The US Small Business Administration (SBA) has published rules on how Paycheck Protection Program (PPP) loans will be administered for individuals that have self-employment income (such as independent contractors and sole proprietors). These rules apply to many brokers and some of their small group clients. 

See below an abridged summary of the new PPP loan rules.

Those considering applying for a PPP loan (especially in anticipation of loan forgiveness) are recommended to consult with their financial advisor.

(The full PPP rules, along with other helpful information, can be found on the US Department of the Treasury’s webpage: The CARES Act Provides Assistance to Small Businesses.)

SBA Paycheck Protection Program Rules, April 14, 2020
Individuals with Self-Employment Income who File a Form 1040, Schedule C
Abridged Summary

I have income from self-employment and file a Form 1040, Schedule C. Am I eligible for a PPP Loan?
(Pages 4-6)

Yes. Individuals with self-employment income (such as an independent contractor or a sole proprietor) generally are eligible for Paycheck Protection Loans.

Specific requirements are outlined in the full rules, including for those individuals that are also a partner in a business.

How do I calculate the maximum amount I can borrow and what documentation is Required?
(Pages 6-8)

It depends on whether or not you employ other individuals. If you have no employees, the general calculation for the maximum loan amount is:

The net profit amount in your 2019 Schedule C (up to a maximum of $100,000), divided by 4.8.

(Rationale for this calculation: For sole proprietors with no employees, the maximum loan amount is 2.5 times average monthly net profit. See the full rules for more detail.)

There are also further rules if you have employees, or if you have also received an EIDL loan.

How can PPP loans be used by individuals with income from self-employment who file a 2019 Form 1040, Schedule C?
(Pages 7-11)

The proceeds of PPP loans can generally be used to replace your income, any employee costs, business mortgage and other debt interest payments, and business rent and utility payments.

At least 75 percent of the PPP loan proceeds must be used for payroll costs (which includes sole proprietor net profit).

What amounts shall be eligible for forgiveness?
(Pages 11-13)

Generally, the amount of loan forgiveness can be up to the full principal amount of the loan plus accrued interest. There are a couple of important qualifications:

Firstly, there is a limit for the amount of forgiveness available for owner compensation (sole proprietor net profit). The calculation is:

The net profit amount in your 2019 Schedule C (up to a maximum of $100,000], divided by 6.5.

(Rationale for this calculation: For sole proprietors, the amount of forgiveness available for owner compensation is eight weeks of net profit. See the full rules for more detail.)

Note that this calculation is different than that used to calculate the total amount that can be borrowed. The full rules provide background on the rationale for this calculation.

Secondly, at least 75 percent of the amount forgiven must be attributable to payroll costs (which includes sole proprietor net profit).

Claremont Insurance Services and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

There may be a more recent answer to this question. Contact Claremont for an update.
(View Full Answer)

The CARES Act expands the Small Business Administration (SBA)’s long-standing Economic Injury Disaster Loan Program (EIDL). The EIDL program assist businesses, renters, and homeowners located in regions affected by declared disasters.

Helpful Resources

US Chamber of Commerce
Guide to SBA’s Economic Injury Disaster Loans

Claremont Insurance Services and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

There may be a more recent answer to this question. Contact Claremont for an update.
(View Full Answer)

Small employers (less than 50 employees) may be eligible for a “Small Business Exemption” from the Emergency Paid Sick Leave and Emergency Family and Medical Leave provisions of the FFCRA.

The rules governing this exemption are quite specific. Here is the current US Department of Labor (DOL) definition of the “Small Business Exemption”:

—
A small business is exempt from certain paid sick leave and expanded family and medical leave requirements if providing an employee such leave would jeopardize the viability of the business as a going concern. This means a small business is exempt from mandated paid sick leave or expanded family and medical leave requirements only if the:

• employer employs fewer than 50 employees;
• leave is requested because the child’s school or place of care is closed, or child care provider is unavailable, due to COVID-19 related reasons; and
• an authorized officer of the business has determined that at least one of these three conditions satisfied:
  • The provision of paid sick leave or expanded family and medical leave would result in the small business’s expenses and financial obligations exceeding available business revenues and cause the small business to cease operating at a minimal capacity;
  • The absence of the employee or employees requesting paid sick leave or expanded family and medical leave would entail a substantial risk to the financial health or operational capabilities of the small business because of their specialized skills, knowledge of the business, or responsibilities; or
  • There are not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee or employees requesting paid sick leave or expanded family and medical leave, and these labor or services are needed for the small business to operate at a minimal capacity.

The Department encourages employers and employees to collaborate to reach the best solution for maintaining the business and ensuring employee safety.
—

Helpful Resources

US Department of Labor (DOL)
Comprehensive Covid-19 resource page providing employers with information on –among other issues –the paid sick leave and expanded family and medical leave provisions of the FFCRA, including:

Claremont Partner Mammoth HR (with ThinkHR)
COVID-19 Crisis Response Center. Essential employer resources such as a COVID-19 HR Guidance and Best Practices recorded webinar, a summary of the new Families First Coronavirus Response Act, and sample HR policies that employers can adopt.

Claremont Partner HR Service, Inc.
COVID-19 Employer Toolkit. Helps employers navigate the Coronavirus challenges. Resources include a Families First Coronavirus Response Act Q&A, advice on remote working and telecommuting, information on all aspects of reductions in force, and more.

Helpful FFCRA flow chart
This helpful FFCRA flow chart (courtesy of Filice Insurance Agency) provides a visual step-by-step guide to assessing if an employer and employee are subject to the FFCRA provisions.

Claremont Insurance Services and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

There may be a more recent answer to this question. Contact Claremont for an update.
(View Full Answer)

No. COBRA coverage continues and/or is available only if the employer plan remains in place. Employers should consult their COBRA administrator before making any COBRA determinations.

Claremont Insurance Services and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

There may be a more recent answer to this question. Contact Claremont for an update.
(View Full Answer)

Yes, the IRS has advised that high-deductible health plans (HDHPs) can pay for 2019 Covid-19 -related testing and treatment, without jeopardizing their status. This also means that an individual with an HDHP that covers these costs may continue to contribute to a health savings account (HSA).

Helpful Resources

US Internal Revenue Service (IRS)
Coronavirus Tax Relief web page, including the news release and guidance relating to HDHP coverage of Covid-19 testing and treatment.

Claremont Insurance Services and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

There may be a more recent answer to this question. Contact Claremont for an update.
(View Full Answer)