unemployment insurance benefits and PPP Loans

[mikefick]

As a sole proprietor, can I take unemployment insurance benefits and qualify for a PPP Loan if I have no employees?

[AliciaP1]

No, you cannot get unemployment insurance benefits if you are not reporting payroll(for yourself even) and making timely payments to your state and the IRS.

The PPP loan program was modified in 2021 so sole-proprietors were eligible to apply even without payroll, but the application deadline was 6/30/2021.

[mikefick]

Alicia,

I am doing taxes for a friend, and they DID receive UIB (Unemployment Insure Benefits) and also applied and received a PPP Loan.  How does that affect their taxes or how do I handle this on their return as far as reporting?

[AliciaP1]

Your friend should receive a 1099-G for the unemployment benefits paid to them.  You can enter it into TurboTax Online by following these steps:

Open or continue your tax return.

1. Search for 1099-G and select the Jump to link at the top of the search results.
2. On the Did you receive unemployment or paid family leave benefits in 2021? screen, answer Yes.
3. Follow the on-screen instructions to enter your 1099-G information.

The PPP loan does not get reported on a Schedule C.  The funds are nontaxable even if the loan is forgiven, while the expenses paid with the funds are still deductible.

[mikefick]

I realize both your answers, but what I am really asking, should they have legally received unemployment payments and been able to received PPP funds.

I guess I didn't realize that a sole proprietor could even apply for Unemployment Benefits.

Thanks very much for the ongoing dialog.  They have been helpful.

[DawnC]

In a non-covid world, your friend most likely would not have qualified for unemployment benefits as there would be no ''employment'' history - no payroll tax or unemployment insurance paid for the wages.   Normally, those are the items the unemployment offices looks at to determine if you are eligible and how much your weekly benefit would be.   

Sole-proprietors generally cannot collect unemployment unless they are incorporated and pay themselves a salary (S-corporation).   Covid changed that but only temporarily.   

[mikefick]

Hey, thanks for your answers.  I was at a dilemma here, knowing that Sole Proprietors DO NOT qualify for unemployment, of which this situation was brought to my attention.  I know for a fact from what I have read, that there has been a great deal of fraud in all the payments made during the pandemic relief.  Just didn't think my friend would stoop to that level.  

It puts me in a situation where I don't want to tell him he is getting funds he doesn't deserve, but then again it is still wrong.  Anyway, thanks again for your reply, as i am totally straight on this and just want to move this forward.  I just wanted to make him aware of the fact that if audited, he could be open to penalty. 

You've been very helpful.  🙂