interest and a 5-year repayment term.
Self-employed workers can now receive up to 100% forgiveness on PPP loans.


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