PPP Loans vs Unemployment Benefits: How to Choose

By Erica Gellerman, CPA on June 4, 2020

The CARES Act changed a lot of things for self-employed people and small business owners. It created the Paycheck Protection Program (PPP) and expanded unemployment benefits with Pandemic Unemployment Assistance (PUA), and Federal Pandemic Unemployment Compensation (FPUA).

The PPP gives small businesses and self-employed folks loans that are 2.5 times their monthly payroll costs. The loan can be forgiven if you use at least 60% of it for payroll costs, turning it into a grant that businesses don’t have to repay.

Self-employed folks and independent contractors can now qualify for unemployment and those unemployment benefits have been given a boost with an extra $600 in benefit payments for 13 weeks. You can learn more about the new benefits here.

Paycheck Protection Program Unemployment benefits
Forgiven balance is not taxable Benefits received are taxable
Loan amount is 2.5 times average monthly payroll Maximum weekly benefit amount up to $1,423, depending on state and income level
Additional income received won’t affect benefits Additional income received may affect benefits
Can continue to provide health insurance benefits to employees Can’t provide health insurance benefits to employees
Restrictions on how the money can be spent No restrictions on how the money is spent

How do you make the most of the options available? You can get money from the PPP or unemployment, but not both. Here’s how to decide which is right for your business.

Paycheck Protection Program vs unemployment as a sole proprietor

As a sole proprietor, you’re able to apply for either the PPP or unemployment (but not both). To help you decide, here’s what you want to think about.

How much money will you receive?

Both the PPP and unemployment offer substantial benefits for the next few months, but which one will net you the most money? You’ll want to do a little research and math to see what puts you in the best position.

The minimum benefit offered under PUA is 50% the state’s average weekly UI benefit. Each state can determine if and by how much they offer above the minimum. For example in New York, the maximum benefit rate is $504, the same as the maximum benefit rate for regular unemployment benefits.

Say you’re a sole proprietor living in New York and your net profit on your Schedule C is $75,000. Your monthly average payroll expenses will be $75,000 divided by 12, or $6,250. If you’re approved for the PPP, you’d receive $15,625. That’s 2.5 times your monthly payroll expenses of $6,250.

Under unemployment, you could qualify for the maximum unemployment benefit in New York of $504 per week in addition to an extra $600 per week for 13 weeks. That means your monthly unemployment check could be $1,104, a total of $14,352 over 13 weeks.

In this scenario, you’ll get slightly more by applying for the PPP.

Don’t forget taxes

In the example above the difference between what you’d receive from the PPP and from unemployment is reasonably close, but there’s one big factor that needs to be considered: taxes. Unemployment benefits are taxed—funds from the PPP are not.

If you have a 22% tax rate, that could bring your total unemployment benefits for those 13 weeks down to $11,580 after tax, making it substantially less than what you’d receive from the PPP.

In this situation, factoring in taxes means the PPP will provide you with a lot more money and would be the best option.

Will you still have any work to do?

For some sole proprietors, business may be down but not completely gone. If you still have some work coming in and you have the ability to earn some income over the next few months, getting the PPP would be a better option. The amount you receive from the PPP won’t be impacted by working and earning income—you’ll still be able to receive 2.5 times your monthly payroll cost.

But if you are receiving unemployment benefits and are still partially working, your benefits may be reduced. Check the rules with your state agency to see how much your unemployment check would be reduced if you continue to do some work.

Paycheck Protection Program vs unemployment as a business owner

If you have employees, the decision between filing for PPP or laying off your employees so they can collect unemployment benefits becomes a little more complicated.

Depending on how much your employees earn, there is a chance that they could earn more on unemployment for 13 weeks, thanks to the additional $600 per week payment. But that’s not the only factor to consider.

Will you need to ramp up your business quickly?

If you think your business can ramp up quickly once the shelter-in-place is over, keeping employees on payroll can help your business get a faster start. You won’t need to re-hire and re-train a workforce—you’ll be able to get your business running quickly.

In turn, your employees won’t have to file for unemployment or worry about looking for another job. They’ll be ready to jump in when your doors can open again.

Do you have small projects employees can help with?

While the shelter-in-place is still in effect, there may be small things that your employees can help with. What projects could help your business long-term, that you haven’t had a chance to do yet?

That might be building a better website, setting up an email list, or designing new products to sell once the business opens back up again. Using the PPP you can have your employees help knock things off your to-do list.

Do you provide health insurance coverage?

If you provide health insurance coverage for your employees, the PPP includes health insurance costs in the calculation of the loan. Keeping employees on payroll will let them keep their health insurance benefits—something that is critical during a global health crisis.

If you lay your employees off so they can collect unemployment, they’ll be on the hook for finding and paying for their own health care coverage.

Can you use help paying rent and utility bills?

If you have rent and utility bills to pay, the PPP allows you to use a portion of the money you receive to pay for those costs. So not only do you get funds to pay employees for eight weeks, you can get money to pay for some of your other expenses.

If you choose to lay off employees instead of using the PPP, you won’t get that extra money to help you pay those bills.

Do you plan to restart your business?

If you don’t think your business will ever recover and you’d prefer to close for good, you’re probably better off laying off your employees and working to wind down your business, rather than applying for the PPP. Applying for the PPP will only delay the inevitable and you and your employees can instead spend time looking at what’s next.

More COVID-19 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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