Knowledge and Insights

I’m Self-Employed, How Will the Paycheck Protection Program Help Me?


The Paycheck Protection Program (PPP) is a potentially forgivable loan designed to support small businesses (in operation as of February 15, 2020) with immediate cash during the worst of the COVID-19 crisis. The U.S. Small Business Administration (SBA) will forgive loans if employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.  The loan amount is based on your average monthly payroll expense multiplied by 2.5. Under the PPP, your payroll expense can include your salary expenses and health insurance premiums.

Sole proprietors, independent contractors, and self-employed persons are eligible to apply for a PPP loan.  However, it is important to note that you cannot receive both unemployment benefits and a PPP loan at the same time so you should consider the payout of each program to determine which is best for you.

Sole Proprietors

As a sole proprietor, you won’t be reporting “payroll costs” for the PPP loan because you don’t have any employees.  Instead, you will need to report your net business income listed on Schedule C within your personal tax return.

If you operate as a sole proprietorship informally with a spouse, you can only apply for a PPP loan once, and your spouse would not be considered to have a salary through the business unless he or she was paid as a contractor prior to February 15, 2020.

1099 Independent Contractors

As a 1099 independent contractor, your freelance income is reported on Schedule C within your personal tax return, which is based on the 1099-MISC forms you obtained from the individuals and entities who contracted your services.  Your salary is determined by the net profit reported on line 31 of Schedule C.

Along with your completed PPP loan application, your lender will want copies of documents related to wages, commissions, income, or net earnings from self-employment, as follows:

  • Sole proprietorships will need to submit a Schedule C from their 2019 tax return filed (or to be filed) showing income and expenses from the sole proprietorship.
  • Independent contractors will need to submit schedules from their 2019 tax return filed (or to be filed) as well as Form 1099-MISC from 2019.
  • All self-employed individuals will need to submit 2019 payroll tax filings reported to the Internal Revenue Service.

PPP funding can be used to cover your office lease, rent, or mortgage interest provided it existed before February 15, 2020.  If you have a home office, you can claim a portion of the expenses, namely the percentage of your home used as a home office. However, if you want to have your loan forgiven, you must spend at least 75% of the PPP funds on payroll costs (and the remaining 25% on rent, mortgage interest, and/or utilities).

If you’re a sole proprietor, 75% of the loan becomes an immediate replacement for lost profit and doesn’t need to be spent in a specific way but the remaining 25% must be spent accordingly.

As of today, April 16, 2020, the Paycheck Protection Program is closed and is not taking new applications. The federal government is considering adding new funds to re-open the PPP, but no official announcement has been made yet. In the meantime, completing your 2019 bookkeeping and tax return tasks is recommended to put yourself in the best position to apply for the PPP once reloaded.

Your Mercadien advisor can help you prepare PPP loan calculations, compile the necessary documentation, complete and submit the application and help you assess other relief options available. Mercadien is also available to assist you in evaluating your budget and cash flow needs, working as an advisor and sounding board to help you manage your way through the upcoming months.  Complete the COVID-19 Assistance Request form on our website  or contact Frank Pina, CPA at or 609-689-2319 to get started.


DISCLAIMER: This advisory resource is for general information purposes only. It does not constitute business or tax advice, and may not be used and relied upon as a substitute for business or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified accountant, tax practitioner or attorney licensed to practice in the jurisdiction where that advice is sought.