As more and more Self-employed individuals (including independent contractors and freelancers) are approved for PPP funds, some are left wondering if you can receive the new Unemployment (Pandemic Unemployment Assistance) benefit from the CARES act, in addition to the PPP loan proceeds.  The answer to this question is no, you cannot “double dip.”  This leads to a unique choice, which would be better for you, the Paycheck Protection Program or Unemployment.  Let us break down the differences real quick:

  • PPP Details:
    • It is based on 2.5x your net profit last year.
    • It is a 1% loan with a 2-year term, but can potentially be forgiven, if used for eligible expenses.
    • Forgiveness is for “Owner Compensation Replacement”, which is figured by taking your 2019 Net Profit on your Schedule C and multiplying it by 8/52 (or 0.154)
    • That number will get you close to 75%, the other 25% can be utilized for mortgage interest, rent, or utilities.
      • If you have a home office, you can utilize the Home Office Deduction formula to figure out your eligible expenses.
      • If you do not have any other eligible expenses, you can either pay back the remainder or use it as a 1% loan (with a 2-year term) to help mitigate future losses.
  • Pandemic Unemployment Assistance

Now, down to the nitty gritty.  How do you decide?  Well let’s say you had a net income of $40,000 on your schedule C in 2019.  This would mean that you would qualify for $8,333 in PPP benefits (40,000/12 x 2.5).  $6154 (40000/52 x 8) would be forgiven as “Owner Compensation Replacement,” and you would need to find $2179 in other eligible expenses (rent, mortgage interest, or utilities) for the rest to be forgiven.  You could pay the rest back quickly, or you could save it and use it as a cheap line of credit in case you needed to help keep your business afloat for a while longer.  Payments are deferred for 6 months.  Here, the PPP is clearly the winner, because unemployment insurance will only provide you with $4800 worth of benefits in those 8 weeks, and those benefits will be taxable.  The crossover is around 2019 schedule C income of around $22,000.

We hope this helps a bit.

Please remember, if you did apply for PUA through Indiana, because you did not think that you would receive PPP, you can withdraw your application.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *