How To Tell if You’re in a Low Income Community for EIDL Qualification

The new stimulus program, signed into law in the last days of 2020, reopens the door for some aid for independent contractors such as with Doordash, Uber Eats, Lyft, Instacart, Grubhub etc.

But it also has contractors scrambling to figure out how to tell out if they're in a low income community.

That's because the EIDL has added a couple of qualifications. In the original round of EIDL loans, independent contractors were able to take advantage of a $1,000 grant. That was the advance that was given when businesses applied that doesn't have to be repaid.

Under this new round of funding, many contractors can apply for a second EIDL grant. However, there are two new stipulations:

• Your business has to demonstrate a 30% or greater loss of income due to the pandemic
• Your business has to be located in a low income community.

This article focuses on the low income community qualification. You can learn more here about the 30% economic loss qualification.

3 Steps: How to tell out if you qualify as being in a low income community under EIDL requirements

What does it mean to be in a low income community? How do you know if your business is located in a low income community? Is it different for an independent contractor with gig economy apps like Doordash, Uber Eats, Lyft, Instacart, Grubhub or any of the others?

The following steps are meant to help you identify if your business is indeed in a low income community.

1. Understand your business location.

It seems a lot easier if you're operating a brick and mortar business to identify your business location. You have a store front or an office. That's your business location.

It's a little trickier as an independent contractor, isn't it? We drive passengers all around or deliver food. Does it matter if most of your rides or delvieries are in lower or higher income?

It's not really that tricky. You're going to identify your location in the same way you identify it for your taxes. It's your home address.

Most of us don't really work at home though. Our work is out where we're delivering. Wouldn't that mean we work in the places we perform our tasks?

Maybe the best way to explain it is to compare it to a a service business. When I was in telecom we hardly spent any time at the office, we were always out at customer locations.

None of that mattered though. Our business location was still where our office was. Even though we were never there, that served as our headquarters.

As an independent contractor, if you haven't leased or purchased an external location for your business, your business address is going to be your home address.

2. Understand what “low income community” means.

In the new stimulus act, Section 332 section (a) provides some definitions. Item (6) states that “The term ‘‘low income community’’ has the meaning given the term in section 45D(e) of the Internal Revenue Code of 1986.”

So let's look at that section:

The term “low-income community” means any population census tract if-

(A) the poverty rate for such tract is at least 20 percent, or

(B)(i) in the case of a tract not located within a metropolitan area, the median family income for such tract does not exceed 80 percent of statewide median family income, or

(ii) in the case of a tract located within a metropolitan area, the median family income for such tract does not exceed 80 percent of the greater of statewide median family income or the metropolitan area median family income.

Internal Revenue Code of 1986 section 45D(e)(1).

What does this mean?

It mans there are three ways that you can measure if you're in a low-income community. You qualify if you meet any of those three.

If more than 20% of families in your community are below the poverty level, you're in a low income community

If the median family income in your community is 80% of that of your metro area or lower, you're in a low income area.

Or, If the median family income in your community is 80% of that of your state or lower, you're in a low income community.

Median stands for middle (not average). If you the income for 99 families and listed them in order from high to low, the income for the 50th family is the medium. 49 families had higher income, 49 had lower.

If the median family income in your state or your metro area is $100,000, then the median family income in your community needs to be less than $80,000 to qualify.

But what do they mean by “community?”

Is this about the city? But how is that different than a metro area? Can you just pick what your community is?

You can't just pick an area. Your community is based on your address as we disucssed earlier.

We go back to that first line in the definition quoted above. “The term ‘low-income community' means any population census tract…”

Your community is the census tract that your address is located in.

The Census Bureau divides counties up into smaller zones called tracts. According to their glossary, a tract is usually made up of about 1,200 to 8,000 people. The boundaries are set and can be found on many government maps.

Your address fits specifically within a particular census tract. Your eligibility depends on the income characteristics of families in that area or tract.

3. Here's how to tell if demographics in your tract qualify as a low income community.

This video can show you how. Or you can read the instructions below it.

I'm not sure if this will be the exact tool the SBA will use, but it will be something similar. You can go to this geomap tool created by the FFIEC.

Basically the FFIEC is an inter-agency body in the federal government that provides standardized information for different parts of the government. So even if this isn't the exact tool the SBA uses, I don't expect them to use anything that's dramatically different.

So here's how it works:

Find your address on the map. You can type in an address, or you can enter your zip code and then move the map around to find your address. Click on the spot where your home is.

Click on the button that says “Census Demographic Data.”

A Box will pop up with a table of information and four tabs across the top. Click on the tab that says Income.

Interpreting this information

Here you have all the information you need:

• The percent of people below poverty level (#3)
• The percent of the median family income in the tract compared to the median family income in the metro area (#4).
• This doesn't give a percent compared to the state. However you can look up your state's 2015 median family income here. Divide the tract median family income (#5) by the state median family income to get your state comparison (in this chart based in Colorado it's $47,350 divided by Colorado income for 2015 of $63,909 which is 74.1%.

I know this chart is confusing in that there are 2015 numbers and 2020 numbers. Be aware that they could be updating numbers as the census is going on. Make sure you're always comparing 2015 numbers to 2015 numbers.

Looking at this chart for this area we see that:

• The percent below the poverty line is 25.8%, or more than 20%. That qualifies.
• The percent of family median income compared to that of the state is 58.58%. This is below 80%, so that qualifies.
• $47,350 divided by $63,909 is 74.1%. This is below 80% so it qualifies as well.

You do not need to meet all three criteria. Just one should qualify you. This particular example did meet all three.

Understand that data is always changing. As I said, I'm not sure this is the exact tool they will use. However, the data's not going to change dramatically, and it gives you a good idea on whether your area qualifies.

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