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Increase in PPP Loan Amount Allowed to Small Businesses
Rebecca Casarez, CPA
A new update to the PPP Loan is changing the way we calculate the loan amount received by small businesses. Typically under the PPP Loan, you calculate the amount received based on net income. The new change has us calculating the amount received now based on gross income, ultimately allowing for an increase in the PPP Loan amount allowed to small businesses.
Changes also include new applications for First and Second Draw Borrowers.
What Does This Calculation Do?
Originally the PPP Loan calculated the loan amount received using net income. Net income is the amount received by a business after business expenses are deducted. It is common to also refer to this as net earnings or profit.
This new calculation takes a broader look at the income received by businesses by using gross income. Gross income accounts for any and all income received by a business, before taking out any business expenses.
Simply understanding the difference is a signal to all business owners that under this new calculation, the loan amount received will dramatically increase.
Can I Apply For The Updated PPP Loan?
While these changes may be able to help businesses obtain a larger loan, it is only possible for those who have yet to file for the PPP Loan. First and second-time drawers are not eligible. The effective date for these changes is March 3, 2021.
How To Calculate Your Loan Amount
If your small business does not have employees, you will:
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Take the Gross Income from your Schedule C, line 7
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Divide that number by 12
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The number is not to exceed $8,333.33. If it does, then put $8,333.33.
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Then take that amount and multiply it by 2.5
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The result will be your loan amount.
If your small business does have employees, you will:
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Take the Gross Income from your Schedule C, line 7
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Subtract Employee Benefits Programs, line 14
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Subtract Pension or Profit-Sharing Plans, line 19
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Subtract Wages, line 26
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Divide that number by 12
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The number is not to exceed $8,333.33. If it does, then put $8,333.33.
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Calculate the average monthly payroll for all employees. This should not include owners.
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Add these two numbers.
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Multiply them by 2.5.
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The result will be your loan amount.
If you have been diligent with your bookkeeping and have been working closely with a tax professional, these numbers should be fairly easy to calculate.
However, if your bookkeeping is behind or you are having trouble keeping accurate records with your payroll software, it is worth reaching out to one of our ProAdvisors. We are happy to work with you to make sure your financial statements are accurate and prepared for your tax returns and PPP Loan application.
Disclaimer:
This publication is designed to provide information on federal tax and accounting laws and/or regulations. It is presented with the understanding that the author is not rendering legal or accounting services.
This text is not intended to address every situation that arises or provide specific, strategic tax and/or accounting planning advice. This text should not be used solely to answer tax and/or accounting questions and you should consult additional sources of information, as needed, to determine the solution to tax and/or accounting questions.
This text has been prepared with due diligence. However, the possibility of mechanical or human error does exist and the author accepts no responsibility or liability regarding this material and its use. This text is not intended or written by the practitioner to be used and cannot be used by a taxpayer or tax return preparer, for the purpose of avoiding penalties that may be imposed.
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