PPP Forgiveness Rounding Error for Self-Employed Individuals

There is some confusion over the amount that self-employed individuals are supposed to be paying themselves from the Paycheck Protection Loan.  The Interim Final Rules from the SBA say that the compensation to the sole proprietor filing on a Schedule C or Schedule F is the 2019 net income divided by 52 and then paid out 8 times.  For example if your net profit for 2019 was $45,000 your loan amount would be $9,375 and your weekly payment amount would be $865.  If you paid yourself that $865 eight times, you would receive a total of $6,920.

However, in order to have your loan fully forgiven the application says that 75% of the proceeds need to be used on payroll.  In regards to the PPP, the weekly payment to a self-employed individual is considered “payroll.”  In the example above, 75% of the loan would be $7,031.  You can see that this is $111 more than the 8 week payroll amount of $6,920.  It seems that this rounding error prohibits any loan from being fully forgiven.  This is a relatively minor issue and we hope it is addressed by the SBA in the coming weeks.  In the meantime, we are recommending that self-employed individuals pay themselves that additional amount in order to get their compensation up to 75% of the loan.  If this does not get fixed and this amount needs to be paid back then at least it would have went into the self-employed individuals account who is responsible for repaying the portion of the loan that wasn’t forgiven.

Please contact your CPA if you have questions about your specific situation.