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.