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Sole business owners in Arizona face hurdles to win pandemic assistance

Sole business owners in Arizona face hurdles to win pandemic assistance

From the May's Tucson-area coronavirus coverage: Cases rise, judge rules that state can keep nursing home data from public series

Special pandemic assistance tricky for self-employed

Cellisa Johnson, owner of Twisted Crowns, 5855 E. Broadway, opened her salon five years ago. Because of the coronavirus, she has gone without income since April 5 and is unsure of her future.

A couple of days after the coronavirus forced the closure of her hair salon, Tucson cosmetologist Cellisa Johnson filed for special COVID-19 unemployment benefits with the Arizona Department of Economic Security.

But like several other hair stylists who also work at the east-side salon complex, the licensed cosmetologist was told her claim was denied because she was “monetarily ineligible.”

“Here we are three weeks later, and we have not received any unemployment benefits,” said Johnson, adding that since April 4, she has continued to try to file claims and call DES but has been unable to reach anyone to help.

“As a self-employed business owner, if I don’t work I don’t get paid,” she said. “I literally have no income and have depleted my savings. I’ve gotten extensions on some bills, but the bills will still be there.”

Some help is on the way for Johnson and other self-employed small business owners.

On May 12, DES plans to roll out a new online processing system for Pandemic Unemployment Assistance, or PUA — unemployment benefits for self-employed workers who don’t normally qualify, including contract and gig workers as well as sole-proprietors — business owners like Johnson with no other employees.

While Congress approved the new benefits for self-employed workers, it was up to the states, which each run their own unemployment insurance system, to implement it.

Some states were able to adapt quickly and as of last week, 18 states were set up to pay the special pandemic benefits for the self-employed, with several more due to launch in the coming weeks, according to the Labor Department and the nonprofit National Employment Law Center.

In Arizona, thousands of self-employed people who tried applying for unemployment were declared monetarily ineligible, and DES concluded its computer system could not be programmed to effectively handle the special pandemic claimants.

On April 24, DES announced it hired an outside contractor to set up and operate an online claims system for Pandemic Unemployment Assistance for the self-employed.

Although the new system is not scheduled to go online until May 12, DES is reviewing previous claims submitted by self-employed workers and will pay qualified applicants retroactive benefits, department spokesman Brett Bezio said.

Once the new system is established, DES will contact those claimants if further action is needed to process their applications, and they will not need to submit a new application, he said.

The claimants will not need to file weekly claims, but DES is instructing PUA applicants to keep a record of their weekly earnings, as that information will be needed to make their determination, Bezio said.

Applicants will receive retroactive state benefits of up to $240 per week — the second-lowest benefit among the states — for all eligible weeks since Feb. 2, and retroactive benefits for the additional $600 in federal pandemic unemployment compensation for eligible weeks since March 29, Bezio said.

SHOWING YOUR INCOME

To qualify for PUA benefits, applicants must show they meet the monetary eligibility rules, determined by the income received during a base period comprised of the first four of the last five completed calendar quarters prior to the application date.

Being “monetarily ineligible” means you do not have enough “countable” wages in the base period, Bezio said.

To qualify, an applicant needs to have made at least 390 times the Arizona minimum wage — $4,680 at the current minimum wage of $12 an hour — in their highest earning quarter, and the total of the other three quarters must equal at least one half of the amount in your high quarter.

For example, if you made $5,000 in your highest quarter, you need to have earned a total of $2,500 within the remaining three quarters combined, DES says.

Alternatively, you may qualify by earning at least $7,000 in total wages in at least two quarters of the base period, with wages in one quarter equal to $5,987.50 or more.

Self-employed contract and gig workers can provide 2019 tax returns to show they have earned enough to qualify for PUA benefits, they also may be asked to provide additional documentation such as bank statements, invoices or electronic records of payments.

Things are a little different for sole-proprietor business owners, said Kristine Hoey, a certified public accountant and tax manager for the accounting firm Regier Carr & Monroe in Tucson.

“There is a lot of confusion as to this process and the figures that will be used to determine a self-employed individual’s eligibility for benefits,” Hoey said.

Sole proprietors like cosmetologist Johnson should report the net profits from their businesses as self-employment income, Hoey said.

If a sole-proprietorship reported income on Schedule C of the owner’s 2019 federal income tax return, the figure on Line 31 — net profit or loss — represents annual self-employment income, she said.

Self-employment income can also come from guaranteed payments and income passed through from partnerships on Schedule K-1 and from farming income, Hoey said.

Self-employment income is also filed on Schedule SE Line 3, which should include all sources of self-employment income, she added.

Hoey blamed DES for being slow to take the necessary steps to have the state’s PUA program online quickly and worries some sole business owners won’t survive long enough to collect benefits.

“It’s ridiculously slow, since most businesses have been shut down since mid-March,” she said.

In fairness, Hoey said, DES never had the resources to process the unprecedented deluge of COVID-19 jobless claims.

As of last week, 470,000 people had filed first-time unemployment claims in Arizona since the COVID-19 outbreak, with initial claims peaking at more than 100,000 per week on a system DES says normally handles about 3,000 claims per week.

NEW PAYCHECK LOAN FUNDING

Sole-proprietor business owners have another option to get cash to survive the pandemic shutdown from the Paycheck Protection Program (PPP), which provides federally backed loans through banks to businesses with 500 employees or fewer.

Part or all of the PPP loans can be forgiven, based on the portion of employees a business keeps on its payrolls over an eight-week period.

Last Monday, the U.S. Small Business Administration opened a second round of $250 billion in PPP loan funding, approved by Congress and signed into law April 24.

The first round of $349 billion in PPP funding from the Coronavirus CARES Act opened April 3 and was depleted in 13 days — partly because a significant portion of the fund was sapped by multi-million-dollar loans to large businesses, including chains that counted locations individually to stay under the employee limits and companies.

Amid a public outcry, big companies including Shake Shack, Ruth’s Chris Steak House and the Los Angeles Lakers have returned multi-million PPP loans.

The second round of PPP funding sets aside $60 billion specifically for smaller institutions like credit unions and community banks, which tend to serve the smallest businesses.

The SBA is now requiring applicants to certify that they need a loan to stay in business and can’t get the money elsewhere, and Treasury Secretary Steven Mnuchin said the agency would review PPP loans of more than $2 million.

But like unemployment benefits for the self-employed, some confusion has surrounded the rules for sole proprietors for PPP loans, as well as for the SBA’s low-interest Economic Injury Disaster Loans.

The SBA stopped taking applications for the EIDL program April 16, when it said it expected to run through its initial $17 billion funding with backlogged applications.

DISASTER LOANS RESTRICTED

The Economic Injury program got an additional $60 billion in new loan funding, but the SBA has not reopened the application process because it expects to run through that existing funding with backlogged applications.

Bobbie Butler, who has run an accounting business in Tucson since 1979, said she applied for the Paycheck Protection loan and the EIDL and was informed by the Small Business Administration that she was not eligible because she “had no employees.”

Butler said several of her accounting clients who also are sole proprietors were told they did not qualify for lack of employees.

After hearing about the big companies taking PPP loans they didn’t need, Butler was furious.

“I just felt like we were being shoved aside because we weren’t important, because we didn’t have the employees,” Butler said. “Every one of us is contributing to the economy.”

The SBA states on its website that “sole proprietors, independent contractors, and self-employed persons” may be eligible for PPP loans.

On April 24, the SBA in consultation with the Treasury Department, issued new guidelines for calculating PPP loans by business type, including the self-employed.

Under the PPP loan program, borrowers must spend at least 75% of their loan proceeds on payroll costs and are allowed to spend the other 25% on operating costs such as rent and utilities.

Applicants with multiple employees are advised to calculate their maximum loan amounts based on a total average monthly cost of wages and other compensation, then multiplying that by 2.5.

As with the data required to file for PUA, sole proprietors and other self-employed workers can find their annual self-employment income on Line 31 of Schedule C of their tax returns, then divide by 12 to arrive at a monthly average, Hoey said.

The maximum annual income sole proprietors are allowed to claim under the PPP program is $100,000, meaning they can borrow up to $20,833 in payroll costs for the eight-week period.

Sole proprietors at the maximum income level of $100,000 could be forgiven for their income over eight weeks, or $15,385, Hoey said.

But they can also borrow more — up to $10 million in total — for other operating expenses and pay back the excess of the forgiven amount within two years at an interest rate of 1%.

Sole proprietors are still technically eligible for the Economic Injury Disaster Loan Program — if new funds are freed up.

A related EIDL program offers forgivable cash advances of $10,000 to small businesses, but sole proprietors are not eligible for that program, SBA spokeswoman Carol Chastang said.

The SBA also has suspended new applications to the cash-advance program, with the expectation that backlogged requests will eat up available funds.

THE PATH FORWARD

The SBA will resume processing EIDL loan and advance applications that are already in the queue on a first-come, first-served basis and will post updates on the acceptance of new applications on the program’s website, Chastang said.

EIDL loans require that applicants have an acceptable credit history, and they can be rejected because of things like delinquent child-support payments or lack of verifiable information, the SBA says.

There is a “reconsideration” process for EIDL loan requests that have been denied, Chastang said, adding that businesses denied PPP loans should work with their lenders.

The SBA says PPP applications, which require no credit check, are generally approved and funded if they are submitted by lenders and entered into the agency’s system when funding is available.

“The only time SBA would deny an application is if the borrower had either a delinquent or default status on a prior SBA loan,” the agency says in its PPP guidance.

The Tucson Metro Chamber has assembled a comprehensive list of COVID-19 resources at tucsonchamber.org/covid19, including links to information on emergency loans and other issues for businesses.

“I just felt like we were being shoved aside
because we weren’t important, because
we didn’t have the employees.” Bobbie Butler, Accountant who was denied a Paycheck Protection loan

Contact senior reporter David Wichner at dwichner@tucson.com or 573-4181. On Twitter: @dwichner. On Facebook: Facebook.com/

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