Five Answers to Spending the PPP Money on You and Your Employees

1. Paying Myself

Question. In Government Clarifies PPP Loan Forgiveness for the Self-Employed, you state that I (as a sole proprietor with no employees) can achieve full forgiveness based solely on my 2019 Schedule C income in 10.8 weeks under the 24-week program. Do I have to pay myself every week for 10.8 weeks?

Answer. No. Let’s say your PPP loan is for $20,000. You could, for example, take $20,000 out of your business account in one lump sum and put that in your personal savings anytime during the 10.8-week period and then apply for forgiveness in week 11.

Because both your loan and forgiveness are based on your 2019 Schedule C net profit (yes, last year), you simply need to use the loan money for personal purposes. This is how you pay yourself and obtain loan forgiveness the easy way.

Sure, you need to use only 60 percent of the proceeds for yourself and could use 40 percent for interest, rent, and utilities. But think about it:

• Pay yourself only: simple paperwork.

• Pay interest, rent, and utilities: more rules and paperwork.

Keep it simple. Don’t make yourself suffer.

If you have only one checking account that you use for both business and personal purposes, you could take your loan proceeds out in one lump sum and deposit them in your personal savings account.

If you have just the one checking account and no other bank accounts, make sure to spend the PPP money on yourself.

Example. Sally is self-employed and obtains a loan of $20,833. She has one checking account and no other bank account. From the day that Sally obtains the loan until she applies for forgiveness in week 21, she spends $20,833 on groceries, personal mortgage payments, and clothes. Sally qualifies for full forgiveness based solely on her spending on herself.

2. Waiting to Spend

Question. I have a few self-employed clients who are about to receive their PPP loans. I’m wondering if they could wait a number of weeks before they spend their loan proceeds.

Let’s say they receive the PPP proceeds on August 1, 2020. Can they use the 24-week period and start on August 17, for 11 weeks? Would that be okay? And would it be eligible for forgiveness?

Answer. Yes, no problem. But let’s be clear:

• For PPP loans made on June 5 or later, the 24-week covered period is the rule (there’s no “can” here—no eight-week possibility).

• There’s no requirement that a Schedule C taxpayer spread out the payments.

• There’s no payroll or other impediment here.

Further, some experts claim that Schedule C taxpayers who obtain PPP cash don’t need to do anything to qualify for forgiveness.

We disagree. In Government Clarifies PPP Loan Forgiveness for the Self-Employed, we stated that we may suffer from unfounded paranoia (yes, unfounded is redundant, we know), but we look at the word “paid” in the forgiveness applications and feel a comfort level with use of the Schedule C deemed payroll amount for personal purposes.

3. Spending in Chunks

I read Government Clarifies PPP Loan Forgiveness for the Self-Employed. I am a Schedule C taxpayer with no employees. My PPP loan amount was deposited into my business checking account on May 19, 2020. I am not electing the eight-week covered period. Instead, I am choosing the 24-week covered period, which ends on November 2, 2020.

I have three questions.

Question 1. Can I write one check for every four weeks of payroll and deposit it in my personal checking account?

Answer 1. Yes—but this is not a payroll check. As a Schedule C taxpayer with no employees, you have no payroll. Your PPP loan was based on your 2019 net profit. And your forgiveness will be based on the same amount. You don’t need to spread out your payments.

Question 2. Does this check have to be cashed within that four-week period, or if it is written within that period, is that sufficient to apply for forgiveness?

Answer 2. In general, your check is a payment on the date it is written. Because you are dealing with yourself, you should ensure that the check is cashed soon after it is written.

Also, we don’t see any wisdom (in fact, just the opposite) in writing the check within the 24 weeks and then cashing it outside the 24 weeks.

Question 3. Your article states that I can use the loan amount for 11 weeks of payroll. Can I use it for four weeks in June, four weeks in September, and three weeks in October?

In other words, can I use the entire PPP loan amount during any 11 weeks of the 24-week period, or must I use it within the first 11 weeks of when the lender deposited the money in my business checking account?

Answer 3. You may use the PPP money at any time during any of the 24 weeks. In the article you reference, we used the first 11 weeks because that would be the time required for full forgiveness without spending any money on utilities, rent, or interest.

4. Got the PPP Money but Had a Loss in 2019

Question. My client is a Schedule C filer and in 2019 ran at a loss but withdrew $120,000 from the business as the business increased its debt position.

The owner’s draw amount was used to obtain a $120,000 PPP loan before the guidance was issued on how sole proprietors should calculate their pay. The owner had an employee as well.

If the business now has two employees, can both of those employees be used for the forgiveness application?

Answer. Yes, your client can use the two employees on the forgiveness application, and you can use 24 weeks of pay. In addition to payroll, 40 percent of the forgiveness can come from interest, rent, and utilities.

Example. Say the two-employee payroll for the 24 weeks totals $60,000 and the interest, rent, and utilities total $30,000. Your client would achieve $90,000 of forgiveness.

5. Applying for PPP Loan Forgiveness

Question. How do I apply for PPP loan forgiveness?

Answer. Depending on the attributes of your loan, you will complete SBA Form 3508EZ, SBA Form 3508, or a form designed by your lender, which should follow the SBA rules as you see them in the Forms 3508.