As of March 12, 2021

PAYCHECK PROTECTION PROGRAM

HOW TO CALCULATE MAXIMUM LOAN AMOUNTS FOR FIRST DRAW 

PPP LOANS AND WHAT DOCUMENTATION TO PROVIDE – BY BUSINESS TYPE

The Small Business Administration (SBA), in consultation with the Department of the Treasury, 

is providing this updated guidance to assist businesses in calculating their payroll costs (and the 

relevant documentation that is required to support each set of calculations) for purposes of 

determining the maximum amount of a First Draw Paycheck Protection Program (PPP) loan for

each type of business.

Borrowers and lenders may rely on the guidance provided in this document as SBA’s 

interpretation of the CARES Act, the Economic Aid Act, and of the Paycheck Protection 

Program Interim Final Rules. The U.S. government will not challenge lender PPP actions that 

conform to this guidance1 and to the PPP Interim Final Rules and any subsequent rulemaking in 

effect at the time the action is taken.

The guidance describes payroll costs using calendar year 2019 as the reference period for 

payroll costs used to calculate loan amounts. However, borrowers are permitted to use payroll 

costs from either calendar year 2019 or calendar year 2020 for their First Draw PPP Loan 

amount calculation.

2 Documentation, including IRS forms, must be supplied for the selected 

reference period.

1. Question: I am self-employed and have no employees, how do I calculate my 

maximum First Draw PPP Loan amount if I use net profit? (Note that PPP loan 

forgiveness amounts will depend, in part, on the total amount spent by the borrower 

during the covered period following disbursement of the PPP loan.)

Answer: The following methodology should be used to calculate the maximum amount 

that can be borrowed if you are self-employed and have no employees, and your 

principal place of residence is in the United States, including if you are an independent 

contractor or operate a sole proprietorship, and you use net profit (but not if you are a 

partner in a partnership):

• Step 1: Find your 2019 IRS Form 1040 Schedule C line 31 net profit amount.3 If 

this amount is over $100,000, reduce it to $100,000. If this amount is zero or less, 

you are not eligible for a PPP loan.

• Step 2: Calculate the average monthly net profit amount (divide the amount from 

Step 1 by 12).

1 This document does not carry the force and effect of law independent of the statutes and regulations on which it is 

based.

2 All components of payroll costs must be from the same calendar year. Payroll costs, including for covered 

benefits, can only be included for employees whose principal place of residence is in the United States. 3 If you are using 2020 amounts and have not yet completed a 2020 return, fill out the required portions and compute 

the values.
As of March 12, 2021

• Step 3: Multiply the average monthly net profit amount from Step 2 by 2.5.

• Step 4: Add the outstanding amount of any Economic Injury Disaster Loan (EIDL) 

made between January 31, 2020 and April 3, 2020 that you seek to refinance. Do 

not include the amount of any advance under an EIDL COVID-19 loan (because it 

does not have to be repaid).

Your 2019 IRS Form 1040 Schedule C must be provided to substantiate the applied-for 

PPP loan amount. You must also provide a 2019 IRS Form 1099-MISC detailing 

nonemployee compensation received (box 7), IRS Form 1099-K, invoice, bank 

statement, or book of record establishing you were self-employed in 2019 and a 2020 

invoice, bank statement, or book of record establishing you were in operation on 

February 15, 2020.

2. Question: I am self-employed and have employees, how do I calculate my maximum 

First Draw PPP Loan amount (up to $10 million) if I use net profit? (Note that PPP loan 

forgiveness amounts will depend, in part, on the total amount spent by the borrower

during the covered period following disbursement of the PPP loan.)

Answer: The following methodology should be used to calculate the maximum amount 

that can be borrowed if you are self-employed with employees, including if you are an 

independent contractor or operate a sole proprietorship and use net profit (but not if you 

are a partner in a partnership):

• Step 1: Compute your 2019 payroll costs by adding the following:

o 2019 IRS Form 1040 Schedule C line 31 net profit amount:

4

• if this amount is over $100,000, reduce it to $100,000,

• if this amount is less than zero, set this amount at zero;

o 2019 gross wages and tips paid to your employees whose principal place of 

residence is in the United States, up to $100,000 per employee, which can be 

computed using:

• 2019 IRS Form 941 Taxable Medicare wages & tips (line 5ccolumn 1) from each quarter, 

• Plus any pre-tax employee contributions for health insurance or 

other fringe benefits excluded from Taxable Medicare wages & 

tips, and

• Minus (i) any amount paid to any individual employee in excess of 

$100,000, and (ii) any amounts paid to any employee whose 

principal place of residence is outside the United States;

o 2019 employer contributions for employee group health, life, disability, 

vision, and dental insurance (the portion of IRS Form 1040 Schedule C 

4 If you are using 2020 payroll costs and have not yet completed a 2020 return, fill it out and compute the value.
As of March 12, 2021

line 14 attributable to those contributions);

o 2019 employer contributions to employee retirement plans (IRS Form 1040 

Schedule C line 19); and

o 2019 employer state and local taxes assessed on employee compensation, 

primarily state unemployment insurance tax (from state quarterly wage 

reporting forms).

• Step 2: Calculate the average monthly payroll costs amount (divide the amount 

from Step 1 by 12).

• Step 3: Multiply the average monthly payroll costs amount from Step 2 by 2.5.

• Step 4: Add the outstanding amount of any EIDL made between January 31, 2020 

and April 3, 2020 that you seek to refinance. Do not include the amount of any 

advance under an EIDL COVID-19 loan (because it does not have to be repaid).

Your 2019 IRS Form 1040 Schedule C, IRS Form 941 and state quarterly wage 

unemployment insurance tax reporting form from each quarter (or equivalent payroll 

processor records or IRS Wage and Tax Statements), along with documentation of any 

retirement or group health, life, disability, vision, and dental contributions, must be 

provided to substantiate the applied-for PPP loan amount. A payroll statement or 

similar documentation from the pay period that covered February 15, 2020 must be 

provided to establish you were in operation and had employees on that date.

3. Question: I am a self-employed farmer or rancher who reports my income on IRS 

Form 1040 Schedule F. What documentation must I provide in place of Schedule C and 

how should my maximum loan amount be determined (up to $10 million)?

Answer: Self-employed farmers and ranchers (i.e., those who report their net farm 

profit on IRS Form 1040 Schedule 1 and Schedule F) should use IRS Form 1040 

Schedule F in lieu of Schedule C. 

The calculation for self-employed farmers and ranchers without employees is the same 

as for Schedule C filers that have no employees, except that Schedule F line 9 (gross 

income) should be used to determine the loan amount rather than Schedule C line 31 

(net profit).

The calculation for self-employed farmers and ranchers with employees is the same as 

for Schedule C filers that have employees with several exceptions. First, in place of 

Schedule C line 31 (net profit), the difference between Schedule F line 9 (gross income)

and the sum of Schedule F lines 15, 22, and 23 (for employee payroll) should be used. 

Second, employer contributions for employee group health, life, disability, vision and 

dental insurance (portion of Schedule F line 15 attributable to those contributions) and 

employer contributions for employee retirement contributions (Schedule F line 23)

should be used in place of those respective lines on Schedule C.
As of March 12, 2021

The documentation requirements are the same as for Schedule C filers except the 2019 

IRS Form 1040 Schedule 1 and Schedule F must be included with the loan application 

in place of IRS Form 1040 Schedule C. Additionally, for farmers and ranchers with 

employees, IRS Form 943 should be provided in addition to, or in place of, IRS Form 

941, as applicable.

4. Question: How do partnerships apply for PPP loans, and how is the maximum First 

Draw PPP Loan amount calculated for partnerships (up to $10 million)? Should 

partners’ self- employment income be included on the business entity level PPP loan 

application or on separate PPP loan applications for each partner? (Note that PPP loan 

forgiveness amounts will depend, in part, on the total amount spent during the covered

period following disbursement of the PPP loan.)

Answer: The following methodology should be used to calculate the maximum amount 

that can be borrowed for partnerships (partners’ self-employment income should be 

included on the partnership’s PPP loan application; individual partners may not apply 

for separate PPP loans):

• Step 1: Compute 2019 payroll costs by adding the following:

o 2019 Schedule K-1 (IRS Form 1065) Net earnings from self-employment of 

individual U.S.-based general partners that are subject to self-employment 

tax, multiplied by 0.9235,5 up to $100,000 per partner:

6

• Compute the net earnings from self-employment of individual 

U.S.-based general partner that are subject to self-employment tax 

from box 14, Code A of IRS Form 1065 Schedule K-1 and subtract 

(i) any section 179 expense deduction claimed in box 12; (ii) any 

unreimbursed partnership expenses claimed; and (iii) any depletion 

claimed on oil and gas properties;

• if this amount is over $100,000, reduce it to $100,000; 

• if this amount is less than zero, set this amount at zero;

o 2019 gross wages and tips paid to employees whose principal place of 

residence is in the United States (if any), up to $100,000 per employee, 

which can be computed using:

• 2019 IRS Form 941 Taxable Medicare wages & tips (line 5ccolumn 1) from each quarter, 

• Plus any pre-tax employee contributions for health insurance or 

other fringe benefits excluded from Taxable Medicare wages & 

tips, and 

• Minus any amounts paid to any individual employee in excess of 

5 This treatment follows the computation of self-employment tax from IRS Form 1040 Schedule SE Section A line 4 

and removes the “employer” share of self-employment tax, consistent with how payroll costs for employees in the 

partnership are determined. 6 If the partnership is using 2020 payroll costs and the Form 1065 for 2020 has not yet been completed, fill out the 

form. 
As of March 12, 2021

$100,000 and any amounts paid to any employee whose principal

place of residence is outside the United States;

o 2019 employer contributions for employee (but not partner) group health, 

life, disability, vision, and dental insurance, if any (portion of IRS Form 

1065 line 19 attributable to those contributions);

o 2019 employer contributions to employee (but not partner) retirement plans, 

if any (IRS Form 1065 line 18); and

o 2019 employer state and local taxes assessed on employee compensation, 

primarily state unemployment insurance tax (from state quarterly wage 

reporting forms), if any.

• Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1 

by 12).

• Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5.

• Step 4: Add any outstanding amount of any EIDL made between January 31, 2020 

and April 3, 2020 that you seek to refinance. Do not include the amount of any 

advance under an EIDL COVID-19 loan (because it does not have to be repaid).

The partnership’s 2019 IRS Form 1065 (including K-1s) must be provided to 

substantiate the applied-for First Draw PPP Loan amount. If the partnership has 

employees, other relevant supporting documentation, including the 2019 IRS Form 941 

and state quarterly wage unemployment insurance tax reporting form from each quarter 

(or equivalent payroll processor records or IRS Wage and Tax Statements) along with 

records of any retirement or group health, life, disability, vision, and dental insurance 

contributions must also be provided to substantiate the First Draw PPP Loan amount. If 

the partnership has employees, a payroll statement or similar documentation from the 

pay period that covered February 15, 2020 must be provided to establish the partnership 

was in operation and had employees on that date. If the partnership has no employees, 

an invoice, bank statement, or book of record establishing the partnership was in 

operation on February 15, 2020 must instead be provided.

5. Question: How is the maximum First Draw PPP Loan amount calculated for S 

corporations and C corporations (up to $10 million)? (Note that PPP loan forgiveness 

amounts will depend, in part, on the total amount spent during the covered period 

following disbursement of the PPP loan.)

Answer: The following methodology should be used to calculate the maximum amount 

that can be borrowed for corporations, including S and C corporations:

• Step 1: Compute 2019 payroll costs by adding the following:

o 2019 gross wages and tips paid to your employees whose principal place of 

residence is in the United States, up to $100,000 per employee, which can be 

computed using:
As of March 12, 2021

• 2019 IRS Form 941 Taxable Medicare wages & tips (line 5ccolumn 1) from each quarter,

• Plus any pre-tax employee contributions for health insurance or 

other fringe benefits excluded from Taxable Medicare wages & 

tips,

• Minus (i) any amounts paid to any individual employee in excess 

of $100,000, and (ii) any amounts paid to any employee whose 

principal place of residence is outside the United States;

o 2019 employer group health, life, disability, vision, and dental insurance 

contributions (portion of IRS Form 1120 line 24 or IRS Form 1120-S line 18 

attributable to those contributions);7

o 2019 employer retirement contributions (IRS Form 1120 line 23 or IRS 

Form 1120-S line 17); and

o 2019 employer state and local taxes assessed on employee compensation, 

primarily state unemployment insurance tax (from state quarterly wage 

reporting forms).

• Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1 

by 12).

• Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5

• Step 4: Add the outstanding amount of any EIDL made between January 31, 2020 

and April 3, 2020 that you seek to refinance. Do not include the amount of any 

advance under an EIDL COVID-19 loan (because it does not have to be repaid).

The corporation’s 2019 IRS Form 941 and state quarterly wage unemployment 

insurance tax reporting form from each quarter (or equivalent payroll processor records 

or IRS Wage and Tax Statements), along with the filed business tax return (IRS Form 

1120 or IRS 1120-S) or other documentation of any retirement and group health, life, 

disability, vision, and dental insurance contributions, must be provided to substantiate 

the applied-for PPP loan amount. A payroll statement or similar documentation from 

the pay period that covered February 15, 2020 must be provided to establish you were in 

operation and had employees on that date.

6. Question: How is the maximum First Draw PPP Loan amount calculated for eligible 

nonprofit organizations (up to $10 million)? (Note that PPP loan forgiveness amounts 

will depend, in part, on the total amount spent during the covered period following 

disbursement of the PPP loan.)

Answer: The following methodology should be used to calculate the maximum amount 

that can be borrowed for eligible nonprofit organizations (eligible nonprofit religious 

7 Note that employer contributions for group health, life, disability, vision, and dental insurance for S-Corporation 

employees who own more than a 2 percent stake in the business (or employees who are family members of such 

owners) are not included in this figure as such contributions are already included in gross wages.
As of March 12, 2021

institutions or other eligible nonprofits without an IRS Form 990 filing requirement, see 

the next question):

• Step 1: Compute 2019 payroll costs by adding the following:

o 2019 gross wages and tips paid to your employees whose principal place of 

residence is in the United States, up to $100,000 per employee, which can be 

computed using:

• 2019 IRS Form 941 Taxable Medicare wages & tips (line 5ccolumn 1) from each quarter,

• Plus any pre-tax employee contributions for health insurance or 

other fringe benefits excluded from Taxable Medicare wages & 

tips, and

• Minus (i) any amounts paid to any individual employee in excess 

of $100,000, and (ii) any amounts paid to any employee whose 

principal place of residence is outside the U.S.;

o 2019 employer group health, life, disability, vision, and dental insurance 

contributions (portion of IRS Form 990 Part IX line 9 attributable to those 

contributions);

o 2019 employer retirement contributions (IRS Form 990 Part IX line 8); and

o 2019 employer state and local taxes assessed on employee compensation, 

primarily state unemployment insurance tax (from state quarterly wage 

reporting forms).

• Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1 

by 12).

• Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5.

• Step 4: Add the outstanding amount of any EIDL made between January 31, 2020 

and April 3, 2020 that you seek to refinance. Do not include the amount of any 

advance under an EIDL COVID-19 loan (because it does not have to be repaid).

The nonprofit organization’s 2019 IRS Form 941 and state quarterly wage

unemployment insurance tax reporting form from each quarter (or equivalent payroll 

processor records or IRS Wage and Tax Statements), along with the filed IRS Form 990 

Part IX or other documentation of any retirement and group health, life, disability, 

vision, and dental insurance contributions, must be provided to substantiate the appliedfor PPP loan amount. A payroll statement or similar documentation from the pay period 

that covered February 15, 2020 must be provided to establish you were in operation and 

had employees on that date. Eligible nonprofits that file IRS Form 990-EZ should rely 

on that form and those that do not file an IRS Form 990 or 990-EZ, typically those with 

gross receipts less than $50,000, should see the next question.
As of March 12, 2021

7. Question: How is the maximum First Draw PPP Loan amount calculated for eligible 

nonprofit religious institutions, veterans organizations, and tribal businesses (up to $10 

million)? (Note that PPP loan forgiveness amounts will depend, in part, on the total 

amountspent during the covered period following disbursement of the PPP loan.)

Answer: The following methodology should be used to calculate the maximum amount 

that can be borrowed for eligible nonprofit religious institutions, veterans organizations 

and tribal businesses:

• Step 1: Compute 2019 payroll costs by adding the following:

o 2019 gross wages and tips paid to employees whose principal place of 

residence is in the United States, up to $100,000 per employee, which can be 

computed using:

• 2019 IRS Form 941 Taxable Medicare wages & tips (line 5ccolumn 1) from each quarter,

• Plus any pre-tax employee contributions for health insurance or 

other fringe benefits excluded from Taxable Medicare wages & 

tips, and

• Minus (i) any amounts paid to any individual employee in excess 

of $100,000, and (ii) any amounts paid to any employee whose 

principal place of residence is outside the United States;

o 2019 employer group health, life, disability, vision, and dental insurance 

contributions;

o 2019 employer retirement contributions; and

o 2019 employer state and local taxes assessed on employee compensation, 

primarily state unemployment insurance tax (from state quarterly wage 

reporting forms).

• Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1 

by 12).

• Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5.

• Step 4: Add any outstanding amount of any EIDL made between January 31, 2020 

and April 3, 2020 that you seek to refinance. Do not include the amount of any 

advance under an EIDL COVID-19 loan (because it does not have to be repaid).

The entity’s 2019 IRS Form 941 and state quarterly wage unemployment insurance tax 

reporting form from each quarter (or equivalent payroll processor records or IRS Wage 

and Tax Statements), along with documentation of any retirement and group health, life, 

disability, vision, and dental insurance contributions, must be provided to substantiate 

the applied-for PPP loan amount. A payroll statement or similar documentation from 
As of March 12, 2021

the pay period that covered February 15, 2020 must be provided to establish you were in 

operation and had employees on that date.

8. Question: I am an LLC owner. Which set of instructions applies to me?

Answer: LLCs should follow the instructions that apply to their tax filing status in the 

reference period used to calculate payroll costs (2019 or 2020)—i.e., whether the LLC

filed (or will file) as a sole proprietor, a partnership, or a corporation in the reference 

period.

9. Question: What other documentation can an applicant provide for the purpose of 

substantiating payroll costs used to calculate the applied-for First Draw PPP Loan

amount?

Answer: An applicant may provide IRS Form W-2s and IRS Form W-3 or payroll 

processor reports, including quarterly and annual tax reports, in lieu of IRS Form 941. 

Additionally, very small businesses that file an annual IRS Form 944 or agricultural 

employers that file an annual IRS Form 943 should rely on and provide IRS Form 944 

or IRS Form 943 in lieu of IRS Form 941. 

An applicant may provide records from a retirement administrator to document 

employer retirement contributions. An applicant may also provide records from a health 

insurance company or third-party administrator for a self-insured plan to document 

employer health insurance contributions.

10. Question: I am a corporation or nonprofit and was in operation on February 15, 2020, 

but was not in operation between February 15, 2019, and June 30, 2019. What 

reference period should I be using to compute my First Draw PPP Loan amount?

Answer: In this case, you may choose one of two ways to calculate your First Draw 

PPP Loan amount. The first option is for borrowers to follow the applicable instructions 

in Questions 5, 6, 7 and use payroll information for all of 2020 instead of 2019. The 

second option is for borrowers to calculate their loan amount using their average 

monthly payroll costs incurred in January and February 2020. For borrowers choosing 

the second option, the following methodology should be used to calculate the maximum 

amount that you can borrow:

• Step 1: Compute January and February 2020 payroll costs by adding the following:

o Gross pay to employees for those two months whose principal place of 

residence is in the United States, up to $16,667 per employee;

o Employer group health, life, disability, vision, and dental insurance 

contributions for those two months;

o Employer retirement contributions for those two months; and

o Employer state and local taxes assessed on employee compensation for those 

two months, primarily state unemployment insurance tax.
As of March 12, 2021

• Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1 

by 2).

• Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5.

• Step 4: Add any outstanding amount of any EIDL made between January 31, 2020 

and April 3, 2020 that you seek to refinance. Do not include the amount of any 

advance under an EIDL COVID-19 loan (because it does not have to be repaid).

If you choose the second option, you must provide payroll records from January and 

February 2020, your IRS Form 941 for the first quarter of 2020, and documentation of 

any employer retirement and group health, life, disability, vision, and dental insurance 

contributions from that period.

11. Question: I am self-employed (or a partnership) and was in operation on February 15, 

2020, but was not in operation between February 15, 2019, and June 30, 2019. I have 

filed or will file a Form 1040 Schedule C or Schedule F (or Form 1065) for 2020. What 

reference period should I be using to compute my First Draw PPP Loan amount? 

Answer: In this case, you may choose one of two ways to calculate your First Draw 

PPP Loan amount. The first option is for borrowers to follow the applicable instructions 

in Questions 1 through 4 (or Questions 15 and 16 if you use gross income and file 

Schedule C) and use payroll information for all of 2020 instead of 2019. The second 

option is for borrowers to calculate their loan amount using their average monthly 

payroll costs incurred in January and February 2020. 

For borrowers choosing the second option that file Schedule C and use net profit, the 

following methodology should be used to calculate the maximum amount that you can 

borrow:

• Step 1: Fill out an IRS Form 1040 Schedule C for January and February 2020. The 

entries on the schedule must reflect all business income and expenses from those 

two months, with the exception that on Schedule C line 13:

o you must include only 1/6 of the amount of any annual depreciation and 

section 179 expense deduction attributable to investment made in those 

months, and

o you must include 1/6 of the amount of the 2020 depreciation deduction 

attributable to investment made in prior years.

• Step 2: Take the net profit amount for January and February on Schedule C line 31. 

o If this amount is more than $16,667 for the two months combined, set it to

$16,667.

o If this amount is less than 0 for the two months combined, set it to 0.

• Step 3: If you have employees, add your employee payroll costs for January and 

February 2020 to the result in Step 2. Only include payroll costs for those 
As of March 12, 2021

employees whose principal place of residence is in the United States and up to 

$16,667 of gross pay per employee.

• Step 4: Divide the total by 2, and then multiply it by 2.5.

• Step 5: Add the outstanding amount of any EIDL made between January 31, 2020 

and April 3, 2020 that you seek to refinance, less the amount of any advance under 

an EIDL COVID-19 loan (because it does not have to be repaid).

Your IRS Form 1040 Schedule C as completed must be provided to your lender when 

you apply for a PPP loan. This information should be consistent with what you will 

submit to the IRS and must be true and accurate in all material respects. You must also 

supply bank statements from your business account(s) for the months of January and 

February 2020 to substantiate your net profit amount from Schedule C. If you have 

employees, you also must provide payroll records from those two months, your IRS 

Form 941 for the first quarter of 2020, and documentation of any employer retirement 

and group health, life, disability, vision, and dental insurance contributions made on 

behalf of employees.

Schedule C filers that applied for a PPP loan using SBA Form 2483-C or 2483-SD-C

should use the same methodology as above but replace net profit from Step 2 with the 

gross income amount on Schedule C line 7 (if no employees) or the difference between 

the gross income amount on Schedule C line 7 and employee payroll costs from the sum 

of Schedule C lines 14, 19, and 26 (if you have employees).8

 Documentation 

requirements are the same as above.

Schedule F filers should use the same methodology as above but complete a Schedule F 

in Step 1 and replace net profit from Step 2 with the gross income amount on Schedule 

F line 9 (if no employees) or the difference between the gross income amount on 

Schedule F line 9 and employee payroll costs from the sum of Schedule F lines 15, 22, 

and 23 (if you have employees). Documentation requirements are the same as above 

except Schedule F as completed must be provided in place of Schedule C.

Partnerships should use the same methodology as above but complete a Form 1065 in 

Step 1 and replace net profit from Step 2 with the net earnings from self-employment for 

each individual U.S.-based general partners (the difference between box 14, Code A of 

IRS Form 1065 K-1 and the sum of (i) any section 179 expense deduction claimed in 

box 12; (ii) any unreimbursed partnership expenses claimed; and (iii) any depletion 

claimed on oil and gas properties) multiplied 0.9235. Documentation requirements are 

the same as above except Form 1065 as completed must be provided in place of 

Schedule C.

8 Any other employee payroll costs not reported on those lines but included in line 28 total expenses must also be 

subtracted from gross income.
As of March 12, 2021

12. Question: In addition to pre-tax employee contributions for health insurance, what are 

the other pre-tax employee contributions for fringe benefits that may have been 

excluded from IRS Form 941 Taxable Medicare wages & tips that is part of employee 

gross pay?

Answer: Employee contributions and deductions from pay for flexible spending 

arrangements (FSA) or other nontaxable benefits under a section 125 cafeteria plan, 

qualified transit or parking benefits (up to $270 a month), and group life insurance (for 

up to $50,000 of coverage) may have been excluded from IRS Form 941 Taxable 

Medicare wages & tips. However, pre-tax employee contributions to retirement plans 

are included in Taxable Medicare wages & tips and should not be added to that figure to 

arrive at gross pay.

13. Question: How should a borrower account for federal taxes when determining its 

payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan, 

and the amount of a loan that may be forgiven?

Answer: Payroll costs are calculated on a gross basis without regard to federal taxes 

imposed or withheld, such as the employee’s and employer’s share of Federal Insurance 

Contributions Act (FICA) and income taxes required to be withheld from employees. 

As a result, payroll costs are not reduced by taxes imposed on an employee and required 

to be withheld by the employer. However, payroll costs do not include the employer’s 

share of payroll tax. For example, the wages of an employee who earned $4,000 per 

month in gross wages, from which $500 in federal taxes was withheld, count as $4,000 

in payroll costs. However, the employer-side federal payroll taxes imposed on the 

$4,000 in wages are excluded from payroll costs under the statute.9

14. Question: Is there a limit on the dollar amount of First Draw PPP Loans a corporate 

group can receive?

Answer: Yes, businesses that are part of the same corporate group cannot receive First 

Draw PPP Loans in a total amount of more than $20 million. For purposes of this limit, 

businesses are part of a single corporate group if they are majority owned, directly or 

indirectly, by a common parent.

9 The definition of “payroll costs” in the CARES Act, 15 U.S.C. 636(a)(36)(A)(viii), excludes “taxes imposed or

withheld under chapters 21, 22, or 24 of the Internal Revenue Code of 1986 during the covered period”. As 

described above, the SBA interprets this statutory exclusion to mean that payroll costs are calculated on a gross 

basis, without subtracting federal taxes that are imposed on the employee or withheld from employee wages. Unlike 

employer-side payroll taxes, such employee-side taxes are ordinarily expressed as a reduction in employee takehome pay; their exclusion from the definition of payroll costs means payroll costs should not be reduced based on 

taxes imposed on the employee or withheld from employee wages. This interpretation is consistent with the text of 

the statute and advances the legislative purpose of ensuring workers remain paid and employed. Further, because 

the reference period for determining a borrower’s maximum loan amount will largely or entirely precede the period 

during which borrowers will be subject to the restrictions on allowable uses of the loans, for purposes of the 

determination of allowable uses of loans and the amount of loan forgiveness, this statutory exclusion will apply with 

respect to such taxes imposed or withheld at any time, not only during such period.
As of March 12, 2021

15. Question: I am self-employed and have no employees, how do I calculate my 

maximum First Draw PPP Loan amount if I use gross income? 

Answer: The following methodology should be used to calculate the maximum amount 

that can be borrowed if you are self-employed and have no employees, and your 

principal place of residence is in the United States, including if you are an independent 

contractor or operate a sole proprietorship (but not if you are a partner in a partnership;

see Question 4), and you use gross income:

• Step 1: Find your 2019 IRS Form 1040 Schedule C line 7 gross income amount.10

If this amount is zero or less, you are not eligible for a PPP loan.

• Step 2: Calculate the average monthly gross income amount (divide the amount 

from Step 1 by 12). If this amount is more than $8,333.33, reduce it to $8,333.33.

• Step 3: Multiply the average monthly gross income amount from Step 2 by 2.5.

• Step 4: Add the outstanding amount of any Economic Injury Disaster Loan (EIDL) 

made between January 31, 2020 and April 3, 2020 that you seek to refinance. Do 

not include the amount of any advance under an EIDL COVID-19 loan (because it 

does not have to be repaid).

Your 2019 IRS Form 1040 Schedule C must be provided to substantiate the applied-for 

PPP loan amount. You must also provide a 2019 IRS Form 1099-MISC detailing 

nonemployee compensation received (box 7), IRS Form 1099-K, invoice, bank 

statement, or book of record establishing you were self-employed in 2019 and a 2020 

invoice, bank statement, or book of record establishing you were in operation on 

February 15, 2020.

16. Question: I am self-employed and have employees, how do I calculate my maximum 

First Draw PPP Loan amount (up to $10 million) if I use gross income? (Note that PPP 

loan forgiveness amounts will depend, in part, on the total amount spent by the borrower

during the covered period following disbursement of the PPP loan.)

Answer: The following methodology should be used to calculate the maximum amount 

that can be borrowed if you are self-employed with employees, including if you are an 

independent contractor or operate a sole proprietorship (but not if you are a partner in a 

partnership; see Question 4) and use gross income:

• Step 1: Find your 2019 IRS Form 1040 Schedule C line 7 gross income amount.11

Subtract 2019 employee payroll costs summed from Form 1040 Schedule C lines 

10 If you are using 2020 amounts and have not yet completed a 2020 return, fill out the required portions and 

compute the values.

11 If you are using 2020 amounts and have not yet completed a 2020 return, fill out the required portions and 

compute the values.
As of March 12, 2021

14, 19, and 26.

12 If this amount is less than zero, set this amount at zero.

• Step 2: Divide the gross income amount from Step 1 by 12. If this amount is more 

than $8,333.33, reduce it to $8,333.33.

• Step 3: Calculate the sum of:

o 2019 gross wages and tips paid to your employees whose principal place of 

residence is in the United States, up to $100,000 per employee, which can be 

computed using:

• 2019 IRS Form 941 Taxable Medicare wages & tips (line 5ccolumn 1) from each quarter, 

• Plus any pre-tax employee contributions for health insurance or 

other fringe benefits excluded from Taxable Medicare wages & 

tips, and

• Minus (i) any amount paid to any individual employee in excess of 

$100,000, and (ii) any amounts paid to any employee whose 

principal place of residence is outside the United States;

o 2019 employer contributions for employee group health, life, disability, 

vision, and dental insurance (the portion of IRS Form 1040 Schedule C line 

14 attributable to those contributions);

o 2019 employer contributions to employee retirement plans (IRS Form 1040 

Schedule C line 19); and

o 2019 employer state and local taxes assessed on employee compensation, 

primarily state unemployment insurance tax (from state quarterly wage 

reporting forms).

• Step 4: Calculate average monthly payroll costs for employees (divide the amount 

from Step 3 by 12).

• Step 5: Sum the amounts from Step 2 and Step 4 and multiply by 2.5. 

• Step 6: Add the outstanding amount of any EIDL made between January 31, 2020 

and April 3, 2020 that you seek to refinance. Do not include the amount of any 

advance under an EIDL COVID-19 loan (because it does not have to be repaid).

Your 2019 IRS Form 1040 Schedule C, IRS Form 941 and state quarterly wage 

unemployment insurance tax reporting form from each quarter (or equivalent payroll 

processor records or IRS Wage and Tax Statements), along with documentation of any 

retirement or group health, life, disability, vision, and dental contributions, must be 

provided to substantiate the applied-for PPP loan amount. A payroll statement or 

similar documentation from the pay period that covered February 15, 2020 must be 

provided to establish you were in operation and had employees on that date.

12 Any other employee payroll costs not reported on those lines but included in line 28 total expenses must also be 

subtracted from gross income.
As of March 12, 2021

17. Question: If I report farm or ranch income as an LLC, qualified joint venture, or 

partnership, may I use gross income to determine loan amount?

Answer: Only self-employed farmers and ranchers who file an IRS Form 1040 

Schedule F with their Form 1040 and report Schedule F farm income on IRS Form 1040 

Schedule 1 may use gross income to determine the loan amount. Single member LLCs 

and qualified joint ventures, as defined by IRS,13 that file Schedule F with their Form 

1040 may use gross income to determine their loan amount. Only one spouse in a 

qualified joint venture may submit a PPP loan application on behalf of the qualified 

joint venture. 

Partnerships and partners must calculate loan amounts as directed in Question 4 above. 

18. Question: If I am a self-employed individual who is eligible to use gross income from 

both Schedule C and Schedule F to calculate loan amount, how do I calculate loan 

amount?

Answer: Calculate your maximum loan amount by following the relevant guidance for 

calculating maximum loan amount for self-employed individuals (either with or without 

employees) using gross income from Schedule C and separately for using gross income 

from Schedule F. Add the two results together to calculate your maximum loan amount. 

In the applicable Box A on SBA Form 2483-C, include amounts from both Schedule C 

and Schedule F.

13 A qualified joint venture for federal income tax purposes means (1) the only members of the joint venture are a 

married couple who file a joint return and each file Schedule C or F with their Form 1040, (2) both spouses 

materially participate in the trade or business, and (3) both spouses elect not to be treated as a partnership.