The Paycheck Protection Program was introduced to support small businesses with much-needed cash during the COVID-19 crisis, specifically geared to help businesses keep their employees employed. The SBA will forgive loans under the PPP if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.

Business owners may have several questions around the PPP loan and we are here to help break down some of the commonly asked questions specifically for those who are self-employed.


Do all small businesses qualify for the Paycheck Protection Program?


This category includes:

  • Sole proprietors that report income and pay taxes on a Schedule C in their personal tax return.
  • Independent contractors that collect 1099-MISC forms.
  • Gig economy workers that take on-call jobs provided by companies like Uber, Instacart, etc.

Your business must have been operational as of February 15, 2020. If your business was established after that date, unfortunately you will not be eligible for the payment protection program.


What if I don’t use a payroll service?

Many of our customers own a business and do not give themselves a salary through a payroll service. And that’s okay. You are most likely still eligible for the Paycheck Protection Program. The exception is businesses that are structured as a C Corporation or S Corporation must use payroll to pay their owners. This is because the corporation is taxed separately from the individual. If you own a corporation and have not been paying yourself through a salary (through payroll), you will not have a salary covered through the PPP. The reason for this is that distributions or dividends from a corporation are not considered to be a salary of self-employment income. Please note that payments made to contractors are not considered payroll and are not eligible under the PPP.

What if I am a sole proprietors?

If your business entity is a sole proprietorship and/or you have not “formally” informed the IRS, this means that your business income will be reported on a Schedule C within your personal tax return. Please keep in mind, as stated above, that your business must have been established prior to February 15, 2020.

If you are a sole proprietor, your salary will be determined by your net profit. If you filed your 2019 taxes already, you can find this information reported on line 31 of your Schedule C. If you have not yet filed your 2019 taxes but do have bookkeeping done through 2019, you can find this on your Income Statement under the Net Profit line. If you need help with your bookkeeping for 2019, or if you need assistance with filing your 2019 taxes, Xendoo can help. Please book a no-cost consultation with our team and we can help you with the next steps.

The Payment Protection Program loan will ask you to provide your monthly average payroll expense. This will be your annual net profit divided by 12. According to the PPP terms, if your annual net profit is over $100,000, you may only claim up to $100,000 divided by 12.


PPP for sole proprietors who are married?

If you run a sole proprietorship informally with your significant other, you will apply to the PPP just once. In this case, your significant other will not be considered to have a salary through the business, unless he or she was paid as a contractor prior to February 15, 2020.

The only case where you need to apply separately for PPP is if you own more than one sole proprietorship – only if those sole proprietorships have separate EINs.

Generally speaking, the rule of thumb is that you can apply separately for as many businesses you own that have separate EINs or separate tax reportings. You can apply for the PPP once with your SSN as a sole proprietor, then separately for any other businesses you own using their respective EINs.


Payment Protection Program for independent contractors?

By default, you are considered to be a sole proprietor in the eyes of the IRS if you work as an independent contractor. If this is the case for you, your freelance income gets reported annually on a Schedule C within your personal tax return.

The easiest way to determine your salary is to look at the net profit listed on your Schedule C. If you already filed your 2019 taxes, you can find this reported on line 31 of the Schedule C. If you have not filed your 2019 taxes but have your bookkeeping complete for 2019, you can find this in your Income Statement under the Net Profit line.

If you do not have either of the above, the next best thing to do would be to add all of your 1099-MISC income together. You can find your monthly average by dividing that amount by 12. Similar as sole proprietors, if your annual net profit is over $100,000, you can claim only up to $100,000 divided by 12, as per the terms of the PPP loan.


How do I show proof of income?

The PPP loan must be submitted by an SBA-approved lender and that lender will request documents related to wage, commission, income and/or net earnings from self-employment that you have received.

We’re breaking down what you’ll need to submit based on the type of individual you are:

  • Sole proprietorships: submit schedules from their 2019 tax returns filed (or to be filed) showing income and expenses from the sole proprietorship
  • Independent contractors: submit schedules from their 2019 tax return filed (or to be filed) as well as Form 1099-MISC from 2019.
  • Self-employed individuals: submit 2019 payroll tax filings reported to the Internal Revenue Service.


Can PPP funding be used on other things like rent, mortgage and utilities?

Yes, however, there are specific parameters in which the funding must be used. The PPP can cover office lease, rent, mortgage interest, provided that you had it before February 15, 2020. For those that have a home office, you can claim a portion of those expenses. It is recommended that you collect any paid invoices, statements, lease agreements or canceled checks in order to prove that you had these expenses.

Please keep in mind that if you want to have your loan fully forgiven, you must spend 75% of your loan funds on payroll costs. The remaining 25% can be spent on rent, mortgage interest, and utilities.


How do I apply for PPP loan?

The application must be done through a SBA-backed lender. You can click here to find a SBA-backed lender on If you’d like to review the PPP application form, you can find it here.

The application opened on April 3rd. Independent contractors and self-employed individuals can start applying on April 10th.

It is recommended to apply early as there is a funding cap for this program. Applications are being accepted until June 30th.