Apply Now to Get New Money from the Paycheck Protection Program (PPP)!

Family child care providers can now apply to receive a new round of forgivable loans from the Paycheck Protection Program (PPP). The loans do not have to be paid back.

Money you received from the PPP is not taxable income and can be used for a variety of business expenses. The deadline to apply is March 31, 2021.

To apply for the PPP, contact your local bank or an online service that accepts PPP applications. Note: These lenders may not be ready to accept applications immediately. If you don't see your bank listed below, contact your local bank directly. If your bank won't accept your application, try another local bank or credit union.

• Here’s a list of banks accepting PPP loans by state: https://www.sba.gov/sites/default/files/2020-06/PPP_Lender_List_200625.pdf
• Here’s a list of online services: PayPal, OnDeck, Kabbage, Biz2Credit, Intuit

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What is the PPP?

The Paycheck Protection Program is a program of the Small Business Administration (SBA). In 2020 it offered forgivable loans that many family child care providers received. The program ran out of money last summer. On December 27, 2020 Congress passed a law that put millions more into the PPP.

Who is Eligible to Receive Money from the PPP?

You must have been in business by February 15, 2020. If you previously received money from the Economic Injury Disaster Loan (EIDL) program (either the “advance” or the “loan”) you are still eligible to receive money from the PPP.

There are two different ways you can apply to receive money from the PPP. The first way is called the First Draw. The second way is called the Second Draw. Both Draws are a forgivable loan you do not have to pay back.

The First Draw

You can get PPP money from the First Draw if:

• You did not get money from the PPP in 2020.
• You got money from the PPP in 2020 but did not receive forgiveness by December 27, 2020 and returned some of all of this money, or didn’t accept the full amount you were eligible for when you applied for the money

Here is the loan application form and instructions for the First Draw.

The Second Draw

You are eligible for this Second Draw if you previously received PPP money in 2020 and will have spent the full amount by the time you receive the Second Draw.

To get money from the Second Draw, you need to demonstrate that you had at least a 25% reduction in gross income in any quarter in 2020 compared to 2019. Your gross income is shown on your tax form, IRS Schedule C, line 7. This represents your income before any business expenses. Your gross income includes parent payments, subsidy payments, Food Program reimbursements and any state grants you received during the COVID-19 pandemic. It does not include any previous PPP forgivable loans or Economic Injury Disaster (EIDL) “loans” or “advances” you might have received. Note: Gross income does not include federal or state unemployment benefits. This income is personal, not business income.

You can compare your gross income for all of 2019 with 2020, or you can look at any comparable quarter from the two years. For example, if your gross income in 2019 was $60,000, your gross income for 2020 must be less than $45,000 ($60,000 x 75%). If you haven’t filed your 2020 taxes yet, you can fill out your 2020 Schedule C on your own to do this comparison.

If you want to compare quarters, you can pick any quarter in 2019 and multiply your gross income for that quarter by 75%. If your gross income is lower by this amount for the corresponding quarter in 2020, you are eligible. The first quarter of the year is January – March. The second quarter is April – June. The third quarter is July – September. The fourth quarter is October – December.

Let’s look at another example: If your gross income for the second quarter of 2019 was $12,000, your gross income for the second quarter of 2020 must be at least 25% less than this. Multiply $12,000 by 75% to determine how much your gross income for the second quarter of 2020 must not exceed. $12,000 x 75% = $9,000. Therefore, if your gross income was $10,000, you don’t qualify for this quarter. If it’s under $9,000, you do qualify.

If you were not in business for all of 2019, you can compare quarters for the quarters you were in business. So, if your business began in May 2019, you can compare the third or fourth quarters of 2019 with the third or fourth quarters of 2020. If your business began in 2020, but before February 15, 2020, compare your gross income from the first quarter of 2020 with the second, third, or fourth quarters of 2020.

When comparing quarters, you can pick the one quarter that makes your eligible, even if the other quarters would make you ineligible. In other words, if you received large grant from your state in the second quarter of 2020, you may not be eligible for that quarter, but you can choose another quarter where you would be eligible.

How do you determine your gross income for any quarter? Look at your business records indicating how much money you received for those months. This may appear on your bank deposit records, Redleaf Calendar Keeper notations, the Schedule C Worksheet Report if you used the online software KidKare, or any other method you used to record your income.

Here is the loan application and instructions for the Second Draw. 

How much money can you get from the PPP?

The answer is based on a formula of how much you earned in 2019 or 2020. The short answer is that you can get 2.5 times your average monthly profit. Your annual profit appears on your 2019 Schedule C, line 31. Divide this number by 12 to get your average monthly profit. So, if your annual profit in 2019 was $48,000, your average monthly profit was $4,000 ($48,000 divided by 12 = $4,000), you could apply for $10,000 ($4,000 x 2.5 = $10,000). For this new round of PPP, you can add to this the amount you paid any employees. In our example, if you paid employees $5,000 for the year, add this to your annual profit to get a new annual profit of $53,000. Your new average monthly profit would be $4,416 x 2.5 = $11,040.

What can you use the PPP money for?

You can use the PPP money for the following items for both the First Draw and Second Draw:

• Payroll costs (this includes payroll for yourself and any employees)
• For employees, this includes costs related to the continuation of group health care, life, disability, vision or dental  benefits
• Mortgage and vehicle loan interest (not mortgage prepayments or principal payments)
• Rent
• Utilities
• Interest payments on debt obligations incurred before Feb 15, 2020
• Food
• Expenses to comply with the Centers for Disease Control or your state health department guidelines to maintenance standards of sanitation, social distancing or other worker safety requirements. This includes cleaning supplies, masks, disinfectants, and so on

The last two categories of expenses are new ones added to what was previously allowed under the 2020 PPP rules.

At least 60% of the PPP money must be spent on payroll. You can spend up to 100% on payroll if you want. To spend payroll on yourself, write a check in your name and put “payroll” in the memo line. Or transfer money from one bank account to another and call it payroll.

Here are two new changes under the 2021 PPP program:

• Under previous SBA guidance, if you received a $1,000 EIDL “advance” and PPP money, you had to subtract the $1,000 from the forgivable portion of the PPP. The new law overturns this guidance, so now any money you receive from EIDL will not reduce your PPP forgiveness. If you previously returned the $1,000 unforgiven PPP money, contact your lender to have them return it to you.
• Under previous SBA guidance, you couldn’t deduct expenses for items purchased using PPP money. That is reversed, so now you can deduct these expenses. For example, if you spent $1,000 of PPP money in 2021 on business utilities, you can still claim the $1,000 as a business expense on your tax return.

Future articles

In upcoming articles, I will

• Describe in detail how to fill out the new PPP application form for both the First Draw and Second Draw, including an instructional video.
• How to apply for forgiveness.
• How to apply for the EIDL “advance” and “loan”.

Let me know what questions you have about the PPP. I will try to answer them as best I can. It’s possible that future guidance from the SBA may clarify some issues.

I encourage all family child care providers to take advantage of this opportunity to get tax free money from the PPP program.

This document was funded by the Child Care Communications Management Center, which is funded by the Office of Child Care (OCC), Administration for Children and Families (ACF), U.S. Department of Health and Human Services (HHS), and was developed in partnership with the National Center on Early Childhood Quality Assurance, which is funded by OCC, the Office of Head Start, ACF, HHS. This resource may be duplicated for noncommercial uses without permission.

Tom Copeland – www.tomcopelandblog.com

Image credit: Small Business Administration