On Monday, February 22, President Biden announced an important new opportunity for micro-businesses to more easily access the Paycheck Protection Program (PPP) which provides loans to businesses who have experienced a loss of revenue due to the COVID-19 pandemic. The changes, which create a 14-day window of improved access to the funding for businesses with fewer than 20 employees, go into effect on Wednesday, February 24, 2021.
The opening of this special PPP access period may help freelancers get loans through the PPP more readily than before. The PPP offers forgivable loans to small businesses through the Small Business Administration to help them recover from the financial impact of COVID-19. The overall PPP program is currently slated to end March 31, 2021. The SBA has also earmarked $1 billion of PPP funding for applicants with no employees who are also located in low- and moderate-income communities.
The updates to the PPP program also changes how sole proprietors, independent contractors and self-employed workers will have the amount of their loans determined. Instead of calculating the loan amount using the net profit listed on a 2019 tax return, freelancers can now calculate the loan amount using gross income.
As a reminder, PPP loans can cover be used to cover expenses including payroll, rent, operations expenditures, property damage costs, supplier costs, and worker protection expenditures.
The Payroll Protection Program (PPP) loan forgiveness amount will not be considered taxable income at the federal level. This could be a significant tax saving for your business. However, there is not any change in the guidance for state and local tax treatment of PPP funds. Therefore, be sure to check with your own State and local tax authorities for additional information.