PPP Loan and Schedule C Filer with Employees

[peggysioux5]

If Schedule C taxpayer with employees received a PPP loan but did not have a decrease in gross income of 25% in 2020 compared to 2019, would $20,833 of the loan amount be exempt from reduction of expenses being that portion of the loan would be considered his net income from Schedule C and the balance of the loan which was used for employees’ payroll be required  as a reduction of expenses.  Example – Schedule C employer with over $100,000 Schedule C net income obtained a PPP loan of $50,000.  Would $29,167 of payroll expenses be required as a reduction of expenses or would the full $50,000 be required as a reduction of expenses?

Peggy Sioux

[Lee B]

Are you talking about their 1st PPP Loan or their 2nd PPP Loan?

[peggysioux5]

I should have been more specific in my post as my question only pertains to the handling of expenses paid with PPP proceeds for the CA individual income tax return.  I am talking about their first PPP loan and the handling of the expenses paid with PPP proceeds for CA being taxpayer did not have a reduction of 2020 gross income by 25% compared to 2019.

For the CA tax return, if taxpayer is a sole proprietor with employees, would the portion of payroll that was paid with PPP loan proceeds for sole proprietor be excluded from the reduction of expenses and only the portion of PPP loan proceeds that were used to pay employees' payroll be included on CA tax return as a reduction of expenses?  Or being the  sole proprietor has employees, all expenses paid with PPP loan proceeds are required to be included on CA tax return as a reduction of expenses?

Peggy Sioux