A Guide to PPP Round 2 Calculations for Your Business
By mid-summer of 2020, nearly $380 billion was given to organizations through Paycheck Protection Program loans.
How much did your business receive from this government help?
You are not alone if it took you months to secure money from PPP round one, and now some are eligible for drawing from round two. This process continues to remain overwhelming to a small business owner worried about their business.
We are here to help ensure you receive the money you deserve through this program.
Billions of dollars remain available with your PPP eligibility, including PPP round two funds. The money aids in small businesses keeping employees on the payroll through tough times. As a business owner yourself, you need to apply ASAP to receive payroll protection and support to keep your business afloat.
Continue reading below for our guide on calculating the PPP round two amount for your business.
PPP Round Two
The Small Business Administration and Department of Treasury have made PPP round two loans accessible to certain business owners. These have the same general terms of round one and can fund payroll, rent, utilities, property damage, and more.
You are likely eligible if you:
- Received Round One
- Have no more than 300 employees
- Can demonstrate a 25% reduction in gross receipts
It is important to note that business owners in Accommodation and Food Services are eligible for 3.5x the average monthly payroll costs. Other business sectors remain at the 2.5x mark.
Every potential borrower must calculate revenue reduction and prove the 25% loss via gross receipts. This is all revenue accrued in whatever manner makes the most sense for the business. Non-profits may include contributions or gifts, member dues, and investment income, among other line items.
You can provide documentation in the form of quarterly financial statements, bank statements, or income tax filings. You will need to pay close attention to the lines on your tax return if that's how you provide documentation.
PPP Calculations for Self-Employed Individuals
Official documents outline every type of business owner who can apply for PPP. One of the essential PPP eligibility players is the self-employed borrower.
Self-employed workers will increase at a growth rate of 8% over the coming years. This employment method needs the support of PPP to continue its growth during unprecedented times.
Self-employed borrowers with or without employees have different calculation methods.
Are you are a self-employed borrower without employees? You first need to find your average monthly net profit by reviewing your 2019 IRS Form 1040 Schedule C line 31. If the number is above $100k, reduce it to exactly $100. If the number is $0 or less, you are ineligible.
Divide line 31 (or $100k) by 12 to find the average monthly. Next, times that by 2.5. Finally, add the amount of any Economic Injury Disaster Loan (EIDL) that you want to refinance.
Are you a self-employed borrower with employees? This takes a bit more work to do the correct PPP calculations. Use the following to identify total employee payroll:
- Find your net profit amount
- Add up gross wages and tips for employees in 2019, including pre-tax employee contributions
- Subtract amounts paid to employees above $100k and wages paid to international employees
- Add the employer contributions for insurance, retirement plans, and employer state and local taxes
Take the computed number and divide by 12 for your average monthly payroll costs. Multiply the number by 2.5 and add the EIDL amount you want to refinance.
PPP for S and C Corps
The PPP calculations for S and C corporations follow the same structure as a self-employed borrower with employees. But there is one key difference. You do not add the net profit amount but focus only on the payroll costs.
Compute the 2019 payroll costs by adding wages/tips, employer insurance contributions, retirement plans, and state and local taxes. You then subtract wages paid to non-U.S. employees and any wages above $100k.
Divide that by 12 and multiply by 2.5 before adding any EIDL refinancing amounts to find your PPP eligibility.
Another part of the process that slightly differs from the self-employed is in submitting the proper paperwork. A self-employed borrower with employees must submit the IRS Form 1040 Schedule C, whereas the C and S corps do not submit that paperwork.
Non-profit and Other Institutions and PPP
Eligible non-profit organizations are slightly different from non-profit religious institutions or eligible non-profits without IRS Form 990. An organization without a 990 denotes that they have less than $50k in gross receipts.
An eligible non-profit organization follows the same process outlined above for S and C corporations. You must find your average monthly payroll costs and multiply that by 2.5 before adding the EIDL refinancing amount.
An eligible non-profit submits the IRS Form 990, among other documentation, to prove PPP calculations.
Religious, veteran, tribal organizations, and other eligible non-profits without the 990 will follow the same PPP calculations. But they must provide extra documentation to prove payroll and operations.
Payroll Protection for LLCs
LLC owners are also eligible for the Paycheck Protection Program. To do the PPP calculations for an LLC, you need to review your tax returns and answer an important question:
What is your tax filing status?
You may file as a sole proprietor, a corporation, or other business structure. You will follow the calculation rules above depending upon your status.
New Businesses and PPP Calculations
Businesses must have been in operation for at least one year before February 15, 2020, to follow the above PPP calculations. But companies in operation under a year before February 15, 2020, are still eligible for PPP.
Corporations and non-profits have two options to calculate their loan amount:
- Follow the regular process and use payroll info for all 2020
- Use the average monthly payroll incurred in January and February 2020
For those interested in option 2, you can calculate using the following:
- Add up gross pay to U.S. located employees over the two months
- Add the employer contributions for insurance, retirement plans, and employer state and local taxes over the two months
- Divide this number by 2 to find the monthly average payroll costs
- Multiply by 2.5 and add the outstanding EIDL amount you want to refinance
Self-employed borrowers have the same two options to do PPP calculations. Figuring out the amount with option number 2 uses the following:
- Complete the IRS Form 1040 Schedule C for January and February 2020
- Line 13 should include 1/6 of any annual depreciation and section 179 expense deduction attributed to investments made in the two months
- Line 13 could also be 1/6 of the 2020 depreciation deduction attributed to investments made in past years
- Take the net profit on line 31, which you must set at $16,667 if above
- Add employee payroll cost for the two months up to $16,667 per employee
- Divide by two and multiply by 2.5
- Add the outstanding EIDL amount
Find Your Payroll Protection Loan Amount
You have enough on your plate to keep your business and employees going during the global pandemic. Don't let PPP calculations stop you from receiving the loan money the government has for you.
Self-employed borrowers, corporations, and non-profits each have a similar calculation process. Yet, the small changes in each calculation will make all the difference in identifying the appropriate amount.
Don't stop there in receiving your PPP! Schedule a consultation to discuss your eligibility and receive the financial support you need.