Schedule C Borrowers Can Use Gross Income for Paycheck Protection Program Loan Calculations

Sole proprietors and self-employed individuals might be getting a well-needed break with regard to the recently updated guidance on Paycheck Protection Program (PPP) loans.

Schedule C filers that apply for PPP loans have been required to use their business net profits to calculate their maximum loan amount. On Wednesday, the U.S. Small Business Administration (SBA) issued new rules that Schedule C filers, who haven’t yet filed for a PPP loan, can use their gross income to calculate their maximum loan amount instead of net profit. The change opens the door for larger loans to self-employed individuals, many of whom don’t record much, if any, net profit on their Schedule C.

The SBA and Treasury have ruled that borrowers whose PPP loans already have been approved cannot increase their loan amount based on the new methodology. If your business has applied for but not been approved, we recommend contacting your back to see if you can modify your application with updated calculations.

Note: due to an exclusive window ordered by the administration, banks are currently only accepting applications through March 9 for entities with fewer than 20 employees.

The SBA also released an updated set of frequently asked questions and six updated or new application forms, as follows.

  • Updated PPP borrower first-draw (Form 2483) and second-draw (Form 2483-SD) application forms.
  • New PPP first-draw (Form 2483-C) and second-draw (Form 2483-SD-C) borrower application forms for Schedule C filers using gross income.
  • A revised lender application form for PPP loan guaranty (Form 2484)
  • A revised PPP second-draw lender application form (Form 2484-SD)

The new rule allows that a Schedule C filer, who has yet to be approved for a PPP first- or second-draw loan in the current phase of the program, can elect to calculate the owner compensation share of its payroll costs based on either net profit (as reported on line 31 of Schedule C) or gross income (as reported on line 7 of Schedule C).

If a Schedule C filer has employees, the borrower may elect to calculate the owner compensation share of its payroll costs based on either net profit or gross income minus expenses reported on the following lines:

  • line 14 – employee benefit programs;
  • line 19 – pension and profit-sharing plans; and
  • line 26 – wages (minus employment credits) of Schedule C.

If a Schedule C filer has no employees, the borrower may simply choose to calculate its loan amount based on either net profit or gross income.

The SBA guidance and forms release came a day after the AICPA called on Congress to extend the PPP application period by at least 60 days due to ongoing process delays and the need for time to implement the promised loan calculation guidance. It is unknown whether Congress will act on extending the application period, but as the expected stimulus bill gets finalized, we will know more and will keep you posted on future updates.

Your BMF Advisor is here to assist with loan applications and calculations no matter the size of your business.

About the Authors

James E. Merklin
James E. Merklin
Partner, Assurance and Advisory


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