This article was originally published on April 29, 2020 and has been updated with new information on July 6, 2020.
If you have read our previous update on this issue, UPDATE: COVID-19 Unemployment Benefits for Dramatists, you will note that, in addition to the Pandemic Unemployment Assistance program under the CARES Act, dramatists may be eligible for some aid under the Paycheck Protection Program, or PPP.
The PPP is a forgivable loan with the aim of keeping workers employed and paid, and incentivizing employers to hire back furloughed workers through a short-term low-interest loan. When certain conditions are met, the loan is forgiven and converted to a grant, which is NOT subject to income tax. PPP loans are available to small businesses, 501(c)3 nonprofits, veteran’s and tribal organizations, and sole proprietors or self-employed workers, including anyone who files income on a schedule C.
There is reportedly still funding available for the PPP, but the program ends on August 8, 2020, so you should get your application in as soon as possible if you decide to apply.
The amount of the loan is equal to 2.5 times your average monthly payroll costs. You may apply for the loan through your banking institution. If your bank is not accepting applications, you can find an approved lender through the SBA website: https://www.sba.gov/paycheckprotection/find. On your application, you will need to provide your average monthly payroll costs to calculate the amount of the loan. If you file a schedule C with your income taxes, your net income for the year divided by 12 will give you this number, as your net income after expenses is what you pay yourself. After you submit the initial application, your bank will ask for additional documents to support your reported payroll costs. Different banks will have different requirements based on their policies, but you should have a copy of your schedule C and/or 1099s on hand.
In order for your loan to be forgiven, you must meet certain requirements, including (1) that no less than 60% of the loan is used to cover payroll costs, and (2) the balance (if any) may only be used to cover expenses such as utilities, rent and mortgage payments, and interest on outstanding debts incurred before February, 2020, over the period of the loan (originally defined as 8 weeks from the date the loan payment is received, now with the option to extend to a 24-week period). The use of the loan must be documented and the documentation provided to your lender. If you are self-employed and work out of a home office, you might be able count your home office expenses against the loan, but it would be subject to the same guidelines as claiming home office expenses on your schedule C, and should be consistent with that you have claimed in the past. If your average payroll is reduced during the loan period from what you had reported on your loan application, a proportional amount of the loan is unable to be forgiven. Any balance of the loan that is not used for its intended purposes (or is otherwise deemed not forgivable) must be paid back at a fixed interest rate of 1% within 2 years.
Some important things to be aware of regarding PPP:
- If you receive a PPP loan, you are ineligible to receive unemployment assistance during that time, as you are able to pay yourself through the PPP.
- The loan is intended to cover 8 weeks, or 2 months, of payroll costs. This is a one-time loan, so you will not be able to apply again once the loan period has run out.
- Unemployment benefits under the CARES Act are paid through July 31, 2020 or until your employment has returned.
- PPP loans are typically received within 1-2 business days of the application being approved, whereas new unemployment claims have taken over a month to be paid out in many cases.
If you decide to apply, please let us know the outcome.
Director of Finance and Human Resources