The Payroll Protection Program: Expert Tips for the Self-Employed

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By Richard Winchester

If you are self-employed and have no workforce of your own, you are among the smallest of small businesses.  Congress made a special effort to provide people like you with some form of relief from the financial hardships you may suffer as a result of the economic fallout precipitated by the coronavirus pandemic.  The Payroll Protection Program is one of those measures.  Although it didn’t provide much relief to people like you when it was first launched, the government made a couple of changes that should improve the chances that every self-employed person will get the money they need.  Here are some tips to keep in mind.

Apply Now

When it replenished the funding for the PPP, Congress set aside a portion of the money for community banks to pay out.  This should reduce the competition that self-employed and other small businesses experienced up to now.  Under the original version of the PPP, the government relied primarily on the existing network of lenders who are approved to make loans backed by the Small Business Administration.  However, those lenders had an incentive to make loans to large firms with an existing banking relationship.  That left thousands of small businesses cut out.  Self-employed persons should now have a fighting chance.  Still, anyone who is self-employed should apply quickly because the funds are limited, and the money will be paid out on a first-come-first-serve basis.  

Find a Lender

Your first task is to find a lender. Fortunately, the SBA has launched a tool that should help. Keep in mind that the network of lenders may grow over the coming days and weeks as community banks and other non-traditional SBA lenders gear up to offer the program.

Compute Your Loan Amoun

You will need to prove how much you are eligible to receive.  It’s important to correctly compute that amount because you can only obtain one PPP loan.  Ideally, the lender will accept your tax return for 2019 showing the earnings that were used to compute your self-employment tax.  That is essentially the payroll tax for self-employed individuals.  If you don’t have that paperwork, the government is allowing banks to accept other documents to show how much an applicant earned from the business.  However, there’s no way to know what procedures any particular lender will follow.  You just have to ask.

The loan amount is limited to 2.5 times your average monthly earnings from your business.  However, if you earn more than $100,000 in a year from the business, only the first $100,000 can be used to determine your average monthly earnings. 

Document How You Spend the Money

You will not have to pay back a PPP loan if you use at least 75 percent of the money on “payroll costs.” You also have to use the rest on certain operating expenses like rent, utilities and interest on debt.  It is not entirely clear how a self-employed individual will document that they have spent the money on payroll for themselves.  Therefore, you should seek clarity from your lender up front about the kinds of records you should keep.  

Worst Case Scenario

If you don’t spend the money on eligible items, or if you don’t adequately document what you did, then you will have to return a portion of the funds with interest.  Repayments will start 6 months after the day the funds were disbursed.  Interest will accrue from that same day at an annual rate of 1 percent.  You will have two years to repay whatever you will owe.

Richard Winchester is a Visiting Professor of Law at Seton Hall University School of Law and is a national authority on small business and federal employment tax policy. His work is frequently cited by media (New York Times, CNBC, Yahoo Finance, Money, Fortune, etc. ) and in Congressional Reports on tax matters. Prior to teaching Winchester worked as a corporate tax attorney for PricewaterhouseCoopers in its National Tax Office. Read more.

A link to a summary of Professor Winchester’s recent work with media concerning the COVID-19 stimulus package and payments to small business and individuals may be found online at