To aid small companies affected by COVID-19, the federal government approved the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which contains several programs aimed at providing financial support to small firms and their employees. One program established under the CARES Act is a lending program called the Paycheck Protection Programme (PPP), the Small Business Administration (SBA) (PPP).
Low-interest loans for small companies impacted by the COVID-19 (Coronavirus) epidemic, with the potential of credit compensation, are provided by the SBA PPP Loans. Keep reading to know how you can calculate your business’ maximum loan amount for PPP.
What Exactly is a PPP Loan?
SBA PPP loans enable small companies affected by COVID-19 to maintain employees on their payrolls by providing financial support. Payroll expenditures, mortgage interest, rent payments, utility payments, and/or interest on debt commitments made before 2/15/20 are all eligible for SBA PPP loans. Loan amounts are limited to 2.5 times your monthly payroll expenditures, and part or all of your loan may be forgiven. PPP loan payments are postponed until you apply for forgiveness and the SBA approves your forgiveness amount, but interest continues to accumulate during this period.
How to Calculate PPP Loan Amount? (Loan Amount Calculator)
In general, firms can get a loan of up to $2 million. The amount available to your company is equal to 2.5 times its typical monthly payroll expenditures. However, the computations can be more complicated than that simple equation suggests, because you’ll need to deduct any payroll expenditures that don’t qualify for PPP. Here’s a step-by-step approach to calculate the maximum loan amount your company may get under PPP.
Payroll Expenses that Qualify
To begin, you must identify your payroll expenditures that are eligible for PPP.
If you hire employees
The total amount of any remuneration paid to workers is a:
- Salary, pay, commission, or other such pay.
- Payment of a monetary gratuity or its equivalent.
- Vacation, parental, family, medical, or sick leave pay.
- Provision for dismissal or separation.
- Reimbursement for group health insurance and retirement benefits.
- Payment of state or local taxes levied on the employee’s salary.
If you are self-employed or an individual
Your net income should not be more than $100,000.
Payroll Expenses that do Not Qualify
Subtract your non-qualifying payroll expenditures from your eligible payroll costs. These are some examples:
- Individual employee compensation over $100,000 per year, Note that employer payments to healthcare and retirement benefits are not included in the amount judged more than $100,000 per year.
- Employer’s share of payroll taxes
- Any remuneration paid to an employee whose primary place of residence is outside the United States
- Qualified sick leave earnings allowable under section 7001 of the Families First Coronavirus Response Act (Public Law 116– 5 127) or qualified family leave wages allowable under section 7003 of the Families First Coronavirus Response Act.
Steps By Step Methodology of PPP Loan Amount Calculator
For Independent Contractors
Your yearly gross revenue as an independent contractor is reported on Line 7 of Schedule C. When applying, you must provide both your Schedule C and 1099-MISC forms for the year.
Even if you drive for Uber or pick up work on TaskRabbit, you are qualified for the PPP loan calculator.
Assume you were a freelance photographer. You got 1099-MISC forms from 15 events you worked at and your bookkeeping is up to current, so you may complete Schedule C. This is what you do:
- Step One: We will assist you in completing your Schedule C by utilizing your 1099-MISC papers and income statement. Assume your gross income on line 7 of Schedule C is $16,000 per year.
- Step two: Subtract $16,000 from 12 months. This equals $1,333.33. Fill out the “Average Monthly Payroll” box on your application with this information.
- Step three: Divide your typical monthly payroll amount by 2.5 to get $3,333.33. Fill out the “Loan Request” form with this information.
For Sole Proprietors
If you have a completed tax return, your year gross profit is stated on Line 7 of your Schedule C.
In case you do not have W2 employees, your average monthly payroll calculator expenditures are calculated solely on your gross profit. If you have W2 workers for whom you are remitting payroll taxes, you may additionally include their yearly wages if their principal home is in the United States. Keep in mind that both your employees and you are subject to the $100,000 pay maximum. If an employee’s pay or your gross profit exceeds $100,000, you can only use $100,000 in your calculations.
Remember that single-member LLCs are treated as sole proprietors in this context, just as they are when you submit your taxes. It’s also worth mentioning that if you and your spouse own a sole proprietorship, you cannot include your spouse in this application unless they are a W2 employee. You apply on behalf of the sole proprietorship’s lawful owner only if there are no W2 workers.
You are a sole proprietor who began operations in October of 2020 but did not begin to generate income until late 2020 or early 2021. You have no employees, only a few 1099 contractors. Through member draws, you’ve been paying yourself an informal payroll of $1500 each month. This is what you’d do:
- Step One: Because you didn’t start generating money until 2021, you’ll utilize your 2021 gross income. You complete your 2021 Schedule C with Taxfable’s assistance, using the income statement provided by your Taxfable bookkeeper. The net profit recorded on line 7 of your Schedule C after completion is $60,000. You do not include any sums taken as member draws in your pay.
- Step Two: Because you don’t have any workers, you can’t add any extra expenditures to this figure. Your 1099 contractors are not eligible for inclusion because they can apply for a PPP loan on their own.
- Step three: Divide your net profit of $60,000 by 12. This provides you with $5,000. On your PPP calculator application, you enter $5,000 in the “Average Monthly Payroll” section.
- Step four: Divide your typical monthly payroll by 2.5 to get $12,500. Fill out the “Loan Request” form to report this.
You apply for the PPP as a partnership if you manage an LLC with one or more other persons and have a written operational agreement outlining ownership percentages. Do not attempt to do this computation using your member drawings.
Use Schedule K-1 line 14—Self-Employment Income—as the individual wage for each partner. Remember to set a limit of $100,000 per member if necessary.
Include the cost of their wages, state and local payroll taxes, employer payments to health insurance benefits, sick pay, vacation pay, and severance if you have W2 workers. Keep in mind that all wages are subject to a $100,000 salary ceiling. You are not permitted to add any 1099 contractors or remote employees whose principal home is outside of the United States.
You and a partner own a firm that has been in operation for a few years. Also, you have W2 workers. You and your partner are not paid via payroll, but rather through company withdrawals. This is what you’d do:
- Step One: You must have a 2020 or 2021 Form 1065 on hand. Examine line 14 (Self-Employed Income) on both partners’ Schedule K-1s. Assume your Schedule K-1 Line 14 is $130,000 and your partners are $115,000. You may only include $100,000 for each of you due to the $100,000 restriction. So far, you have $200,000 in your account.
- Step two: Request an annual report from your payroll provider for 2019 or 2020. Because none of your workers earn more than $100,000, they do not need to be capped. You can also add state payroll taxes, health insurance costs, retirement contributions, sick and vacation time, and severance compensation. Let’s assume this all comes up to $120,000 in total. Add this to $200,000 to get $320,000.
- Step three: Divide $320,000 by twelve. This equals $26,666.67. In your PPP application, enter this into the “Average Monthly Payroll” section.
- Step four: Divide $26,666.67 by 2.5 to arrive at $66,666.67. Fill out the “Loan Request” form with this information.
- Step five: Assume your firm is busiest during the summer for three months and you have six people on staff. You only have three for the remainder of the year. You can use an average figure that spans all twelve months, which will round to four in this example. Fill in the “Number of Employees” box with this figure.
For S Corp
It is crucial to understand that as an S corporation, your shareholder dividends are not considered salary. If you own an S business and have not been paying yourself a salary through payroll, which means you have not been remitting payroll taxes on your wages, you are not eligible for a salary covered by the PPP.
Wages, when the company remits payroll taxes, are eligible payroll expenditures for the PPP. As an S corporation, the only way to repay payroll taxes is through payroll; you do not pay payroll or self-employment taxes on dividends.
You can include yourself as an employee in your calculations if you have been utilizing a payroll provider to pay out your salary. Remember that no single employee may earn more than $100,000 for this computation. You must limit any workers who earn more than $100,000, including yourself, to $100,000. You may next add in your relevant payroll expenditures, such as group health insurance premiums, retirement contributions, state and local payroll taxes, vacation pay, paid sick leave, and severance compensation.
You are the sole proprietor of an S corporation that has been in existence since the beginning of 2021. You only had one employee at the start of 2020—yourself—but you grew to hire three more over the year. What you’ll do is as follows:
- Step One: Request a 2021 yearly report from your payroll source. Your workers’ incomes do not need to be limited because none of them earn more than $100,000. You can also add state payroll taxes, health insurance costs, retirement contributions, sick and vacation time, and severance compensation. Assume your entire 2019 payroll expenditures, including your salary, are $150,000.00.
- Step two: Divide $150,000 by twelve. This provides you $12,500, which you enter into the PPP application’s “Average Monthly Payroll” section.
- Step three: Divide $12,500 by 2.5 to get your “Loan Request” amount. In this example, the amount is $31,250.
- Step four: To calculate your staff count, take the average number of employees you had in 2019 or 2020. The simplest approach to calculate an average is to sum the total number of workers for each month of the year and divide it by 12.
For C Corp
A salary is only counted for a C corp owner if payroll tax is deposited on your compensation. Dividends, shareholder loans, and other owner withdrawals are not considered salary. Why? Because the PPP primarily relies on payroll taxes to determine payroll expenses.
As a C corporation, there is a distinction between the owner and the business. Neither of these levies is a payroll tax. If you run a C corporation, the IRS requires you to pay yourself a reasonable compensation through payroll.
You can include yourself as an employee in your calculations if you have been utilizing a payroll provider to pay out your salary. For this computation, no one employee may earn more than $100,000, thus you must cap any workers earning more than $100,000, including yourself. Next, you may add in your relevant payroll expenditures, such as group health insurance premiums, retirement contributions, vacation pay, paid sick leave, and severance compensation.
You own a C corporation and are the sole employee. Your company began operations in September of 2020.
- Step One: Let’s start with the year you should use. Because your company was in operation for the whole year of 2021, it is appropriate to utilize the payroll figures from that year.
- Step Two: As the sole employee, you just have your payment to consider. Assume your salary in 2020 is $120,000. You must limit this compensation to $100,000. Divide $100,000 by 12, and you’ll get an “Average Monthly Payroll” of $8.333.33 to enter into your PPP application.
- Step Three: Divide $8.333.33 by 2.5 to get your “Loan Request” total of $20,833.33.
For PPP Loan Forgiveness you can use this PPP loan forgiveness calculator method, you have to do the following:
- Spend at least 60% of the budget on wages.
- You have to spend the remaining 40% on allowable costs.
- Show your receipts for the costs you incurred as a result of the loan.
- The simplest approach to demonstrate your costs is to have bookkeeping done throughout the time you spend the loan cash. For this you can opt for online bookkeeping services provider for monthly bookkeeping.
We have reached the end of this blog post. Hope you found everything you were looking for. If you still have any doubts or queries, you can ask them in the comment section. We are happy to help you.