Can I Include 1099 Employees When I Apply for a PPP Loan?

When the Covid-19 pandemic began affecting businesses, the federal government helped employers help their employees stay afloat during the Covid-19 pandemic. If they applied for the Payroll Protection Program, they had to assess the different kinds of workers their business employs to determine whether W-2 employees, 1099 employees, full-time and part-time employees were part of the employee count you needed to submit.

1099 employees themselves, however, could also apply for a PPP loan.

What is the Payroll Protection Program?

Part of the US government's 2020 Coronavirus Aid, Relief and Economic Security Act (CARES Act), the Payroll Protection Program is a business loan program established to help small businesses, self-employed workers and freelancers replace wages.

It funneled $953 billion in low-interest private loans to fund payroll and other costs. The loan amounted to around two and a half times the entity's annual monthly cost for payroll.

The costs that the loan could be used to pay included more than just payroll. Rent, loan interest and utility costs were also eligible to be paid using Payroll Protection Program loans. If the business was able to keep its employees and continue to pay their wages, they became eligible for partial or full loan forgiveness.  

The U.S. Small Business Administration was the federal organization that rolled out the Payroll Protection Program, and the program ended May 31 of 2021.

Who can apply for the Payroll Protection Program?

Small business owners

If you owned a business and employed fewer than 500 workers during the pandemic, you were eligible for a PPP loan. If you employed fewer than 300, you were eligible for a second-draw loan.

The employees that were considered part of your count were full-time or part-time W-2 employees. But many businesses also pay 1099 employees, including independent contractors, freelancers and others who receive 1099 forms. 1099 employees were not considered part of the eligible count by the federal government.

Self-employed individuals

1099 employees impacted by the pandemic were also eligible for PPP loans, as long as they had been working since February 15 of 2020 and could show that their work had been negatively affected by the COVID-19 pandemic.

For 1099 employees, including those who receive a 1099-MISC, the loan size was up to 2.5 times their average monthly income as they would report it on their 1099-MISC or their total self-employment income over the past year. PPP loans for self-employed individuals, as well, are 100% forgivable as long as they were used to replace 1099-MISC income or self-employment income or to pay certain expenses like utilities.

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