How to Calculate Maximum Loan Amounts for First Draw PPP Loans and What Documentation to Provide
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A Paycheck Protection Program guidance document dated As of March 12, 2021, headed How to Calculate Maximum Loan Amounts for First Draw PPP Loans and What Documentation to Provide, by Business Type. It states that the Small Business Administration, in consultation with the Department of the Treasury, is providing updated guidance to help businesses calculate their payroll costs and the documentation required to support each calculation for a First Draw PPP loan. It states that borrowers and lenders may rely on the guidance as SBA's interpretation of the CARES Act, the Economic Aid Act and the Paycheck Protection Program Interim Final Rules.
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“How to Calculate Maximum Loan Amounts for First Draw PPP Loans and What Documentation to Provide.”
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As of March 12, 2021
PAYCHECK PROTECTION PROGRAM
HOW TO CALCULATE MAXIMUM LOAN AMOUNTS FOR FIRST DRAW
PPP LOANS AND WHAT DOCUMENTATION TO PROVIDE – BY BUSINESS TYPE
The Small Business Administration (SBA), in consultation with the Department of the Treasury,
is providing this updated guidance to assist businesses in calculating their payroll costs (and the
relevant documentation that is required to support each set of calculations) for purposes of
determining the maximum amount of a First Draw Paycheck Protection Program (PPP) loan for
each type of business.
Borrowers and lenders may rely on the guidance provided in this document as SBA’s
interpretation of the CARES Act, the Economic Aid Act, and of the Paycheck Protection
Program Interim Final Rules. The U.S. government will not challenge lender PPP actions that
conform to this guidance 1 and to the PPP Interim Final Rules and any subsequent rulemaking in
effect at the time the action is taken.
The guidance describes payroll costs using calendar year 2019 as the reference period for
payroll costs used to calculate loan amounts. However, borrowers are permitted to use payroll
costs from either calendar year 2019 or calendar year 2020 for their First Draw PPP Loan
amount calculation. 2 Documentation, including IRS forms, must be supplied for the selected
reference period.
1. Question: I am self-employed and have no employees, how do I calculate my
maximum First Draw PPP Loan amount if I use net profit? (Note that PPP loan
forgiveness amounts will depend, in part, on the total amount spent by the borrower
during the covered period following disbursement of the PPP loan.)
Answer: The following methodology should be used to calculate the maximum amount
that can be borrowed if you are self-employed and have no employees, and your
principal place of residence is in the United States, including if you are an independent
contractor or operate a sole proprietorship, and you use net profit (but not if you are a
partner in a partnership):
• Step 1: Find your 2019 IRS Form 1040 Schedule C line 31 net profit amount. 3 If
this amount is over $100,000, reduce it to $100,000. If this amount is zero or less,
you are not eligible for a PPP loan.
• Step 2: Calculate the average monthly net profit amount (divide the amount from
Step 1 by 12).
1
This document does not carry the force and effect of law independent of the statutes and regulations on which it is
based.
2
All components of payroll costs must be from the same calendar year. Payroll costs, including for covered
benefits, can only be included for employees whose principal place of residence is in the United States.
3
If you are using 2020 amounts and have not yet completed a 2020 return, fill out the required portions and compute
the values.
As of March 12, 2021
• Step 3: Multiply the average monthly net profit amount from Step 2 by 2.5.
• Step 4: Add the outstanding amount of any Economic Injury Disaster Loan (EIDL)
made between January 31, 2020 and April 3, 2020 that you seek to refinance. Do
not include the amount of any advance under an EIDL COVID-19 loan (because it
does not have to be repaid).
Your 2019 IRS Form 1040 Schedule C must be provided to substantiate the applied-for
PPP loan amount. You must also provide a 2019 IRS Form 1099-MISC detailing
nonemployee compensation received (box 7), IRS Form 1099-K, invoice, bank
statement, or book of record establishing you were self-employed in 2019 and a 2020
invoice, bank statement, or book of record establishing you were in operation on
February 15, 2020.
2. Question: I am self-employed and have employees, how do I calculate my maximum
First Draw PPP Loan amount (up to $10 million) if I use net profit? (Note that PPP loan
forgiveness amounts will depend, in part, on the total amount spent by the borrower
during the covered period following disbursement of the PPP loan.)
Answer: The following methodology should be used to calculate the maximum amount
that can be borrowed if you are self-employed with employees, including if you are an
independent contractor or operate a sole proprietorship and use net profit (but not if you
are a partner in a partnership):
• Step 1: Compute your 2019 payroll costs by adding the following:
o 2019 IRS Form 1040 Schedule C line 31 net profit amount: 4
• if this amount is over $100,000, reduce it to $100,000,
• if this amount is less than zero, set this amount at zero;
o 2019 gross wages and tips paid to your employees whose principal place of
residence is in the United States, up to $100,000 per employee, which can be
computed using:
• 2019 IRS Form 941 Taxable Medicare wages & tips (line 5c-
column 1) from each quarter,
• Plus any pre-tax employee contributions for health insurance or
other fringe benefits excluded from Taxable Medicare wages &
tips, and
• Minus (i) any amount paid to any individual employee in excess of
$100,000, and (ii) any amounts paid to any employee whose
principal place of residence is outside the United States;
o 2019 employer contributions for employee group health, life, disability,
vision, and dental insurance (the portion of IRS Form 1040 Schedule C
4
If you are using 2020 payroll costs and have not yet completed a 2020 return, fill it out and compute the value.
As of March 12, 2021
line 14 attributable to those contributions);
o 2019 employer contributions to employee retirement plans (IRS Form 1040
Schedule C line 19); and
o 2019 employer state and local taxes assessed on employee compensation,
primarily state unemployment insurance tax (from state quarterly wage
reporting forms).
• Step 2: Calculate the average monthly payroll costs amount (divide the amount
from Step 1 by 12).
• Step 3: Multiply the average monthly payroll costs amount from Step 2 by 2.5.
• Step 4: Add the outstanding amount of any EIDL made between January 31, 2020
and April 3, 2020 that you seek to refinance. Do not include the amount of any
advance under an EIDL COVID-19 loan (because it does not have to be repaid).
Your 2019 IRS Form 1040 Schedule C, IRS Form 941 and state quarterly wage
unemployment insurance tax reporting form from each quarter (or equivalent payroll
processor records or IRS Wage and Tax Statements), along with documentation of any
retirement or group health, life, disability, vision, and dental contributions, must be
provided to substantiate the applied-for PPP loan amount. A payroll statement or
similar documentation from the pay period that covered February 15, 2020 must be
provided to establish you were in operation and had employees on that date.
3. Question: I am a self-employed farmer or rancher who reports my income on IRS
Form 1040 Schedule F. What documentation must I provide in place of Schedule C and
how should my maximum loan amount be determined (up to $10 million)?
Answer: Self-employed farmers and ranchers (i.e., those who report their net farm
profit on IRS Form 1040 Schedule 1 and Schedule F) should use IRS Form 1040
Schedule F in lieu of Schedule C.
The calculation for self-employed farmers and ranchers without employees is the same
as for Schedule C filers that have no employees, except that Schedule F line 9 (gross
income) should be used to determine the loan amount rather than Schedule C line 31
(net profit).
The calculation for self-employed farmers and ranchers with employees is the same as
for Schedule C filers that have employees with several exceptions. First, in place of
Schedule C line 31 (net profit), the difference between Schedule F line 9 (gross income)
and the sum of Schedule F lines 15, 22, and 23 (for employee payroll) should be used.
Second, employer contributions for employee group health, life, disability, vision and
dental insurance (portion of Schedule F line 15 attributable to those contributions) and
employer contributions for employee retirement contributions (Schedule F line 23)
should be used in place of those respective lines on Schedule C.
As of March 12, 2021
The documentation requirements are the same as for Schedule C filers except the 2019
IRS Form 1040 Schedule 1 and Schedule F must be included with the loan application
in place of IRS Form 1040 Schedule C. Additionally, for farmers and ranchers with
employees, IRS Form 943 should be provided in addition to, or in place of, IRS Form
941, as applicable.
4. Question: How do partnerships apply for PPP loans, and how is the maximum First
Draw PPP Loan amount calculated for partnerships (up to $10 million)? Should
partners’ self- employment income be included on the business entity level PPP loan
application or on separate PPP loan applications for each partner? (Note that PPP loan
forgiveness amounts will depend, in part, on the total amount spent during the covered
period following disbursement of the PPP loan.)
Answer: The following methodology should be used to calculate the maximum amount
that can be borrowed for partnerships (partners’ self-employment income should be
included on the partnership’s PPP loan application; individual partners may not apply
for separate PPP loans):
• Step 1: Compute 2019 payroll costs by adding the following:
o 2019 Schedule K-1 (IRS Form 1065) Net earnings from self-employment of
individual U.S.-based general partners that are subject to self-employment
tax, multiplied by 0.9235, 5 up to $100,000 per partner: 6
• Compute the net earnings from self-employment of individual
U.S.-based general partner that are subject to self-employment tax
from box 14, Code A of IRS Form 1065 Schedule K-1 and subtract
(i) any section 179 expense deduction claimed in box 12; (ii) any
unreimbursed partnership expenses claimed; and (iii) any depletion
claimed on oil and gas properties;
• if this amount is over $100,000, reduce it to $100,000;
• if this amount is less than zero, set this amount at zero;
o 2019 gross wages and tips paid to employees whose principal place of
residence is in the United States (if any), up to $100,000 per employee,
which can be computed using:
• 2019 IRS Form 941 Taxable Medicare wages & tips (line 5c-
column 1) from each quarter,
• Plus any pre-tax employee contributions for health insurance or
other fringe benefits excluded from Taxable Medicare wages &
tips, and
• Minus any amounts paid to any individual employee in excess of
5
This treatment follows the computation of self-employment tax from IRS Form 1040 Schedule SE Section A line 4
and removes the “employer” share of self-employment tax, consistent with how payroll costs for employees in the
partnership are determined.
6
If the partnership is using 2020 payroll costs and the Form 1065 for 2020 has not yet been completed, fill out the
form.
As of March 12, 2021
$100,000 and any amounts paid to any employee whose principal
place of residence is outside the United States;
o 2019 employer contributions for employee (but not partner) group health,
life, disability, vision, and dental insurance, if any (portion of IRS Form
1065 line 19 attributable to those contributions);
o 2019 employer contributions to employee (but not partner) retirement plans,
if any (IRS Form 1065 line 18); and
o 2019 employer state and local taxes assessed on employee compensation,
primarily state unemployment insurance tax (from state quarterly wage
reporting forms), if any.
• Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1
by 12).
• Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5.
• Step 4: Add any outstanding amount of any EIDL made between January 31, 2020
and April 3, 2020 that you seek to refinance. Do not include the amount of any
advance under an EIDL COVID-19 loan (because it does not have to be repaid).
The partnership’s 2019 IRS Form 1065 (including K-1s) must be provided to
substantiate the applied-for First Draw PPP Loan amount. If the partnership has
employees, other relevant supporting documentation, including the 2019 IRS Form 941
and state quarterly wage unemployment insurance tax reporting form from each quarter
(or equivalent payroll processor records or IRS Wage and Tax Statements) along with
records of any retirement or group health, life, disability, vision, and dental insurance
contributions must also be provided to substantiate the First Draw PPP Loan amount. If
the partnership has employees, a payroll statement or similar documentation from the
pay period that covered February 15, 2020 must be provided to establish the partnership
was in operation and had employees on that date. If the partnership has no employees,
an invoice, bank statement, or book of record establishing the partnership was in
operation on February 15, 2020 must instead be provided.
5. Question: How is the maximum First Draw PPP Loan amount calculated for S
corporations and C corporations (up to $10 million)? (Note that PPP loan forgiveness
amounts will depend, in part, on the total amount spent during the covered period
following disbursement of the PPP loan.)
Answer: The following methodology should be used to calculate the maximum amount
that can be borrowed for corporations, including S and C corporations:
• Step 1: Compute 2019 payroll costs by adding the following:
o 2019 gross wages and tips paid to your employees whose principal place of
residence is in the United States, up to $100,000 per employee, which can be
computed using:
As of March 12, 2021
• 2019 IRS Form 941 Taxable Medicare wages & tips (line 5c-
column 1) from each quarter,
• Plus any pre-tax employee contributions for health insurance or
other fringe benefits excluded from Taxable Medicare wages &
tips,
• Minus (i) any amounts paid to any individual employee in excess
of $100,000, and (ii) any amounts paid to any employee whose
principal place of residence is outside the United States;
o 2019 employer group health, life, disability, vision, and dental insurance
contributions (portion of IRS Form 1120 line 24 or IRS Form 1120-S line 18
attributable to those contributions); 7
o 2019 employer retirement contributions (IRS Form 1120 line 23 or IRS
Form 1120-S line 17); and
o 2019 employer state and local taxes assessed on employee compensation,
primarily state unemployment insurance tax (from state quarterly wage
reporting forms).
• Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1
by 12).
• Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5
• Step 4: Add the outstanding amount of any EIDL made between January 31, 2020
and April 3, 2020 that you seek to refinance. Do not include the amount of any
advance under an EIDL COVID-19 loan (because it does not have to be repaid).
The corporation’s 2019 IRS Form 941 and state quarterly wage unemployment
insurance tax reporting form from each quarter (or equivalent payroll processor records
or IRS Wage and Tax Statements), along with the filed business tax return (IRS Form
1120 or IRS 1120-S) or other documentation of any retirement and group health, life,
disability, vision, and dental insurance contributions, must be provided to substantiate
the applied-for PPP loan amount. A payroll statement or similar documentation from
the pay period that covered February 15, 2020 must be provided to establish you were in
operation and had employees on that date.
6. Question: How is the maximum First Draw PPP Loan amount calculated for eligible
nonprofit organizations (up to $10 million)? (Note that PPP loan forgiveness amounts
will depend, in part, on the total amount spent during the covered period following
disbursement of the PPP loan.)
Answer: The following methodology should be used to calculate the maximum amount
that can be borrowed for eligible nonprofit organizations (eligible nonprofit religious
7
Note that employer contributions for group health, life, disability, vision, and dental insurance for S-Corporation
employees who own more than a 2 percent stake in the business (or employees who are family members of such
owners) are not included in this figure as such contributions are already included in gross wages.
As of March 12, 2021
institutions or other eligible nonprofits without an IRS Form 990 filing requirement, see
the next question):
• Step 1: Compute 2019 payroll costs by adding the following:
o 2019 gross wages and tips paid to your employees whose principal place of
residence is in the United States, up to $100,000 per employee, which can be
computed using:
• 2019 IRS Form 941 Taxable Medicare wages & tips (line 5c-
column 1) from each quarter,
• Plus any pre-tax employee contributions for health insurance or
other fringe benefits excluded from Taxable Medicare wages &
tips, and
• Minus (i) any amounts paid to any individual employee in excess
of $100,000, and (ii) any amounts paid to any employee whose
principal place of residence is outside the U.S.;
o 2019 employer group health, life, disability, vision, and dental insurance
contributions (portion of IRS Form 990 Part IX line 9 attributable to those
contributions);
o 2019 employer retirement contributions (IRS Form 990 Part IX line 8); and
o 2019 employer state and local taxes assessed on employee compensation,
primarily state unemployment insurance tax (from state quarterly wage
reporting forms).
• Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1
by 12).
• Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5.
• Step 4: Add the outstanding amount of any EIDL made between January 31, 2020
and April 3, 2020 that you seek to refinance. Do not include the amount of any
advance under an EIDL COVID-19 loan (because it does not have to be repaid).
The nonprofit organization’s 2019 IRS Form 941 and state quarterly wage
unemployment insurance tax reporting form from each quarter (or equivalent payroll
processor records or IRS Wage and Tax Statements), along with the filed IRS Form 990
Part IX or other documentation of any retirement and group health, life, disability,
vision, and dental insurance contributions, must be provided to substantiate the applied-
for PPP loan amount. A payroll statement or similar documentation from the pay period
that covered February 15, 2020 must be provided to establish you were in operation and
had employees on that date. Eligible nonprofits that file IRS Form 990-EZ should rely
on that form and those that do not file an IRS Form 990 or 990-EZ, typically those with
gross receipts less than $50,000, should see the next question.
As of March 12, 2021
7. Question: How is the maximum First Draw PPP Loan amount calculated for eligible
nonprofit religious institutions, veterans organizations, and tribal businesses (up to $10
million)? (Note that PPP loan forgiveness amounts will depend, in part, on the total
amount spent during the covered period following disbursement of the PPP loan.)
Answer: The following methodology should be used to calculate the maximum amount
that can be borrowed for eligible nonprofit religious institutions, veterans organizations
and tribal businesses:
• Step 1: Compute 2019 payroll costs by adding the following:
o 2019 gross wages and tips paid to employees whose principal place of
residence is in the United States, up to $100,000 per employee, which can be
computed using:
• 2019 IRS Form 941 Taxable Medicare wages & tips (line 5c-
column 1) from each quarter,
• Plus any pre-tax employee contributions for health insurance or
other fringe benefits excluded from Taxable Medicare wages &
tips, and
• Minus (i) any amounts paid to any individual employee in excess
of $100,000, and (ii) any amounts paid to any employee whose
principal place of residence is outside the United States;
o 2019 employer group health, life, disability, vision, and dental insurance
contributions;
o 2019 employer retirement contributions; and
o 2019 employer state and local taxes assessed on employee compensation,
primarily state unemployment insurance tax (from state quarterly wage
reporting forms).
• Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1
by 12).
• Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5.
• Step 4: Add any outstanding amount of any EIDL made between January 31, 2020
and April 3, 2020 that you seek to refinance. Do not include the amount of any
advance under an EIDL COVID-19 loan (because it does not have to be repaid).
The entity’s 2019 IRS Form 941 and state quarterly wage unemployment insurance tax
reporting form from each quarter (or equivalent payroll processor records or IRS Wage
and Tax Statements), along with documentation of any retirement and group health, life,
disability, vision, and dental insurance contributions, must be provided to substantiate
the applied-for PPP loan amount. A payroll statement or similar documentation from
As of March 12, 2021
the pay period that covered February 15, 2020 must be provided to establish you were in
operation and had employees on that date.
8. Question: I am an LLC owner. Which set of instructions applies to me?
Answer: LLCs should follow the instructions that apply to their tax filing status in the
reference period used to calculate payroll costs (2019 or 2020)—i.e., whether the LLC
filed (or will file) as a sole proprietor, a partnership, or a corporation in the reference
period.
9. Question: What other documentation can an applicant provide for the purpose of
substantiating payroll costs used to calculate the applied-for First Draw PPP Loan
amount?
Answer: An applicant may provide IRS Form W-2s and IRS Form W-3 or payroll
processor reports, including quarterly and annual tax reports, in lieu of IRS Form 941.
Additionally, very small businesses that file an annual IRS Form 944 or agricultural
employers that file an annual IRS Form 943 should rely on and provide IRS Form 944
or IRS Form 943 in lieu of IRS Form 941.
An applicant may provide records from a retirement administrator to document
employer retirement contributions. An applicant may also provide records from a health
insurance company or third-party administrator for a self-insured plan to document
employer health insurance contributions.
10. Question: I am a corporation or nonprofit and was in operation on February 15, 2020,
but was not in operation between February 15, 2019, and June 30, 2019. What
reference period should I be using to compute my First Draw PPP Loan amount?
Answer: In this case, you may choose one of two ways to calculate your First Draw
PPP Loan amount. The first option is for borrowers to follow the applicable instructions
in Questions 5, 6, 7 and use payroll information for all of 2020 instead of 2019. The
second option is for borrowers to calculate their loan amount using their average
monthly payroll costs incurred in January and February 2020. For borrowers choosing
the second option, the following methodology should be used to calculate the maximum
amount that you can borrow:
• Step 1: Compute January and February 2020 payroll costs by adding the following:
o Gross pay to employees for those two months whose principal place of
residence is in the United States, up to $16,667 per employee;
o Employer group health, life, disability, vision, and dental insurance
contributions for those two months;
o Employer retirement contributions for those two months; and
o Employer state and local taxes assessed on employee compensation for those
two months, primarily state unemployment insurance tax.
As of March 12, 2021
• Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1
by 2).
• Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5.
• Step 4: Add any outstanding amount of any EIDL made between January 31, 2020
and April 3, 2020 that you seek to refinance. Do not include the amount of any
advance under an EIDL COVID-19 loan (because it does not have to be repaid).
If you choose the second option, you must provide payroll records from January and
February 2020, your IRS Form 941 for the first quarter of 2020, and documentation of
any employer retirement and group health, life, disability, vision, and dental insurance
contributions from that period.
11. Question: I am self-employed (or a partnership) and was in operation on February 15,
2020, but was not in operation between February 15, 2019, and June 30, 2019. I have
filed or will file a Form 1040 Schedule C or Schedule F (or Form 1065) for 2020. What
reference period should I be using to compute my First Draw PPP Loan amount?
Answer: In this case, you may choose one of two ways to calculate your First Draw
PPP Loan amount. The first option is for borrowers to follow the applicable instructions
in Questions 1 through 4 (or Questions 15 and 16 if you use gross income and file
Schedule C) and use payroll information for all of 2020 instead of 2019. The second
option is for borrowers to calculate their loan amount using their average monthly
payroll costs incurred in January and February 2020.
For borrowers choosing the second option that file Schedule C and use net profit, the
following methodology should be used to calculate the maximum amount that you can
borrow:
• Step 1: Fill out an IRS Form 1040 Schedule C for January and February 2020. The
entries on the schedule must reflect all business income and expenses from those
two months, with the exception that on Schedule C line 13:
o you must include only 1/6 of the amount of any annual depreciation and
section 179 expense deduction attributable to investment made in those
months, and
o you must include 1/6 of the amount of the 2020 depreciation deduction
attributable to investment made in prior years.
• Step 2: Take the net profit amount for January and February on Schedule C line 31.
o If this amount is more than $16,667 for the two months combined, set it to
$16,667.
o If this amount is less than 0 for the two months combined, set it to 0.
• Step 3: If you have employees, add your employee payroll costs for January and
February 2020 to the result in Step 2. Only include payroll costs for those
As of March 12, 2021
employees whose principal place of residence is in the United States and up to
$16,667 of gross pay per employee.
• Step 4: Divide the total by 2, and then multiply it by 2.5.
• Step 5: Add the outstanding amount of any EIDL made between January 31, 2020
and April 3, 2020 that you seek to refinance, less the amount of any advance under
an EIDL COVID-19 loan (because it does not have to be repaid).
Your IRS Form 1040 Schedule C as completed must be provided to your lender when
you apply for a PPP loan. This information should be consistent with what you will
submit to the IRS and must be true and accurate in all material respects. You must also
supply bank statements from your business account(s) for the months of January and
February 2020 to substantiate your net profit amount from Schedule C. If you have
employees, you also must provide payroll records from those two months, your IRS
Form 941 for the first quarter of 2020, and documentation of any employer retirement
and group health, life, disability, vision, and dental insurance contributions made on
behalf of employees.
Schedule C filers that applied for a PPP loan using SBA Form 2483-C or 2483-SD-C
should use the same methodology as above but replace net profit from Step 2 with the
gross income amount on Schedule C line 7 (if no employees) or the difference between
the gross income amount on Schedule C line 7 and employee payroll costs from the sum
of Schedule C lines 14, 19, and 26 (if you have employees). 8 Documentation
requirements are the same as above.
Schedule F filers should use the same methodology as above but complete a Schedule F
in Step 1 and replace net profit from Step 2 with the gross income amount on Schedule
F line 9 (if no employees) or the difference between the gross income amount on
Schedule F line 9 and employee payroll costs from the sum of Schedule F lines 15, 22,
and 23 (if you have employees). Documentation requirements are the same as above
except Schedule F as completed must be provided in place of Schedule C.
Partnerships should use the same methodology as above but complete a Form 1065 in
Step 1 and replace net profit from Step 2 with the net earnings from self-employment for
each individual U.S.-based general partners (the difference between box 14, Code A of
IRS Form 1065 K-1 and the sum of (i) any section 179 expense deduction claimed in
box 12; (ii) any unreimbursed partnership expenses claimed; and (iii) any depletion
claimed on oil and gas properties) multiplied 0.9235. Documentation requirements are
the same as above except Form 1065 as completed must be provided in place of
Schedule C.
8
Any other employee payroll costs not reported on those lines but included in line 28 total expenses must also be
subtracted from gross income.
As of March 12, 2021
12. Question: In addition to pre-tax employee contributions for health insurance, what are
the other pre-tax employee contributions for fringe benefits that may have been
excluded from IRS Form 941 Taxable Medicare wages & tips that is part of employee
gross pay?
Answer: Employee contributions and deductions from pay for flexible spending
arrangements (FSA) or other nontaxable benefits under a section 125 cafeteria plan,
qualified transit or parking benefits (up to $270 a month), and group life insurance (for
up to $50,000 of coverage) may have been excluded from IRS Form 941 Taxable
Medicare wages & tips. However, pre-tax employee contributions to retirement plans
are included in Taxable Medicare wages & tips and should not be added to that figure to
arrive at gross pay.
13. Question: How should a borrower account for federal taxes when determining its
payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan,
and the amount of a loan that may be forgiven?
Answer: Payroll costs are calculated on a gross basis without regard to federal taxes
imposed or withheld, such as the employee’s and employer’s share of Federal Insurance
Contributions Act (FICA) and income taxes required to be withheld from employees.
As a result, payroll costs are not reduced by taxes imposed on an employee and required
to be withheld by the employer. However, payroll costs do not include the employer’s
share of payroll tax. For example, the wages of an employee who earned $4,000 per
month in gross wages, from which $500 in federal taxes was withheld, count as $4,000
in payroll costs. However, the employer-side federal payroll taxes imposed on the
$4,000 in wages are excluded from payroll costs under the statute. 9
14. Question: Is there a limit on the dollar amount of First Draw PPP Loans a corporate
group can receive?
Answer: Yes, businesses that are part of the same corporate group cannot receive First
Draw PPP Loans in a total amount of more than $20 million. For purposes of this limit,
businesses are part of a single corporate group if they are majority owned, directly or
indirectly, by a common parent.
9
The definition of “payroll costs” in the CARES Act, 15 U.S.C. 636(a)(36)(A)(viii), excludes “taxes imposed or
withheld under chapters 21, 22, or 24 of the Internal Revenue Code of 1986 during the covered period”. As
described above, the SBA interprets this statutory exclusion to mean that payroll costs are calculated on a gross
basis, without subtracting federal taxes that are imposed on the employee or withheld from employee wages. Unlike
employer-side payroll taxes, such employee-side taxes are ordinarily expressed as a reduction in employee take-
home pay; their exclusion from the definition of payroll costs means payroll costs should not be reduced based on
taxes imposed on the employee or withheld from employee wages. This interpretation is consistent with the text of
the statute and advances the legislative purpose of ensuring workers remain paid and employed. Further, because
the reference period for determining a borrower’s maximum loan amount will largely or entirely precede the period
during which borrowers will be subject to the restrictions on allowable uses of the loans, for purposes of the
determination of allowable uses of loans and the amount of loan forgiveness, this statutory exclusion will apply with
respect to such taxes imposed or withheld at any time, not only during such period.
As of March 12, 2021
15. Question: I am self-employed and have no employees, how do I calculate my
maximum First Draw PPP Loan amount if I use gross income?
Answer: The following methodology should be used to calculate the maximum amount
that can be borrowed if you are self-employed and have no employees, and your
principal place of residence is in the United States, including if you are an independent
contractor or operate a sole proprietorship (but not if you are a partner in a partnership;
see Question 4), and you use gross income:
• Step 1: Find your 2019 IRS Form 1040 Schedule C line 7 gross income amount. 10
If this amount is zero or less, you are not eligible for a PPP loan.
• Step 2: Calculate the average monthly gross income amount (divide the amount
from Step 1 by 12). If this amount is more than $8,333.33, reduce it to $8,333.33.
• Step 3: Multiply the average monthly gross income amount from Step 2 by 2.5.
• Step 4: Add the outstanding amount of any Economic Injury Disaster Loan (EIDL)
made between January 31, 2020 and April 3, 2020 that you seek to refinance. Do
not include the amount of any advance under an EIDL COVID-19 loan (because it
does not have to be repaid).
Your 2019 IRS Form 1040 Schedule C must be provided to substantiate the applied-for
PPP loan amount. You must also provide a 2019 IRS Form 1099-MISC detailing
nonemployee compensation received (box 7), IRS Form 1099-K, invoice, bank
statement, or book of record establishing you were self-employed in 2019 and a 2020
invoice, bank statement, or book of record establishing you were in operation on
February 15, 2020.
16. Question: I am self-employed and have employees, how do I calculate my maximum
First Draw PPP Loan amount (up to $10 million) if I use gross income? (Note that PPP
loan forgiveness amounts will depend, in part, on the total amount spent by the borrower
during the covered period following disbursement of the PPP loan.)
Answer: The following methodology should be used to calculate the maximum amount
that can be borrowed if you are self-employed with employees, including if you are an
independent contractor or operate a sole proprietorship (but not if you are a partner in a
partnership; see Question 4) and use gross income:
• Step 1: Find your 2019 IRS Form 1040 Schedule C line 7 gross income amount. 11
Subtract 2019 employee payroll costs summed from Form 1040 Schedule C lines
10
If you are using 2020 amounts and have not yet completed a 2020 return, fill out the required portions and
compute the values.
11
If you are using 2020 amounts and have not yet completed a 2020 return, fill out the required portions and
compute the values.
As of March 12, 2021
14, 19, and 26. 12 If this amount is less than zero, set this amount at zero.
• Step 2: Divide the gross income amount from Step 1 by 12. If this amount is more
than $8,333.33, reduce it to $8,333.33.
• Step 3: Calculate the sum of:
o 2019 gross wages and tips paid to your employees whose principal place of
residence is in the United States, up to $100,000 per employee, which can be
computed using:
• 2019 IRS Form 941 Taxable Medicare wages & tips (line 5c-
column 1) from each quarter,
• Plus any pre-tax employee contributions for health insurance or
other fringe benefits excluded from Taxable Medicare wages &
tips, and
• Minus (i) any amount paid to any individual employee in excess of
$100,000, and (ii) any amounts paid to any employee whose
principal place of residence is outside the United States;
o 2019 employer contributions for employee group health, life, disability,
vision, and dental insurance (the portion of IRS Form 1040 Schedule C line
14 attributable to those contributions);
o 2019 employer contributions to employee retirement plans (IRS Form 1040
Schedule C line 19); and
o 2019 employer state and local taxes assessed on employee compensation,
primarily state unemployment insurance tax (from state quarterly wage
reporting forms).
• Step 4: Calculate average monthly payroll costs for employees (divide the amount
from Step 3 by 12).
• Step 5: Sum the amounts from Step 2 and Step 4 and multiply by 2.5.
• Step 6: Add the outstanding amount of any EIDL made between January 31, 2020
and April 3, 2020 that you seek to refinance. Do not include the amount of any
advance under an EIDL COVID-19 loan (because it does not have to be repaid).
Your 2019 IRS Form 1040 Schedule C, IRS Form 941 and state quarterly wage
unemployment insurance tax reporting form from each quarter (or equivalent payroll
processor records or IRS Wage and Tax Statements), along with documentation of any
retirement or group health, life, disability, vision, and dental contributions, must be
provided to substantiate the applied-for PPP loan amount. A payroll statement or
similar documentation from the pay period that covered February 15, 2020 must be
provided to establish you were in operation and had employees on that date.
12
Any other employee payroll costs not reported on those lines but included in line 28 total expenses must also be
subtracted from gross income.
As of March 12, 2021
17. Question: If I report farm or ranch income as an LLC, qualified joint venture, or
partnership, may I use gross income to determine loan amount?
Answer: Only self-employed farmers and ranchers who file an IRS Form 1040
Schedule F with their Form 1040 and report Schedule F farm income on IRS Form 1040
Schedule 1 may use gross income to determine the loan amount. Single member LLCs
and qualified joint ventures, as defined by IRS, 13 that file Schedule F with their Form
1040 may use gross income to determine their loan amount. Only one spouse in a
qualified joint venture may submit a PPP loan application on behalf of the qualified
joint venture.
Partnerships and partners must calculate loan amounts as directed in Question 4 above.
18. Question: If I am a self-employed individual who is eligible to use gross income from
both Schedule C and Schedule F to calculate loan amount, how do I calculate loan
amount?
Answer: Calculate your maximum loan amount by following the relevant guidance for
calculating maximum loan amount for self-employed individuals (either with or without
employees) using gross income from Schedule C and separately for using gross income
from Schedule F. Add the two results together to calculate your maximum loan amount.
In the applicable Box A on SBA Form 2483-C, include amounts from both Schedule C
and Schedule F.
A qualified joint venture for federal income tax purposes means (1) the only members of the joint venture are a
13
married couple who file a joint return and each file Schedule C or F with their Form 1040, (2) both spouses
materially participate in the trade or business, and (3) both spouses elect not to be treated as a partnership.
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