How to Calculate Gross Income for the PPP

Editor’s note: On Tuesday, May 4th the PPP ran out of general funds and the SBA stopped accepting new PPP loan applications. A reserve of funds is still available for community financial institutions that lend to businesses run by women, minorities, and underserved communities. Additionally, a reserve of funds remains for applications previously submitted but not yet reviewed by the SBA. If you have already submitted your loan application, however, this does not guarantee you funding.

On February 22, President Joe Biden announced changes to the Paycheck Protection Program (PPP) including allowing the self-employed to apply using their gross income. But what is gross income and how will it change your PPP loan amount calculation?

How to calculate your PPP loan amount using gross income

There are two calculations: one for sole proprietors with payroll and one for sole proprietors without payroll. For now, only the self-employed who file a Schedule C will be eligible to use gross income for their PPP loan amount calculation.

Sole proprietors without payroll

2020 Scheudle C Line 7

Sole proprietors with payroll

If you are running payroll for either yourself or employees, you will need to subtract payroll costs from your gross income. All of this information can still be found on your Schedule C.

2020 Annotated Schedule C

Here are the steps to calculating your PPP loan amount as a sole proprietor with payroll: Take your gross income as reported on line 7 of your 2019 or 2020 Schedule C.

  1. Subtract any payroll costs as reported on lines 14, 19, and 26 of your 2019 or 2020 Schedule C. If this value is greater than $100,000 (the maximum allowed amount), use $100,000.
  2. Add in the gross wages and tips paid to employees based in the United States for 2019 or 2020. This can be calculated using line 5c, column 1 of IRS Form 941.
  3. Add in any pre-tax employee contributions for health insurance. Subtract any values in excess of $100,000 per employee.
  4. Add in employer contributions to employee group health, life, disability, vision, dental insurance, retirement contributions, and state and local taxes. (Note: Some payroll providers have reports available that will provide all the information needed for steps 3 and 4).
  5. Divide by 12. This is considered to be your average monthly payroll expense.
  6. Multiply the number from step 5 by 2.5 to find your PPP loan amount.

How to calculate your PPP loan amount using gross income

There are two calculations: one for sole proprietors with payroll and one for sole proprietors without payroll. For now, only the self-employed who file a Schedule C will be eligible to use gross income for their PPP loan amount calculation.

Sole proprietors without payroll

2020 Scheudle C Line 7

Sole proprietors with payroll

If you are running payroll for either yourself or employees, you will need to subtract payroll costs from your gross income. All of this information can still be found on your Schedule C.

2020 Annotated Schedule C

Here are the steps to calculating your PPP loan amount as a sole proprietor with payroll: Take your gross income as reported on line 7 of your 2019 or 2020 Schedule C.

  1. Subtract any payroll costs as reported on lines 14, 19, and 26 of your 2019 or 2020 Schedule C. If this value is greater than $100,000 (the maximum allowed amount), use $100,000.
  2. Add in the gross wages and tips paid to employees based in the United States for 2019 or 2020. This can be calculated using line 5c, column 1 of IRS Form 941.
  3. Add in any pre-tax employee contributions for health insurance. Subtract any values in excess of $100,000 per employee.
  4. Add in employer contributions to employee group health, life, disability, vision, dental insurance, retirement contributions, and state and local taxes. (Note: Some payroll providers have reports available that will provide all the information needed for steps 3 and 4).
  5. Divide by 12. This is considered to be your average monthly payroll expense.
  6. Multiply the number from step 5 by 2.5 to find your PPP loan amount.

What is gross income?

Gross income is important because it shows how much profit you make before paying your operational expenses. Operational expenses include costs like rent, office supplies, and web hosting. These are expenses that don’t scale with production.

Think of gross income as the money you make on just the sale of a product alone. For example, if you sell ceramic mugs for $20 and the clay you use to make them costs $5, you would make $15 gross income on each sale.

Let’s say your ceramic mugs business sold 100 mugs for a gross income of 800,500 (100 x 15). Once you pay rent worth $500 and the $200 for web hosting, you’re left with $800 net income ($1500 – $500 – $200).

Because gross income does not include any operational expenses or taxes paid, your gross income will always be greater than your net income. So when thinking how to calculate gross income, know that your result should be bigger than your net income.

Resource:

https://bench.co/blog/accounting/calculate-gross-income/
https://bench.co/blog/accounting/calculate-gross-income/
https://www.calculator.net/salary-calculator.html

Categories: Uncategorized

Leave a Reply

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