Insights

Paycheck Protection Program Rules for Partners and Members of
Partnerships and LLCs, and Other Self-Employed Individuals


COVID-19 Business Update

The Paycheck Protection Program (PPP) allows independent contractors and other self-employed individuals, including partners in partnerships and members of LLCs, impacted by the COVID-19 crisis to apply for a loan equal to 2.5 times their average monthly compensation up to a maximum annualized compensation of $100,000.

The compensation of independent contractors is most easily determined by looking at the net profit reflected on line 31 of the Schedule C of their 2019 personal tax returns. Members and partners of multi- member LLCs and partnerships, respectively, are able to participate with PPP using the net income amount on their 2019 K-1s, as long as that amount is from self-employment income. Also included would be guaranteed payments reflected on the 2019 K-1. Net income amounts on K-1s from S corporations would not be covered under PPP since this type of income is not self-employment income.

The above amounts would then be divided by twelve to arrive at an average monthly compensation amount. This amount would be multiplied by 2.5 to arrive at the PPP loan amount. There is a maximum annualized compensation limit of $100,000 that needs to be considered when performing these calculations. Partners of partnerships and members of LLCs should leave their distributions out of the calculation entirely. If you have employees, include these amounts with the salaries and other fringe benefits of your employees when calculating the payroll costs for the PPP application.

Payroll Tax Deferral

The above entities can defer payment of the Social Security portion of their deductible portion of self-employment tax for the period March 27, 2020 to December 31, 2020. The deferred tax payment will then be due in two payments equal to 50% of the deferred tax on December 31, 2021 and December 31, 2022. If you obtain PPP Loan forgiveness you may not defer the payment of the employer’s share of Social Security tax due on or after the date that the PPP loan is fully or partially forgiven.

For additional information on COVID-19 related business issues please visit the Galleros Robinson Knowledge Center at https://gallerosrobinson.com/knowledge-center

The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.