How to Calculate Your Paycheck Protection Program Loan Amount

By Heather Bant on June 4, 2020

Editor’s note: This article reflects the latest changes from the PPP Flexibility Act, signed into law on June 4, 2020. If you need 2019 bookkeeping completed for your application, Bench can help.

The Paycheck Protection Program (PPP) has proven to be the most popular coronavirus relief measure for small businesses: an up-to $10 million forgivable loan designed to keep employees on payroll.

You can read a full summary of the program here.

How PPP loans are calculated

PPP loans are calculated using the average monthly cost of the salaries of you and your employees. But if you’re a sole proprietor, your PPP loan will be calculated based on your business’ net profit.

Your salary as an owner will be defined through the way your business is taxed. If you are taxed as an LLC, your salary is directly linked to your business’ profit, and will be the amount that you paid self-employment tax on in 2019. If you are taxed as a corporation, your salary is dependent on running payroll for yourself—meaning that you must be remitting federal and state payroll taxes (if you’re a corporation owner paying yourself through owner draws, you won’t qualify for the PPP).

The calculation itself will require you to use your annual salary, as well as the annual salary of any W2 employees whose primary residence is the United States. The PPP sets a cap on salaries of $100,000—if you or any of your employees make more than that, you’ll still have to just write $100,000 on your application. Above and beyond the $100,000 salary mark, you can also include related payroll expenses, such as health insurance, retirement contributions, paid sick leave, vacation pay, and severance pay.

If your business existed prior to 2019, you should use your total payroll expenses from 2019, and divide the annual total by 12 to arrive at a monthly average. If your business was new in 2019, there are further nuances. If your business existed prior to June 30, 2019, you should also be using your annual payroll expenses and dividing by the 12 months of the year. For a business formed after June 30, 2019, you can choose to do the same and take your annual total divided by the 12 months, or you can instead use January 1, 2020 to February 29, 2020 and divide by those 2 months to find a monthly average.

Further reading: Do Owner Draws Count as Salary for the PPP?

The easiest way to get these numbers

If you have employees (and pay yourself a salary too), you should be able to download a payroll report through your payroll provider. Many payroll providers are even offering “PPP reports” that tell you everything you need to know for your loan application.

If you’re self-employed and have filed your 2019 tax return, your Schedule C will show your net profit. If you don’t have a completed Schedule C yet, you still need to submit a completed Schedule C in order to qualify for the PPP loan. You’ll likely need retroactive bookkeeping done for 2019 in order to accurately fill out your Schedule C. Need historical bookkeeping done? Bench can help.

Calculating your PPP loan by entity type

If you are a: Your salary will be: Other payroll costs you can include:
1099 contractor The sum of your income earned through freelance work, as reported on the 2019 1099-MISC forms you received (max $100,000). None.
Sole proprietor Your 2019 net profit (max $100,000) as reported on your Schedule C (line 31). U.S. annual employee salaries, including wages, commissions, tips, and state and local payroll taxes. Each employee is capped at $100,000 annually.
Partnership Your 2019 self-employment earnings as reported on your Schedule K-1 (line 14), then multiplied by 0.9235. You may include K-1 earnings as salary for each partner, up to $100,000. U.S. annual employee salaries, including wages, commissions, tips, and state and local payroll taxes. Each employee is capped at $100,000 annually.
S corp Your salary as reported through a payroll service (max $100,000). Your salary may only be considered if it was paid through payroll while remitting payroll tax. U.S. annual employee salaries, including wages, commissions, tips, and state and local payroll taxes. Each employee is capped at $100,000 annually.
C corp Your salary as reported through a payroll service (max $100,000). As a C corp, your salary may only be considered if it was paid through payroll while remitting payroll tax. U.S. annual employee salaries, including wages, commissions, tips, and state and local payroll taxes. Each employee is capped at $100,000 annually.

Calculating your loan amount as an independent contractor

As an independent contractor, your 2019 income is considered to be the sum of all 1099-MISC forms you received, because this is what you pay self-employment tax on each year. If you have already filed your 2019 taxes, this will be added together already on Line 31 of your 2019 Schedule C. If you haven’t, not to worry—you can simply take the 2019 1099-MISC forms you received in January and add them all together. That will give you the income number you need.

If you had started receiving income prior to June 30, 2019, you should divide by 12—even if you did not work the entire year. If you did not receive revenue until after June 30, 2019, you have a choice: you can still use your 2019 annual 1099 income divided by 12, or you can use your income from January to February 2020 divided by 2, whichever is more favorable for you.

You’re eligible for the PPP even if you’re an Uber driver or pick up tasks on TaskRabbit.

Here’s a detailed example

Let’s say you worked as a freelance photographer in 2019. You received 1099-MISC forms from 15 events you worked, and you have not yet filed your 2019 taxes. Here’s what you’d do:

Step One: Add the “Non-Employee Compensation” totals on each 1099-MISC together. Let’s say this equals $16,000.

Step Two: We’re going to divide by 12 months, because you were accepting photography engagements all year long. This gives us $1,333.33. Enter this into the “Average Monthly Payroll” box on your application.

Step Three: Times this amount by 2.5, which gives you $3,333.33. Enter this into the Loan Request box. If you have already been granted an EIDL loan, you should add the value of any amount already granted.

Calculating your loan amount as a sole proprietor

Your 2019 income is the sole proprietorship’s net profit. If you have been taking draws out of the business to serve as regular income, this will not be included in your payroll calculation. This is because you pay Self Employment Tax, which is based on your net profit only—not your member drawing. You will find your 2019 Net Profit listed either on an annual income statement at the very bottom, or on line 31 of your Schedule C if you have a 2019 tax return.

If you do not have any W2 employees, your net profit is the total payroll cost you can include. If you do have W2 employees that you are remitting payroll taxes for, you may also include the annual salaries of any employees whose primary residence is the United States. Keep in mind that your employees, as well as yourself, are all subject to the $100,000 salary cap. If an employee’s salary or your net profit is over $100,000, you may only calculate using $100,000.

If you filed (or will file) a Schedule C for 2019, you must use the net income you reported for your application, even if you prefer to use January and February 2020 figures. The SBA has promised to release more guidance for those who were not in operation in 2019, but will file a Schedule C for 2020.

Remember that single-member LLCs are going to be considered sole proprietors here, in the same way that you are when you file your taxes. It’s also worth noting that if you share a sole proprietorship with a spouse, you cannot include your spouse in this application unless they are a W2 employee. Without W2 employees, you will apply on behalf of the legal owner of the sole proprietorship only.

Here’s a detailed example

You are a sole proprietor that started up in October of 2019, but really only started earning revenue in late 2019 and early 2020. You don’t have any employees, just a few 1099 contractors. You’ve been giving yourself an informal payroll of $1500 a month through member draws. Here’s what you’d do:

Step One: Because you earned revenue in 2019, you filed a Schedule C. You’re going to look at your income statement covering October 1, 2019 to December 31, 2019. The net profit on your income statement for that period is $15,000. You will not include any amounts paid out through member draws.

Step Two: You don’t have any employees, so you cannot add any additional costs to this amount. Your 1099 contractors cannot be included because they are eligible to apply on their own.

Step Three: Divide your $15,000 Net Profit by 3. This will give you $5,000. You will report this in the “Average Monthly Payroll” box on your PPP application.

Step Four: Times this amount by 2.5, giving you $12,500. Report this in the “Loan Request” box.

Some important points

  • While your rent and utility payments can be covered by this loan and help qualify you for loan forgiveness, they are not a part of the initial calculation.

  • If your net profit for 2019 is above $100,000, the maximum amount you can include for yourself is $100,000. This would give you an Average Monthly Payroll of $8,333.33, assuming you have no W2 employees.

  • Member draws are not going to factor into this calculation at all.

  • If your net profit for 2019 was negative, meaning that you took a loss in your business last year, PPP will not be a great option for you. If your business took a loss prior to COVID-19, you will not have been considered to have a salary, and it will be more difficult for you to represent that COVID-19 has had a negative impact on your business. You may be better suited to applying for the EIDL program instead, or registering for Unemployment Benefits through your state.

Calculating your loan amount as a partnership

If you run an LLC with one or more other people, and have a formal operating agreement where you’ve outlined ownership percentages, you will apply for the PPP as a partnership. Finding your 2019 salary as an owner of this business will be very closely related to the net profit of the business, and you should not try to make this calculation using your member draws.

Your 2019 salary will be most easily determined through your 2019 tax return, which is your Form 1065. If you haven’t filed your 2019 taxes yet, remember that your March 15 deadline was not delayed! If you simply filed an extension instead, you may want to return to your tax preparer at this time and work on finalizing your Schedule K-1s. This will help you tremendously—especially if your partnership is not owned equally by each member.

For each partner, you will use line 14, Self-Employment Income, on their Schedule K-1 as their individual salary. Remember to cap at $100,000 for each member if necessary. You will then multiply this amount by 0.9235. This updated guidance from the Treasury is done to remove the partnership entity’s share of self-employment tax.

If you also have W2 employees, include the cost of their salaries, state and local payroll taxes, employer contributions to health insurance benefits, sick pay, vacation pay, and severance. Keep in mind that all salaries are subject to the cap of $100,000 and you cannot include any 1099 contractors, as well as any remote workers whose primary residence is outside of the United States. You will also need to provide a number of employees, and this should be reflective of your monthly average as well.

If you started your business prior to June 30, 2019, you will divide this amount by 12—even if you did not operate the entire year. If you did not start the business until after June 30, 2019, you have a choice: you can still use your 2019 annual 1099 income divided by 12, or you can use your income from January to February 2020 divided by two, whichever is more favourable for you.

Here’s a detailed example

You and a partner run a business together, and this business has existed for a few years now. You have W2 employees. Neither you nor your partner are paid through payroll, and instead take draws from the company. Here’s what you’d do:

Step One: You’ll need your 2019 Form 1065 on hand. Take a look at line 14 (Self-Employment Income) on both partner’s Schedule K-1s. Let’s say that Line 14 on your Schedule K-1 is $130,000, and your partner’s is $115,000. Because of the $100,000 cap, you can only include $100,000 for each of you. That gives us $200,000 so far. Your draws will not factor in here, just your Self-Employment Income as reported on your tax return.

Step Two: Pull an annual 2019 report from your payroll provider. None of your employees have a salary over $100,000, so they don’t need to be capped. You can also include your state payroll taxes, health insurance expenses, retirement contributions, sick and vacation pay, as well as severance pay. Let’s say that all together, this adds up to $120,000. Add these amounts together and you’ve got $320,000.

Step Three: Divide by 12, since you were operational for all of 2019. This gives you $26,666.67. Enter this into the “Average Monthly Payroll” box in your PPP application.

Step Four: Times by 2.5 to get $66,666.67. Enter this into the “Loan Request” box.

Step Five: Let’s say your business is busiest for three months in the summer, when you have six employees on staff. The rest of the year you only have three. You can choose to use an average number here which spans all twelve months, which in this case will round to four. Enter this in the “Number of Employees” box.

Some important points

  • While your rent and utility payments can be covered by this loan and help qualify you for loan forgiveness, they are not a part of the initial calculation.

  • If your self-employment income for 2019 is above $100,000, the maximum amount you can include for yourself is $100,000. This would give you an Average Monthly Payroll of $8,333.33, assuming you have no W2 employees.

  • Member draws are not going to factor into this calculation at all.

  • If your self-employment earnings for 2019 were negative, meaning that you reported a loss in your business last year, PPP will not be a great option for you. If your business took a loss prior to COVID-19, you will not have been considered to have a salary, and it will be more difficult for you to claim that COVID-19 has had a negative impact on your business. You may be best suited by applying for the EIDL program instead, or registering for Unemployment Benefits through your state.

  • Self-employed farmers should use Schedule F instead of Schedule C. Use the net profit as reported on line 34 of your Schedule F.

Calculating your loan amount as an S corp

As an S corp, it is important to note that your shareholder distributions will not be considered to be a salary. If you own an S corporation and have not been paying yourself a salary through payroll, meaning you have not been remitting payroll taxes on your wages, you will not be eligible to have a salary covered through the PPP. Why? Well, it comes down to how you are taxed. Eligible payroll costs for the PPP are wages where the employer is remitting payroll taxes. As an S corp, your only way to remit payroll taxes is through payroll itself; you don’t pay any payroll taxes or self-employment taxes on your distributions.

If you have been using a payroll service to pay out your salary, you can include yourself as an employee in your calculations. Remember that no single employee is allowed to have a salary higher than $100,000 for the purposes of this calculation, so you must cap any employees over this amount at $100,000 exactly, including yourself. From there, you can include your related payroll expenses, such as group health insurance premiums, retirement contributions, state and local payroll taxes, vacation pay, paid sick leave, and severance.

If you started your business prior to June 30, 2019, you will divide this amount by 12 - even if you did not operate the entire year. If you did not start the business until after June 30, 2019, you have a choice: you can still use your 2019 annual 1099 income divided by 12, or you can use your income from January to February 2020 divided by two, whichever is more favourable for you.

Here’s a detailed example

You are the sole owner of an S corp and you have been operational throughout 2019. You only had one employee at first, yourself, but you grew to add on an additional three employees in 2019. Here’s what you’ll do:

Step One: Pull an annual 2019 report from your payroll provider. Since none of your employees have a salary over $100,000, they don’t need to have their salaries capped. You can also include your state payroll taxes, health insurance expenses, retirement contributions, sick and vacation pay, as well as severance pay. Let’s say that your total 2019 payroll costs, including your salary, comes to $150,000.

Step Two: Divide this by 12, since you were an existing business throughout 2019. This will give you $12,500, which you should input into the “Average Monthly Payroll” box on your PPP application.

Step Three: Times by 2.5 to find your “Loan Request” amount. In this case, that would be $31,250.

Step Four: To find your number of employees, you should apply with the average number of employees you held during 2019. The easiest way to find an average is to add the total number of employees you had during each month of the year together, and divide by 12. Let’s say in this case that works out to 2.75—you should round to a whole number, three, and include this on your PPP application.

Some important points

  • While your rent and utility payments can be covered by this loan and help qualify you for loan forgiveness, they are not a part of the initial calculation.

  • Shareholder Distributions should not be included in this calculation at all.

  • If you own an S corp and did not pay yourself a salary with payroll tax remitted, you will not have been considered to have a salary. If you don’t have W2 employees either, you will not be eligible to apply for the PPP. You may be better suited to applying for the EIDL program.

Calculating your loan amount as a C corp

A C corp owner will only be considered to have a salary if you have payroll tax remitted on your wages. Dividends, Loans to Shareholder, or other owner draws will not be applicable as salary. Why? Because the PPP is relying heavily on payroll taxes to define payroll costs. As a C corp, there is separation between the owner and the business. The business is taxed on its profit as an entity, and the owners are then taxed based on their dividends, which reflect their share of those profits. Neither of these taxes are payroll taxes. If you’re a C corp owner, you are required by the IRS to pay yourself a reasonable salary through payroll.

If you have been using a payroll service to pay out your salary, you can include yourself as an employee in your calculations. No single employee is allowed to have a salary higher than $100,000 for the purposes of this calculation, so you must cap any employees over this amount at $100,000, including yourself. From there, you can include your related payroll expenses, such as group health insurance premiums, retirement contributions, vacation pay, paid sick leave, and severance.

If you started your business prior to June 30, 2019, you will divide this amount by 12 - even if you did not operate the entire year. If you did not start the business until after June 30, 2019, you have a choice: you can still use your 2019 annual 1099 income divided by 12, or you can use your income from January to February 2020 divided by two, whichever is more favourable for you.

Here’s a detailed example

You own a C corp, and you are the only employee. Your business started in September 2019. Let’s say you were also already issued a $75,000 loan through the SBA EIDL application process, and received $10,000 of that as an emergency advance.

Step One: Let’s start by looking at the date range you should use. Because your business formed after June 30, 2019, you are able to use 2020 numbers. Take a look at your payroll reports for January and February 2020 - you should be able to download a cumulative report for both months.

Step Two: As the only employee, you just have your salary to include. Let’s say your salary in these two months was $120,000. You’ll need to cap this salary to $100,000 only. Because you just used 2020 numbers, you will divide this by two, giving you an “Average Monthly Payroll” of $50,000 to input into your PPP application.

Step Three: Multiply by 2.5 to find your “Loan Request” amount, which will be $125,000. Because you’ve already received $75,000 through the EIDL, you should add this amount to your total - however, you can subtract the amount issued as an advance, as that does not need to be repaid. This will make your Loan Request total $190,000.

Some important points

  • While your rent and utility payments can be covered by this loan and help qualify you for loan forgiveness, they are not a part of the initial calculation.

  • Dividends, Loans to Shareholder, or other owner draws should not be included in this calculation at all.

  • If you own a C corp and did not pay yourself a salary with payroll tax remitted, you will not have been considered to have a salary. If you don’t have W2 employees either, you will not be eligible to apply for the PPP. You should consider applying for the EIDL program.

Seasonal businesses

Seasonal businesses who only operate for a portion of the year have several time periods to choose from when calculating their monthly average payroll cost.

  • 12-week period beginning February 15, 2019

  • 12-week period beginning March 1, 2019

  • Any consecutive 12-week period between May 1, 2019 and September 15, 2019

Divide the amount you calculate by 4 to obtain the average monthly payroll cost you can report.

A note on loan forgiveness

In order to get your PPP loan forgiven, not only do you need to spend at least 75% of the funds on payroll (and the remaining 25% on rent, utilities, and mortgage interest), you also need to prove your expenses. The easiest way to do this is to get bookkeeping done during the time when you’re spending the loan funds. If you don’t have a reliable bookkeeping solution in place, check out Bench. We’ll do your bookkeeping for you.

We are also hearing reports that entrepreneurs who own more than one business are having difficulty getting relief funding when their businesses don’t have cleanly separated finances. If you own more than one business, it’s important to get separate bookkeeping done for each business. This will become doubly important when it comes time to prove your expenses for loan forgiveness.

More Paycheck Protection Program resources


This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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