How Artists, Musicians, and Gig Workers Can Access Billions of Dollars in Unused PPP Funds
The Payroll Protection Program (PPP) has typically been thought of a COVID-relief program for small businesses. But thanks to some recent changes in how PPP loan amounts are calculated and clarification on who is eligible for them, many others including individual artists, musicians, gig workers, and those who work for themselves suddenly have access to billions of dollars of unused PPP funds if they meet certain guidelines. And fortunately for those who have not yet applied for a PPP loan, the application deadline was recently extended to May 31st so there is still time to apply for this potentially forgivable loan. If you work for yourself and have Schedule C income, you are likely eligible. The application process takes just a few minutes and once approved you may see PPP dollars in your bank account within just a few days after completing some quick paperwork. This article explains how it all works. Funds might run out before May 31st, though, so if you qualify the time to apply is now.
What is the PPP Program?
To better understand the PPP loan program, it is helpful to know what it is not. For starters, It is not a direct relief program for small businesses with no strings attached. The Small Business Administration (SBA), which administers the program, states on its website, "The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on payroll (emphasis added)." While the purpose of the program has been, of course, to help businesses make it through the COVID-19 pandemic, the key has always been that employers must keep employees on their payroll instead of laying them off in order for the PPP loan to be fully forgiven. If a business does maintain at least minimum levels of employment, their PPP loan is forgivable and is therefore more akin to a grant than a loan. If an employer does not maintain payroll requirements, the PPP loan is not forgiven and must be paid back. The focus on payroll is the key to the whole program. It is also the reason why artists, musicians, and other sole proprietors with self-employment income as opposed to wage income through a traditional employer are eligible because they are considered to employ themselves.
Despite some high profile challenges when the PPP loan program was first rolled out and inconsistencies in how the program was being administered nationwide, the PPP has been a wildly popular and hugely successful mechanism to provide much-needed support for businesses and their employees during the COVID-19 pandemic. After its initial funding ran out after just two weeks in April 2020, Congress allocated additional PPP funds that lasted for several months and then authorized an entirely new second round of PPP with adjusted eligibility guidelines in December 2020. This second round of PPP remains active. The application period of the current round of PPP was set to expire on March 31st, but it was recently extended to May 31st (although as noted above funds may run out before May 31st). Included in the announcement about the deadline extension were also some changes to the eligibility requirements that made huge swaths of self-employed workers now newly eligible.
Schedule C
If you are like most people, the different parts of a tax return especially once you make it past the first few pages is a confusing mix of tables, boxes, flowcharts, and schedules. One of those schedules, however, the Schedule C, is how self-employed individuals including many artists, actors, musicians, technicians, and consultants report their income and expenses. Gig workers like web designers and side hustlers like Uber drivers also might use the Schedule C as well as even some lobsterman, fisherman, tradespeople, and other contracted workers. The Schedule C provides the key to how PPP loan amounts are calculated for this type of worker.
For most PPP applicants including businesses, non-profits, and even churches, the PPP loan amount is based on the average monthly payroll for an entire year and then that figure is multiplied by 2.5. If a bookstore, for example, has $120,000 of annual payroll, which would average to $10,000 per month, their PPP loan amount would be 2.5 times this monthly figure, so $10,000 x 2.5 = $25,000.
For Schedule C applicants, however, "average monthly payroll" is not necessarily as easy to calculate because self-employment income can be sporadic or inconsistent throughout the year. To account for this, the SBA said in the first round of PPP and the beginning of the second round that a Schedule C applicant's average monthly payroll is defined as their net income, which is found on Line 31 of the Schedule C, divided by 12. The idea here was that the simplest way to calculate average monthly payroll is to take the year's worth of net income and divide it by 12. This figure was then multiplied by 2.5 to get the PPP loan amount.
Fortunately Schedule C individuals have always been included in the PPP program, although many Schedule C workers may not have realized it because of the program's emphasis and reputation as a "small business" relief program. The premise of including Schedule C individuals, however, in a loan program meant for employers, is that a sole proprietor is essentially his or her own employer, a company of one but an employer nonetheless. This inclusion was a boon to many Schedule C PPP applicants who could show net income. The calculations were not even particularly challenging because it was all right there in either the 2019 or 2020 Schedule C of the applicant's personal tax return: Line 31, divided by 12, times 2.5. Banks across the country successfully processed thousands of this type of PPP application in the first two rounds of PPP.
But then in March 2021, Congress made some changes to the PPP loan program that made it even more advantageous to Schedule C workers.
What changed?
In late March 2021, PPP eligibility for individual borrowers expanded to now include those who had been delinquent on other government loans including student loans and other categories of applicants who had been previously excluded. But even more broadly than that, the calculation for the PPP loan amount for Schedule C borrowers became based on the Gross Income in Line 7 of the Schedule C versus the Net Income in Line 31. This was a monumental change because now a Schedule C worker can calculate their average monthly "payroll" by dividing their Gross Income by 12 instead of their net income. For a musician, for example, who has Gross Income of, say, $40,000, but net income of just $10,000 after deducting expenses for things like equipment and travel, the change means her average monthly payroll is $40,000 divided by 12, which is $3,333 instead of $10,000 divided by 12, which is just $833. The PPP loan amount for this person would now be $3,333 x 2.5, which is $8,333, instead of $833 x 2.5, which is $2,083. This one change, to calculate the PPP loan amount based on Line 7 Gross Income instead of Line 31 Net income, means a PPP loan amount for this musician that is $6,250 greater than it would have been under the previous rules!
The other important aspect to this is that under previous PPP guidelines, if a Schedule C borrower's Line 31 Net Income was negative, they were not eligible for a PPP loan. But now even if that person's Net Income is negative, if their Line 7 Gross Income is positive, they can obtain a PPP loan based on the gross amount instead of the net amount. This change opened up the PPP program to thousands, perhaps tens or even hundreds of thousands of Schedule C workers who showed negative net income in 2019 or 2020 but who are now eligible to apply based on their positive gross income.
Next Steps
Schedule C workers with gross income for either 2019 or 2020 should not delay (you can base your PPP loan amount on either year as long as your tax returns are done; it is wise to apply based on whichever year shows a higher gross income). As of April 5th, 2021, the SBA was reporting that there was $68 billion in PPP funds still available. Although the application deadline was recently extended to May 31st, it is likely that these funds will run out sooner than that. So now is the time to contact your bank.
What you will need to apply is your Schedule C for either 2019 or 2020. Be prepared to fill out a short PPP application form. Your bank may be able to help you with the calculations on what your PPP loan amount should be. Your bank may also have some additional paperwork and will likely ask you for a copy of your photo ID so they can verify your identity. But there is no cost to apply and any bank currently processing PPP applications should be happy to help you.
Forgivability
If this news were not all positive enough, the cherry on top is that SBA has also made the forgiveness process for PPP loans quite easy. For most Schedule C borrowers, the process involves signing some basic paperwork acknowledging that the funds were used to keep the business going and to replace potentially lost income and that the funds were not used for illicit or illegal purposes. The forgiveness form itself will be completed by you after either eight or twenty-four weeks from when you first receive your PPP funds. Your bank should help you with this forgiveness paperwork when the time comes. Once you complete it, the SBA takes up to 90 days (although often fewer) to stamp it with their approval and your loan should be forgiven assuming you have met all eligibility requirements.
Conclusion
If you are an artist, musician, gig worker, side hustler, or any other worker with Schedule C income, you should go to your 2019 or 2020 Schedule C and find the number on Line 7 for Gross Income. Your PPP loan amount assuming you meet all eligibility requirements is that amount divided by 12 and then multiplied by 2.5. Contact your bank as soon as you can to ask if they are processing PPP applications and tell them you want to apply. Banks have been tasked by the federal government to facilitate this application process and they should be more than happy to help. One final note, if you are currently collecting federal or state unemployment income, receiving the PPP loan may impact your eligibility to continue receiving those benefits. Please consult a CPA or tax attorney. There are billions of dollars left in the PPP program. If you have Schedule C income now is the time to apply even if you are a business of one.
Further reading
SBA Payroll Protection Program materials: https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheck-protection-program
Disclaimers: please consult a CPA or tax attorney with questions when applying for a federal loan or grant. The author of this piece works for First National Bank based in Damariscotta, Maine. First National Bank is compensated by the SBA for facilitating PPP loans as are all banks nationwide that are involved with this program. The author's own compensation is not directly tied to the PPP loan program.