I own the LLC and I have paid myself as an independent contractor in the past. Be sure to click the I’m eligible for the 1st and 2nd draw. Thanks for all the help. I don’t want to “double dip.” PPP Loan Based on Gross Income for Self Employed. Or can I transfer to my savings account within my bank accounts? Use of PPP Loan Funds: The business may use PPP Loan proceeds to pay salaries and wages (including normal commissions), costs related to continuing group healthcare benefits during paid leave, other employee compensation, mortgage interest, rent, utilities, and interest on debt if the obligation was incurred before Feb. 15, 2020. Those funds are then transferred evenly over ten weeks. Please take a moment to review some frequently asked questions and common situations that users have: This is a secure service provided by United States Department of the Treasury. Congress recently authorized an additional $60 billion in … Hi Maria Or are u talking about Medicare/taxes? Borrowers use this form to pay your SBA serviced loan payments, including Economic Injury Disaster loans (EIDL) and other non-COVID Disaster loans. We … Communications made using this system may be disclosed as allowed by federal law. Lenders are confused and don’t provide answers. can I still use the same docs of 2020 , what do you suggest? As an owner or manager, you COULD give yourself a one time payroll payment for a large lump sum after transferring it or having it deposited into another account. Refer to section: How do I claim my Owner Compensation Replacement? If I am still receiving some PUA unemployment payments depending on how much I work each week. Would it work for me to pay myself from my separate PPP account, that you suggested be set up, on the weeks that I don’t qualify to receive PUA money? Yes, and you can apply for forgiveness as soon as the funds are all used. I have a few suggestions in this article. This way you can use the funds and show you’ve paid yourself over ten weeks or 2.5 months. There were also recent updates about Round 2 of PPP, so be sure to read that too. Once I begin transferring out the funds (paying myself) monthly to a 2nd account, do I then have to transfer it out to a 3rd account showing I used the money? Please let me know down in the comments if that’s something you would appreciate me posting about in the future. major updates made early 2021 to the PPP loan amount available to sole proprietorships. Yes, you CAN spread it out if you need/choose to do so. What is OWNER COMPENSATION REPLACEMENT to an independent contractor ie: Amazon Flex Driver? If you have an existing SBA 7(a) loan, the SBA would pay the principal and interest for 6 months. SEE: https://bench.co/blog/operations/owner-compensation-replacement/ Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. I received my loan for the second round of funding (2/18/2020 my loan amount was transferred to my account). It’s really confusing. Call it “you 1st/2nd/3rd/4th quarter pay”, as you’re all of a sudden deciding to pay yourself through payroll instead of pass through income from the business. However, that doesn’t allow you to use the funds in a way where you feel confident they’re going to be forgiven. Over a 10 week or 24 week period? Not to be confused with the SBA 7(a) loan program, SBA microloans are for businesses that need $50,000 or less to cover smaller expenses. Once the PPP is in the new account, can that person, not touch the PPP loan, finish off the U.I. Listen very carefully to this next part. Can you clarify the 10 or 24 weeks as it relates to 100% or 60% forgiveness? Check your correct gross loan amount using my calculator then divide by 10 and “pay” yourself for 10 weeks.” I’m sole prop, no employees, used line 7 for loan. In my second ppp loan, I heard that I can use the whole amount as owner compensation without dividing it by 10.Can you please clarify that for me, since I followed you since the beginning. Hi Rich, Pay.gov requires the use of cookies. If you’ve secured yourself a loan through the SBA’s EIDL program, you’ve gained a low-interest loan that can be used immediately to cover day-to-day activity in your business. Choose how much you want your loan amount to be, up to the maximum quoted 3. A good idea is to pay yourself as you normally would, whether that’s weekly, biweekly, monthly, or quarterly. So it’s not really clear to me. Simply put, there’s a loan program offered because of the Cares Act called the PPP. This way you can use the funds and show you’ve paid yourself over ten weeks or 2.5 months. If you are a program owner, you can apply for both a PPP loan and the EIDL loan; however, you cannot use the loan money to cover the same costs (i.e., double-dipping). Question; The best idea is to open up new bank account, check your Line 31 OR Line 7 calculation (depending), and then make ten weekly deposits into that new account to show that you paid yourself over the course of ten weeks or 2.5 months. Lock This article has PPP loan spreadsheets you can access to check your numbers. When these funds are used properly, these loans are completely forgiven. I made a new, updated PPP Gross Income Loan Calculator spreadsheet available here. When you elect the 24-week covered period, you can use 100% as owner’s compensation. This is a tough one because entrepreneurs are inherently optimistic. However, it is going to create a secondary form of documentation to show that you received and paid yourself those PPP funds. Also, I just received the 2nd draw in my personal account. Refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020 (maturity will be reset to PPP’s maturity of two years). Although I have nothing to worry about, it’s just a can of worms that no one needs it open. Do the first 2 accounts have to both show a balance of zero? The older covered period did not allow for 100% to be used for owner’s compensation … whereas the 24 week covered period does. Your business can use it for anything other than buying real estate or refinancing debt. You have accessed a United States Government computer. At that time, you have used all of the PPP funds as owner’s compensation. If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. Share sensitive information only on official, secure websites. I have not applied before so that would be a lot of weeks. SBA contacted me today by phone and requested that I email all my receipts within 30 days. It is greatly appreciated. When it comes time to request forgiveness is simply providing bank statements or payroll documents going to be enough to show how you paid yourself? Thank you for all you do! Many people are looking for answers on how to pay themselves PPP money. I am not a financial advisor. 2. how can i contect my lender ? They may sell the assets you used as collateral. However, there were weeks I made more than $500, some weeks I made $500 (or around that) and other weeks I made less than $500. Basically how do you pay yourself if you took a loss? Hi Mike, you can fully use the loan to pay yourself. After 90-120 days with no attempt to repay the loan balance, the lender will consider your loan to be in default. Your income now doesn’t impact the PPP owner’s compensation. A better idea is to open up a separate, new bank account solely for the purpose of depositing the entire PPP loan amount. Thank you. Request access here and make a copy for yourself. The option to do a onetime payment or recurring payment will be visible on the Enter Payment Info tab. If I open a new account would I open it into my businesses name or does it matter? Remember, by doing this your bank statements are going show you receiving the PPP funds into your preexisting business or personal account. Once you’ve “paid” yourself owner’s compensation, then you can use the funds anyway you choose. Over the course of those ten weeks, 10% of your PPP loan is going to transfer right back into your personal account. You must be signed in to submit this form. It keeps your documentation clean and separate. Your information will not be shared or used for any other purpose. Under the program, the SBA can loan any qualifying small business that’s been affected by COVID-19 up to $2 million at a 3.75% interest rate. Hi Rich, Then also repeat the 10 week payroll plan for the 2nd draw as well? Won’t it affect my forgiveness application later on? Hi Bambi, yes. 3. how i calculate my compansation income or just make 10 equals transaction of my loan? It’s unclear at this time if increases can be requested for those of you who’ve already got money using Line 31. It is not something that is going to be reported on your taxes as income. According to bench, America’s largest professional bookkeeping service for small businesses, there are no special conditions to follow. 10 equal amounts and pay yourself weekly, but then your saying in order Schedule C workers with no employees can use 100% of their PPP loans as owner’s compensation when choosing the 24-week covered period for forgiveness. A lock ( This means 2.5 months or 10 weeks. Hey Rich, we received our first round of PPP on January 28. My line 31 Sch C is simply a yearly total….but that in no way = a consistent, weekly draw according to the “formula” I need to use to establish the loan amount. Thanks. Save my name, email, and website in this browser for the next time I comment. “RichSmithEDU.com has partnered with CardRatings for our coverage of credit card products. Someone who received a $10,000 PPP loan would pay themselves $1,000 a week for ten weeks. . Thanks so much, Bambi. The site is secure. The EIDL loan program authorizes each borrower to qualify for a loan up to $2,000,000, as determined by the SBA. BTW this was for a sole proprietor. So, if you normally don’t have “equal and regular income,” then what? Here’s how to pay your PPP loan money, if you’re self employed. I created a PPP Loan Calculator spreadsheet that you can access for free to check your numbers. Required fields are marked *. The 10-digit SBA loan number and payment amount are required to complete this form. Can your weekly transfers be different amounts over that 10-week period? SBA Debt Relief: With this program, the SBA pays the principal and interest on new SBA 7(a) loans that are funded before September 25, 2020. Hi thought u said we could pay ourselves? You mention that the PPP funds are not taxed which is how I understood the rules but in the case of a self-employed person, I know the “loan” funds are not taxed but are the “payroll” funds taxed on our Schedule C’s for 2021? Nor sure which loan I applies for its a little confusing but thank you.Withour your help I would be missing out on the opportunity to continue do I g business as I have for over 30 years. Will there be a formula and documentation required for spending on expenses vs owner compensation (based on line 31 net income); or can one just fully use the new maximum loan amount to pay themselves? You can simply transfer the appropriate amount to your personal bank account. Really helps me. Phone: (305) 509-0045 | Email: [email protected] ©2020 SMB Resources LLC. •Economic Injury Disaster Loans help entities stay afloat during the declared disaster, ready to “restart” their operations once circumstances allow. I you you suggested using the method of dividing the amount you receive by 10 weeks and that is what you need to pay yourself weekly however I will have received the second round funding before 10 weeks have passed. Also, remember that this money is not viewed as taxable income. If you are trying to pay the loan off, enter the payoff amount you got from SBA CAFS (you can also make a partial payment). Lets say someone is currently getting U.I. There were also major updates made early 2021 to the PPP loan amount available to sole proprietorships. I won’t know the exact amount of supplies each month, so how would I pay myself from PPP funds on a weekly basis over the 24 weeks? Yes, but do not double dip funds, and only apply under the business EIN, and not the holding company. You are right. I used your méthod to pay myself for my first ppp loan by dividing by 10. Should we wait to use our funds until tomorrow since it will be 8 weeks from receiving our first round or does it matter at all? However, this leaves a huge gray area. 1. how can i know that am i eligible for 8 week or 24 week covered period? This means you can write off your interest payments as business expenses and lower your overall tax burden. If you’re self employed, an independent contractor, sole proprietor, or gig worker, then I have good news for you. Yes, if the funding is there. My paperwork is still processing for my PPP (I had to sign and return my forms, 2 days ago). I am an independent contractor so was going to pay myself the 60%, can I just pay the full 100% to myself? SBA and IRS keep playing catch up and updating the rules to help streamline issues like this. This means you get to keep the money and don’t have to pay back any of it. i got money through “Customers Bank”. Thank you so much. However, they have 24-weeks to use the funds. I’m a self employed sole Proprietor no employees so I use my personal checking account for my business. Hi Rich, The time frame can stretch as long as 30 years, and businesses are allowed to defer repayment for up to a year. You’re not alone in wondering how to pay yourself and what documentation is going to be necessary to get forgiveness. As this is owner compensation, can we use this money with anything we want like paying down a debt or purchasing stuff, basically like we would use our own money in normal life? So do I do the 10 week payroll plan for the 1st? Someone who received a $10,000 PPP loan would pay themselves $1,000 a week for ten weeks. Or does the 100% use of funds for payroll still apply? Congrats! After that time, the balance in that separate, new account will get down to zero. For example I do investment on a regular basis based on my income and send moneys to overseas to support a family member, could I still do this after ‘paying myself’ ? Hi Rich,I owned a barbershop and pay rent and utilities on it. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. Either way, you should gather your statements from the dates when the funds were deposited in that initial account and the statements of you using those funds over the ten weeks. Once the money was deposited, I transferred the $25 out of the account. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered. A locked padlock Monthly and the last two weeks should work – it’ll create monthly statements showing you “paid” yourself. May not be an issue in the end, but we’re just not sure right now. Therefore, depositing the full amount into a bank like CIT or SoFi is going to create crystal clear documentation. Yes, lenders have the guidance to accept second applications now. Stockholder/Principal Loan Payments: The SBA restricts borrowers from repaying stockholder and principal loans. If they are to receive a PPP Loan, then they transfer the PPP Loan to a new seperate bank account. I am a realtor , I received my ppp loan last week, I used my 2020 tax docs to get the loan, Thank you for all your work! Dar, Here’s the one for gross … the other resources are linked in the original article: https://richsmithedu.com/recommends/ppp-gross-income-calculator/, Hi. Can I get more than the 2.5 x average monthly payroll? I am so confused. People are not going to like to hear this, but the SBA has failed to give proper guidance about how to pay yourself if you’re self employed. I had to open the account with $25 non ppp funds. Your email address will not be published. Put it all in a new account, then transfer it to yourself (existing) account. There was an boy $80 in the checking account. All form fields except phone number are required. If approved… Do you think I will have time to apply for a 2nd PPP before the next deadline? It must also be shown that the non-payment of the loan would result in undue hardship on the stockholder or principal. For more information see below. A good answer to our question is to simply pay yourself as you normally would. I just applied a few weeks ago for my first round and I should be receiving my funds within a week or so. my question are : My question is instead of paying myself 10 weeks of payroll as you stated, can I spread it to 24 weeks of payroll? I make monthly deposits when rent checks arrive to keep that side of my business separate. They may ask for additional documents, but yes you can use 2020. I don’t like this straightforward answer at all because the SBA has given you these funds to use for your business. It’s detailed and helpful, so check that out here. And do I just go ahead and apply for forgiveness 24 weeks from the date I was funded? It’s not a necessity, but it’s a good idea for the sake of clean documentation. Thank you so much for your Guidence. To be clear, you can “use” the funds anytime throughout the 24-week covered period…for example, it does not need to be used in consecutive weeks. Beware of magical thinking. There’s flexible now. Ultimately, it’s your choice. What Is the Status of EIDL Applications? Hi Gesenia, the rules were changed a few months back to allow 100% to be used as owner’s compensation when choosing the 24-week covered period. Any downside to paying yourself over an 8 week period….instead of a 10 week period? Responses are not provided or commissioned by the bank advertiser. Under the new gross income guidance for maximum loan amount, I am wondering how forgiveness will work. The lenders were asking for bank statements earlier, so clean documentation is a very good idea. per the “pay yourself over 10 weeks ” suggestion…..but instead do exactly the same…..different accounts and all….BUT only over 8 weeks. The smart reason to open a new account for your PPP funds is that if any part of your PPP loan is not forgiven it’s going to turn into a 1% loan. Can I continue to do that with this loan or do I need to do payroll taxes to meet the guidelines? There’s no obligation to accept the loan if offered, no cost to apply, and no closing fees. Yes, use the 10 weeks for both. I’d wait the full ten weeks, but it’s your call. base on 2019 i got $18936 ppp loan. for the remaining 3 months of that year’s benefits period, then get off of the U.I. Some are saying that’s true, but other lenders are still requesting statements when applying for forgiveness. According to the SBA, operating expenses, besides equipment, raw materials and staff payroll, … Therefore, as soon as they’re deposited in your account, you have the right to use them. Hi Heather, they changed the rules in June. Let me give you an example. Some are waiting on the SBA for more information, while others are encouraging borrowers to apply. should I open a different account and deposit the funds there , then pay myself 100 percent cause I am self employed and working as well. Once all PPP loan transfer in 10 Equals payment to different bank account, i will be eligible for forgiveness loan right? Right now, you get $50 when you open a SoFi Free Money Bank Account and deposit $500. My question is do you have any suggestions on how I can spend the first round before the second round deposits. Can I use the entire amount as owner compensation (transfer ppp from business account to personal) and spend on how I like and be forgiven? Then, you will you get 100% loan forgiveness. Hi I received the first ppp loan and wasn’t sure of how this works , someone told me to pay myself with money orders which I did , I am so unsure about the 8weeks and 24 weeks I believe I must have spent it before then , also I did not know a forgiveness once open and missed out I guess , the funds were deposited in my account aug 2020. Once you receive the initial loan quote: 1. Because the amount of money you were supposed to receive for your PPP loan was your Schedule C Line 31 divided by 12 times 2.5—essentially, 10 weeks of payroll—some people may have been given too much money. The information I share is for educational purposes only and shouldn’t be considered as certified financial or legal advice. Now, you’re going to need to provide both statements as documentation—one showing the funds deposited and withdrawn, and the other showing that you have received the funds in your separate, new PPP account. It may be one week, but you used it in the 24-week period. I got my ppp loan first draw deposited in my personal checking account, and I open another checking account and transferred all of the ppp loan money there. Original loan was $15,000. I originally opened an account for the PPP funds and had them direct deposited in there on Feb 26, 2021. Hi Rich, I though that only 60% of the funds could be used as payroll and the other 40% had to be used for the business, am I wrong. Therefore, once the funds are deposited in that new high interest savings account, you need to establish a bank to bank external transfer for 10 weeks. You then complete the 1201 Borrower Form and choose ACH as the payment method. That works, and the transfers are over 10 weeks. Yes. When your lenders are ready, they will accept your PPP loan forgiveness application—you can use the EZ form or the S form. SBA Economic Injury Disaster Loan (EIDL) Uses: fixed debts (ex: business mortgage, business auto loan), payroll, accounts payable (ex: vendor payments, supplies), and other bills that can’t be paid because of COVID-19’s impact. And all the bank statements need to show is that you paid yourself and used it as owner compensation. According to Philadelphia CPA (Mark Fineberg, CPA) in terms of paying yourself, you don’t have to pay yourself every week for 10 weeks. Yes – you can apply for forgiveness as soon as you “use” all the funds. The new account should be different bank account? I was told that I could immediately apply for the second round once my funds hit my account. Since I’m an independent contractor with no employee, I’m about to use it as payroll expense by paying myself weekly check. My line 31 Sch C is simply a yearly total, but that in no way is a consistent, weekly draw according to the “formula” I need to use to establish the loan amount. This is how you pay yourself and obtain loan forgiveness the easy way. Yes, you got it. Some lenders are creating a portal that auto-fills your information, so be on the lookout for that. A .gov website belongs to an official government organization in the United States. This makes it an attractive option for small businesses to have access to additional liquidity and reduce the cash flow burden as they begin to rebuild their business. How do I pay myself w that ppp loan. And from there every week for 10 weeks it can go into my personal account? That’s why the amount is 2.5 times your pay. The loan amount is based on payroll, but here’s one way “hypothetically” you could cheat that. One of the best parts of these PPP loans is that they are forgivable if you use the loan on operational costs (payroll first) during the 24 weeks following loan disbursement. Salary payments are subject to payroll taxes while owner’s draws or distributions are not taxed as salary. Can I use a debit card tied to the new account or pay a business credit card to pay for supplies? •These are working capital loans that may be used to pay fixed debts, payroll, accounts payable, and other bills that could have been paid had the disaster not occurred. See, even though you have 24 weeks to use the funds, the correct amount of your PPP loan was only supposed to cover ten weeks or 2.5 months. I am trying to get more clarity regarding being able to apply for first and second round PPP loans. The information you will enter will remain private. 19. rent to my holding company. If I have reopened my business can I pay myself the full 10% of the loan per week or can I only compensate myself up to my average weekly amount minus what I’m earning now? You’re content is great! Unfortunately, there’s been a complete lack of guidance by the SBA. To help clear up the confusion, let me give you the best answer for how to pay yourself PPP funds. Hi Jennifer, the new account is where you schedule the transfers – it can go back to your own personal account then. And how do I calculate this? Basically/ if you’re an LLC taxed as a sole proprietor you CAN pay yourself using the eidl loan. Note: This system may contain Sensitive But Unclassified (SBU) data that requires specific data privacy handling. Let’s talk about a better answer to this question. Qualified borrowers can apply for 2.5 times their average payroll cost for 12 months. I prefer a separate bank entirely – not necessary but a good idea. You first have to log into the Pay.gov profile that you have created and is separate from the SBA system. Can I just leave the ppp funds there, or do you still suggest transferring out the full amount to another new account? b) Also, can I pay myself a maximum of $15384 for working as the Director? Welcome. Because both your loan and forgiveness are based on your 2019 Schedule C net profit (yes, last year), you simply need to use the loan money for personal purposes. Over the course of those ten weeks, 10% of your PPP loan is going to transfer right back into your personal account. I just apply ppp for the first time and still waiting for approval. That’s some nice flexibility this second time around ? By clicking on the send button, you are agreeing to send the above information to Pay.gov Customer Service for troubleshooting purposes.