Providers Can Now Get More Money From the PPP!
Family child care providers can now receive substantially more in tax-free income from the Paycheck Protection Program (PPP)!
This is because the Small Business Administration (SBA) has changed the rules and now allows providers to use their gross income, rather than their net income (profit), when applying for the First Draw or Second Draw PPP. (Providers who have already received money from the First Draw PPP cannot reapply using this new rule. Such providers may be eligible to apply for the Second Draw PPP and use the new rule.)
Therefore, all family child care providers should apply now! The deadline to apply is May 31st, but we don't know if the SBA will run out of money before then. Do it now!
The money from the PPP is not taxable income! As long as you spend it properly, it is a forgivable loan that you will not have to pay back. This is a great deal!
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The new First Draw PPP form is here.
The new Second Draw PPP form is here.
This new rule is significant because a provider will receive a lot more money from the PPP using their gross income, rather than their net income. This article explains how to fill out the First Draw PPP form. Here's an example:
Let's say a provider's gross income (Schedule C, line 7) is $42,000 and her net income (Schedule C, line 31) is $12,000. The formula to determine how much she would be entitled to receive from the PPP is: Divide these numbers by 12, then multiply by 2.5. Note: The old form used the language of an "average monthly payroll." This meant your profit divided by 12. The new form does not use this language.
Under the old rules
$12,000 net income divided by 12 = $1,000. $1,000 x 2.5 = $2,500.
Under the new rules
$42,000 gross income divided by 12 = $3,500. $3,500 x 2.5 = $8,750.
As you can see, this represents a substantial difference! All family child care providers will benefit from this new rule. Under the old rules, you could not apply if your profit was zero. Under the new rules, you can apply and get money. You can apply even if you don't have employees.
You can use either your 2019 or 2020 Schedule C, whichever line 7 is larger. If you haven't filed your 2020 tax return, you can fill out Schedule C, line 7 and apply for the PPP. It will be relatively easy to determine the amount on line 7 by adding together parent payments, Food Program reimbursements, subsidy payments and state grants. Do not include federal or state unemployment benefits or previous PPP or EIDL loans.
Note: Some providers show an amount on Schedule C, line 4, Cost of goods sold. If so, this reduces the amount on line 7 and means you will receive less from the PPP. Usually, the cost of goods refers to food expenses. Food expenses should be shown as deductions along with all other expenses, not as cost of goods. Therefore, I recommend you add any amount from line 4 to line 7 to determine your actual gross income.
The deadline is May 31st, but there is some confusion because the SBA set a deadline of March 9th for lenders to submit applications from businesses with fewer than 20 employees. This March 9th deadline was to give priority to these small businesses. So, if you apply before March 9th, your application will be processed faster. You must have been in business by February 15, 2020 to qualify for the PPP loan.
If you have already submitted your application under the old rules, is there anything you can do to take advantage of the new rules? You can make a change in your application up until the time the money is deposited into your bank account. Therefore, contact your lender right away if you are in this situation. I do not know any further details about this, so contact your lender to find out what can be done in your situation. If you have already received money in your bank account, it's too late to make any changes and you can't apply again for the First Draw PPP.
Two forms
There are two new forms released by the SBA on March 3rd. The one that providers should use is Form 2483-C. This form allows you to use your gross income. The other form is Form 2483 that requires you to use your net income. Don't use Form 2483.
Note: When you apply for the First Draw PPP using Form 2483-C, your lender may require you to fill out their application form online. If so, it's likely that the appearance of their form will look different than Form 2483-C. But, even so, the questions should be the same.
Instructions for filling out Form 2483-C
First Page
Check one: Check that you are a sole proprietor. Note: If you are a single person Limited Liability Company (LLC) and file a Schedule C, check off that you are a sole proprietor.
DBA or Tradename: A DBA (Doing Business As) is a name you would get if you have registered your business name with your secretary of state’s office. If you have one, enter it. If you don’t, leave it blank.
Year of Establishment: Enter the year you started caring for children.
Business Legal Name: If you have one, enter it here. If you don’t, enter your own name.
NAICS Code: Enter 624410.
Applicant Meets Size Standard: Check the first box “No more than 500 employees”
Business Address: Enter the address where you care for children.
Business TIN: Enter your Employer Identification Number (EIN), or your Social Security number if you don’t have an EIN. Make sure the number you enter here matches the number on your Schedule C.
Business Phone: Enter your phone number.
Primary Contact: Enter your own name.
Email Address: Enter your email address.
Total amount of Gross Income: Enter the amount from your 2019 or 2020 Schedule C, line 7, whichever is higher.
Tax Year Used for Gross Income: Choose the year of the Schedule C that you will be using.
Number of Employees: If you don't have employees, enter 1 for yourself. You don't have to have employees to be eligible for the PPP.
The next part is to be filled out if you don't have employees (other than yourself).
A. Your gross income amount from 2019 or 2020 Schedule C, line 7: Enter your amount from line 7. In our example above, you would enter $42,000.
B. Divide A by 12: In our example above, you would enter $3,500 ($42,000 divided by 12 = $3,500).
x 2.5 + EIDL equals Loan Request Amount: Multiply B by 2.5. In our example above, this would be $8,750 ($3,500 x 2.5 = $8,750). Note: Do not use these numbers on your form! If you received the Economic Injury Disaster Loan (EIDL), you have the option of adding this to your total loan request. If you do so, you will transform your 30 year, 3.75% EIDL loan into a 5 year, 1% PPP loan. The loan will not be forgiven, unlike the PPP loan. The advantage of doing this is to reduce the interest rate on your loan. The disadvantage is that you must pay the loan off much faster. It's a voluntary option. Do not add any money received from the EIDL “advance”. (Last year you were eligible to get an EIDL advance of $1,000 per employee, counting yourself.)
The next part is to be filled out only if you have employees (other than yourself).
Note: You can only count persons as employees for purposes of applying for the PPP if you treated them as employees. This means you should have withheld Social Security/Medicare taxes and paid other state and federal payroll taxes. So, if you treated a person as an independent contractor, filed a Form 1099 for a person, or hired your husband or child without filing the proper payroll tax forms, you can't count them as employees on this form.
A. Your 2019 or 2020 Schedule C, line 7, minus the sum of line 14, line 19, and line 26: Line 14 is Employee benefits; Line 19 is Pension and profit sharing plans; Line 26 is Wages. These expenses reduce your gross income. Let's use the example that line 7 is $42,000 and the sum of lines 14, 19 and 26 are $10,000. You would enter $32,000 here.
B. Divide A by 12: In our example, $32,000 divided by 12 = $2,666.
C. Average Monthly Payroll for Employees: Here's where you add lines 14, 19 and 26 and divide by 12. So, in our example, $10,000 divided by 12 = $833.
Add B and C: In our example, $2,666 + $833 = $3,500.
x 2.5 + EIDL: In our example $3,500 x 2.5 = $8,750. Again, you can choose to add any EIDL loan amount to this total and turn the EIDL loan into a 5 year 1% loan.
Purpose of the loan: You can check one or more of the boxes here. You can spend all of the PPP money on payroll for yourself, so you could check just the “Payroll Costs” box. I would also recommend checking off at least the other following boxes: “Rent/Mortgage Interest,” “Utilities,” “Covered Operations Expenditures,” and “Covered Supplier Costs.” This will protect you in case you make a mistake in claiming payroll expenses. Checking more than one box does not mean you have to spend money on any one box.
Applicant Ownership – Enter your name, title (“owner or director”), and 100% for Ownership %. Then enter your EIN or Social Security number. (Enter the same number you entered earlier on this form.) Enter your mailing address. Second Page
PPP Applicant Demographic Information (Optional): You can choose to fill out this section if you wish.
Questions
Read over all the questions. The vast majority of providers will enter "no" for every question, except question #7. Make sure you answer "yes" for questions #7. Whether you do entered "yes" or "no" for questions 5 or 6, you need to put your initials in the space provided to confirm your answer.Note that question 4 asks if you have received an SBA (EIDL) “loan” between January 31, 2020 and April 3, 2020. If you answer yes, you are asked to provide details and label a separate page as Addendum B. Indicate on your Addendum B when you got the loan and how much you received. It’s not clear what other information you should provide. Ask your lender for details.Third Page
This page of the application asks you a series of questions to verify that you are eligible for this forgivable loan and agree to follow the rules. Put your initials next to all the paragraphs at the bottom half of the form. Sign and print your name at the bottom of the page. Put the current date and enter “Owner” under “Title.”
What can you spend the First Draw PPP money on?
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 payment on debt obligations incurred before February 15, 2020
Food
Expenses to comply with the Centers for Disease Control or your state health department guidelines to maintain standards of sanitation, social distancing, or other worker safety regulations. This includes cleaning supplies, masks, disinfectants, and so on.
How do I pay myself?
You must spend at least 60% of your PPP money on payroll. Whether or not you have employees, you can use up to 100% of the money to pay yourself. Do do so, write yourself a check or transfer money from one bank account to another.
Where do I go to apply for the PPP?
Contact your local bank or an online lender such as PayPal, OnDeck, Kabbage, Biz2Credit, Intuit. Because this new rule was just announced, it's possible your bank or online lender has not yet changed their application form to allow you to use your gross income, instead of your net income. You may have to wait a few days for them to recognize the new rule.
How do I apply for forgiveness?
Contact your lender for forgiveness at least 2.5 months after receiving the money.
Unemployment
Receiving PPP money may affect your ability to receive state and federal unemployment benefits. Contact your state unemployment office for further information.
Tom Copeland - www.tomcopelandblog.com
Image credit: Small Business Administration
