1. PPP Loan Forgiveness Help Center
  2. Forgiveness Application Questions

I am a sole proprietor, independent contractor, or self-employed individual. How do I calculate payroll and nonpayroll costs?

Please note, if you received your PPP loan BEFORE March 3, 2021 and are a sole proprietor, independent contractor, or self-employed individual, you will be calculating with NET profit.

If you received your PPP loan AFTER  March 3, 2021 and are a sole proprietor, independent contractor, or self-employed individual, you will be calculating with GROSS profit.

Your approach to payroll depends on whether you have employees or not:

  • If you have no employees, review guidance "A" below
  • If you have employees, review guidance "B" below

 

A:

If I have no employees as a sole proprietor, independent contractor, or self-employed individual, how do I calculate payroll and nonpayroll costs?

If you  are a sole proprietor, independent contractor, or self-employed individual who had no employees at the time of the PPP loan application and did not include any employee salaries in your loan application, your "payroll cost" will be owner compensation replacement:

  • Owner compensation replacement is calculated based on your 2019 or 2020*profit**as described in this SBA guidance and can be forgiven up to:
    • (a) the prorated portion of 2019 or 2020 profit for a covered period up to 2.5 months, or
    • (b) 2.5 months’ worth (2.5/12) of 2019 or 2020 profit (up to $20,833) for a covered period greater than 2.5 months, excluding any qualified sick leave equivalent amount for which a credit is claimed under section 7002 of the Families First Coronavirus Response Act (FFCRA) (Public Law 116-127) or qualified family leave equivalent amount for which a credit is claimed under section 7004 of FFCRA

If your owner compensation replacement amount exceeds your PPP loan amount, you will only need to enter this amount in "payroll costs" and you will be eligible for full forgiveness of your PPP loan.

If your owner compensation replacement amount does not exceed your PPP loan amount, you will want to consider whether any of your nonpayroll costs paid or incurred during the Covered Period are eligible for forgiveness, and add those to your "payroll costs" when you request a forgiveness amount. Eligible nonpayroll costs include:

  • iii. payments of interest on mortgage obligations on real or personal property incurred before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C or F (business mortgage payments);
  • iv. rent payments on lease agreements in force before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C or F (business rent payments);
  • v. utility payments under service agreements dated before February 15, 2020 to the extent they are deductible on Form 1040 Schedule C or F (business utility payments);
  • vi. covered operations expenditures to the extent they are deductible on Form 1040 Schedule C or F;
  • vii. covered property damage costs to the extent they are deductible on Form 1040 Schedule C or F;
  • viii. covered supplier costs to the extent they are deductible on Form 1040 Schedule C or F;
  • ix. covered worker protection expenditures to the extent they are deductible on Form 1040 Schedule C or F. 

*For First Draw PPP loans made in 2020, borrowers use 2019. For First Draw PPP loans made in 2021 and Second Draw PPP Loans, borrowers use the year (2019 or 2020) that was used to calculate the borrower’s loan amount.

** For self-employed borrowers that file Form 1040, Schedule F and have no employees, gross income may be used instead of profit throughout this calculation.

 

B:

If I have employees and am an individual with self-employment income who files a Form 1040, Schedule C or F, how do I calculate payroll and nonpayroll costs?

For payroll costs, you will want to consider traditional payroll costs as well as owner compensation replacement:

  • i. payroll costs including salary, wages, and tips, up to $100,000 of annualized pay per employee, as prorated for the period during which the payments are made or the obligation to make the payments is incurred (maximum per individual is $100,000 prorated for the covered period, e.g., for an 8-week covered period a maximum of $15,385 and for a 24-week covered period a maximum of $46,154), as well as covered benefits for employees (but not owners), including health care expenses, retirement contributions, and state taxes imposed on employee payroll paid by the employer (such as unemployment insurance premiums), but excluding any qualified wages taken into account in determining the Employer Retention Credit;
  • ii. owner compensation replacement, calculated based on 2019 or 2020* profit** as described in this SBA guidance; forgiveness of such amounts is limited to either
    • (a) the prorated portion of 2019 or 2020 profit for a covered period up to 2.5 months, or
    • (b) 2.5 months’ worth (2.5/12) of 2019 or 2020 profit (up to $20,833) for a covered period greater than 2.5 months, excluding any qualified sick leave equivalent amount for which a credit is claimed under section 7002 of the Families First Coronavirus Response Act (FFCRA) (Public Law 116-127) or qualified family leave equivalent amount for which a credit is claimed under section 7004 of FFCRA;

For nonpayroll costs, you are eligible for forgiveness of:

  • iii. payments of interest on mortgage obligations on real or personal property incurred before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C or F (business mortgage payments);
  • iv. rent payments on lease agreements in force before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C or F (business rent payments);
  • v. utility payments under service agreements dated before February 15, 2020 to the extent they are deductible on Form 1040 Schedule C or F (business utility payments);
  • vi. covered operations expenditures to the extent they are deductible on Form 1040 Schedule C or F;
  • vii. covered property damage costs to the extent they are deductible on Form 1040 Schedule C or F;
  • viii. covered supplier costs to the extent they are deductible on Form 1040 Schedule C or F;
  • ix. covered worker protection expenditures to the extent they are deductible on Form 1040 Schedule C or F. 

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*For First Draw PPP loans made in 2020, borrowers use 2019. For First Draw PPP loans made in 2021 and Second Draw PPP Loans, borrowers use the year (2019 or 2020) that was used to calculate the borrower’s loan amount.

** For self-employed borrowers that file Schedule F and have employees, the difference between gross income and employee payroll costs may be used instead of gross profit throughout this calculation.

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See also: Are there caps on the amount of loan forgiveness available for owner-employees and self-employed individuals’ own payroll compensation?

See also: What documentation are borrowers who are individuals with self-employment income who file a Form 1040, Schedule C or F required to submit to their lender with their request for loan forgiveness?