Paycheck Protection Program (PPP) – How do I calculate the maximum amount I can borrow?

How you calculate your maximum loan amount depends upon whether or not you employ other individuals.  If you have no employees, the following methodology should be used to calculate your maximum loan amount:

• Step 1: Find your 2019 IRS Form 1040 Schedule C line 31 net profit amount (if you have not yet filed a 2019 return, fill it out and compute the value).  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).
• 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, less the amount of any advance under an Economic Injury Disaster Loan (EIDL) COVID-19 loan (because it does not have to be repaid).

Regardless of whether you have filed a 2019 tax return with the IRS, you must provide the 2019 Form 1040 Schedule C with your Paycheck Protection Program (PPP) loan application to substantiate the applied-for PPP loan amount and a 2019 IRS Form 1099-MISC detailing non-employee compensation received (box 7), invoice, bank statement, or book of record that establishes you are self-employed.  You must provide a 2020 invoice, bank statement, or book of record to establish you were in operation on or around February 15, 2020.

If you have employees, the following methodology should be used to calculate your maximum loan amount:

• Step 1: Compute 2019 payroll by adding the following:

1. Your 2019 Form 1040 Schedule C line 31 net profit amount (if you have not yet filed a 2019 return, fill it out and compute the value), up to $100,000 annualized, if this amount is over $100,000, reduce it to $100,000; if this amount is less than zero, set this amount at zero;
2. 2019 gross wages and tips paid to your employees whose principal place of residence is in the United States 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; subtract any amounts paid to any individual employee in excess of $100,000 annualized and any amounts paid to any employee whose principal place of residence is outside the United States; and
3. 2019 employer health insurance contributions (health insurance component of Form 1040 Schedule C line 14), retirement contributions (Form 1040 Schedule C line 19), and state and local taxes assessed on employee compensation (primarily under state laws commonly referred to as the State Unemployment Tax Act or SUTA from state quarterly wage reporting forms).

• Step 2: Calculate the average monthly amount (divide the amount from Step 1 by 12).
• Step 3: Multiply the average monthly 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, less the amount of any advance under an EIDL COVID-19 loan (because it does not have to be repaid).

You must supply your 2019 Form 1040 Schedule C, Form 941 (or other tax forms or equivalent payroll processor records containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or equivalent payroll processor records, along with evidence of any retirement and health insurance contributions, if applicable.  A payroll statement or similar documentation from the pay period that covered February 15, 2020, must be provided to establish you were in operation on February 15, 2020.

For additional questions, view other relevant articles from our COVID-19 team here.