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Freelancers And The Paycheck Protection Program
Episode 192

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Posted by Choose FI

Episode Guide

Episode Summary:

Discussion revolves around the Paycheck Protection Program (PPP) and its implications for 1099 contractors and freelancers in the wake of economic challenges brought on by the coronavirus. With millions affected, the conversation highlights the significance of independent contractors in the current economy. They delve into the nuances of the PPP loan, exploring how the guidance from the treasury department affects payroll calculations and the eligibility of independent contractors. The speakers provide insights into navigating the application process, the importance of accurate documentation, and potential risks involved in relying solely on this program. Emphasis is placed on the necessity of adapting to ongoing changes in guidelines while maximizing the benefits provided through this government aid, enabling both businesses and their contractors to survive the current economic downturn.

Episode Timestamps

ChooseFI Podcast Show Notes

Episode Title: Navigating the Paycheck Protection Program for 1099 Contractors
Hosts: Brad Barrett and Jonathan Mendonsa
Guest: Travis Hornsby from Student Loan Planner
Air Date: [Date of Episode Airing]

Episode Summary:

This episode explores the implications of the Paycheck Protection Program (PPP) specifically for 1099 contractors during the economic crisis caused by COVID-19. The discussion highlights the unique challenges faced by independent contractors in securing financial support through the PPP and the potential unintended exclusions due to government guidelines. Insights from Travis Hornsby emphasize the importance of understanding the rules for loan forgiveness and the responsibilities of small businesses in supporting their contractors during these uncertain times.

Key Topics Discussed:

  • Introduction to PPP

  • Impact on 1099 Contractors

    • The initial inclusion of independent contractors in payroll calculations for PPP loans, and subsequent changes in guidance.
    • The significant number of 1099 contractors impacted by these rules.

  • PPP Loan Process Overview

    • Understanding the fundamentals of the PPP and its intended benefits for small businesses and their workforce.
    • The requirement for businesses to ensure that at least 75% of the loan is used for payroll to achieve forgiveness.

  • Working with Independent Contractors

    • Challenges faced by contractors in applying for the PPP on their own.
    • The importance of documentation and understanding the application process.

  • Documenting Your Application

    • Key documents required for the PPP application.
    • Recommended resources for contractors to guide them through the application process.

  • Conclusion and Next Steps

Key Insights:

  • Maximize your PPP loan: Use it for payroll to ensure full forgiveness.
  • Understand the pitfalls: The PPP funding restrictions affect contractor payroll.
  • Recognize the truth: With proper use, the PPP can transform from a loan to a grant.
  • Find reliable resources: Platforms like Nav and PT Money provide essential guidance for applicants.
  • Stay informed: ChooseFI delivers crucial updates amidst changing guidelines.

Actionable Takeaways:

  • Review and understand the latest PPP guidelines to take full advantage of the program.
  • Document all relevant income and expenses carefully to prepare for the PPP application.
  • Seek out resources and guides tailored to independent contractors to navigate financial aid options effectively.

FAQs:

  • What is the Paycheck Protection Program?

    • The PPP is a loan initiative designed to help small businesses keep their workforce employed during the COVID-19 crisis. It offers forgivable loans for payroll and certain expenses.

  • Can independent contractors apply for the PPP?

    • Yes, independent contractors can apply for the PPP on their own, but they cannot be included in payroll calculations by business owners seeking funds.

Chapter Markers:

  • Introduction to PPP
  • Impact on 1099 Contractors
  • PPP Loan Process Overview
  • Working with Independent Contractors
  • Documenting Your Application
  • Conclusion and Next Steps

Discussion Questions:

  • How can the PPP potentially help your freelance business during economic downturns?
  • What other alternatives exist for independent contractors facing financial challenges?

Email Campaign Snippets:

  • "Travis highlights the importance of understanding PPP for independent contractors in light of current challenges."
  • "Brad shares actionable steps to navigate the complexities of applying for the PPP loans."

[Podcast Intro] "You're listening to ChooseFI. The blueprint for financial independence lives here..."
[Podcast Extro] "You've been listening to ChooseFI Podcast, where we help middle-class America build wealth one life hack at a time."

Understanding the Paycheck Protection Program for 1099 Contractors

The Paycheck Protection Program (PPP) is a significant financial initiative designed to aid small businesses in retaining their workforce during economic downturns. If you are an independent contractor or a business owner who works with contractors, understanding how this program operates and how it affects you is crucial. Here's a streamlined guide to ensure you can navigate this situation effectively.

Overview of the Paycheck Protection Program

The PPP was established to offer forgivable loans to small businesses for payroll and certain expenses to help them weather the financial storm caused by the COVID-19 pandemic. It's essential to comprehend the eligibility and application process of the PPP to take full advantage of its provisions.

  • Maximize Your PPP Loan: Use at least 75% of the funds for payroll to ensure full forgiveness.

Impact on 1099 Contractors

Independent contractors, often working under 1099 arrangements, may find themselves in a complex position regarding the PPP. Initially, the guidance hinted that contractors could be included in payroll calculations by business owners. However, updated guidelines state that while independent contractors can apply for the PPP on their own, they cannot be included in the payroll when businesses apply for funding.

  • Understand the Pitfalls: Business owners can't include 1099 payments in their calculations, potentially leading to reduced financial support for contractors.

This oversight can force many contractors into a precarious financial situation, as business revenues decline significantly.

The PPP Loan Process Overview

To navigate the PPP application successfully, here are the steps you should follow:

  1. Documentation: Gather proof of income, banking relationships, and any eligible business expenses. Proper documentation is fundamental to a successful application.

    • Stay Informed: Keep up with the latest updates and changes to the PPP guidelines to help you adapt.

  2. Calculate Your Loan Amount: Most importantly, independent contractors should base their application on their 2019 income. Total your income, divide by 12 for your average monthly income, and then multiply by 2.5 to determine your potential loan amount.

  3. Apply for the Loan: Submit your application to your business bank or a financial institution participating in the PPP. It’s crucial to apply promptly as funds are limited.

  4. Awaiting Forgiveness: Understand that while the loan may be forgiven if you follow certain rules, the degree of forgiveness for independent contractors can be ambiguous due to the nature of their employment.

  • Recognize the Truth: Following the rules means the PPP can transform from a loan into a grant for those who adhere to the guidelines properly.

Working with Independent Contractors

If you're a business owner who collaborates with multiple contractors, it's vital to consider their financial security. Although you cannot include contractors in your payroll, there are strategies you can utilize to support them during these challenging times:

  • Smart Use of PPP: You can still use the loan to maintain some operational costs, allowing your business to take steps that may ultimately support contractors indirectly.
  • Planning Ahead: Ensure that you keep communication open with your contractors regarding your financial plans and any support measures you can provide.

Conclusion and Next Steps

The landscape surrounding the PPP is continually evolving. As a business owner or independent contractor navigating these changes, ensure you are informed and proactive. Here are some key action items you can tackle today:

  • Review the Guidelines: Familiarize yourself with the most current PPP guidelines to utilize them fully.

  • Use Reliable Resources: Leverage platforms like Student Loan Planner and PT Money for essential guidance tailored to your unique situation as an independent contractor.

  • Document Everything: Keep accurate records of all relevant income and expenses as you prepare for your PPP application.

By taking these steps, you can navigate the complexities of the PPP successfully while ensuring your financial security amid the pandemic challenges.

Travis Hornsby from the Student Loan Planner joins us to discuss the Paycheck Protection Program.

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The Paycheck Protection Program (PPP) is part of the CARES act that was passed to deal with the economic fallout of COVID. PPP allows small businesses to get a forgivable loan for 2.5 times your monthly payroll costs (plus a few other things such as rent and utilities).

The point is to keep people employed during this time. Most businesses are getting hammered in this economy right now. To attempt to avoid massive layoffs the government is offering this forgivable loan to try to allow businesses to keep their employees.

That's great, however, a lot of businesses work with freelancers and contractors instead of hiring employees. At first, money paid to freelancers was included as payroll for purposes of the PPP. But that changed.

It was determined that because freelancers can apply for the PPP themselves that they shouldn't be included in payroll costs. But that puts business that hire freelancers in a weird spot. They still need to pay those freelancers if they want work performed.

If you have W-2 employees you should qualify for the loan and if you use the money to pay your payroll costs the loan will be forgiven.

It gets more complicated for freelancers.

How To Calculate Your PPP Amount As A Freelancer

Look at your 2019 income. Take your annual income from 2019 and divide by 12 to get your average monthly income. Then multiply that by 2.5 to get your PPP loan amount.

Keep in mind you can include some of 2020's income instead if you want. So if using your income from April 2019 - March 2020 gives you a higher average monthly income, you can use that instead.

As a freelancer, to qualify for forgiveness, simply use the money to pay yourself.

Check out this article from PT Money for more details about the PPP and how to apply.

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