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Do you qualify for the PPP Paycheck Protection Program 2.0 Second Draw Income Reduction Test?

The Paycheck Protection Program (PPP) is back. Independent contractors may qualify for forgivable loans. Under special circumstances, you may be able to take a second loan even if you received on earlier in 2020.

The Consolidated Appropriations Act of 2020 (signed December 27) included some economic stimulus measures for pandemic relief. Part of that package is what's called the Paycheck Protection Program 2.0.

The act renews the PPP and makes it available for those who were not able to get funding previously. It also adds a second draw for those who did receive funding.

a sharpened red pencil and calculator used to calculate reduction of income for the paycheck protection program

We write more about the renewal of the Paycheck Protection Program forgivable loans, and you can see a list of our PPP articles at the bottom of this article.

This article focuses on whether you qualify for the 25% income reduction qualification for the Paycheck Protection Program 2.0 second draw funding.

The requirements for applying for a second loan are a little more stringent this time around. In particular you have to demonstrate that your business suffered a financial loss during the pandemic.


Paycheck Protection Program applications will be opening up soon. You can enter your preliminary application information with Womply who will locate a lender that can work with you

This post will cover:

  • What the income requirements are for the second draw of the paycheck protection program
  • How an independent contractor can get their information together to see if they qualify
  • At the end of the article you can access an interactive tool that helps you identify if you had enough of a reduction of income to qualify for the second draw of the paycheck protection program.

What is the income reduction requirement for the second draw of the Paycheck Protection Program (or PPP 2.0)?

This time around, you have to show a drop in gross income. You need to have one quarter that earned at least 25% less than the same quarter in the year before.

The main qualifications for the second draw of the PPP Program.

I'll start right off with this: You have to have been in business prior to February 15, 2020. This program is focused on existing businesses that were harmed by the pandemic.

If you are an independent contractor with any of the gig economy companies like Grubhub, Doordash, Postmates, Uber Eats, Lyft, Instacart or others, but you only started with them after February 15, you won't qualify.

As independent contractors, you have to have had a taxable profit in the past. This isn't stated specifically in any documentation I found but it's implied. That's because the loan is based on 2.5 months times your average monthly profit. If you drove so many miles that you never owed taxes, you won't qualify.

This article focuses on the second draw of the Paycheck Protection Program. If you have not received PPP funds, you may be able to apply under the original Paycheck Protection Program.

The second draw relates to those who have received PPP funding in the past. You can qualify for similar funding (2.5 months times your average monthly income).

You have to have less than 300 employees. That's not hard for most of us who are independent contractors.

Your business cannot be a certain type of business. I won't go into details here as I focus primarily on independent contractors in the gig economy. You can get more information on the types of businesses at the SBA website.

And then you have to have at least a 25% reduction of revenue for at least one quarter relative to the previous year.

The SBA has released guidance that provides more detail about qualification, documentation etc. for second draw PPP Loans

What is the 25% reduction of revenue requirement?

Frustrated business owner standing before large bar graph showing a reduction in income

The official description by the SBA is:

to be eligible for a Second Draw PPP Loan, the borrower must have experienced a revenue reduction of 25% or greater in 2020 relative to 2019.

SBA Interim Final Rules on Second Draw PPP Qualification released 1-21-2021

Another way of putting it is, if you made less than 75% of what you made in 2020, you qualify. That can be a yearly total or for one quarter.

Let's say you made $10,000 in the fourth quarter of 2019. If your gross revenues were $7,500 or less, that would qualify you. $7,501 would not. If any one quarter qualifies, you meet the reduction of income qualification.

The paycheck protection program reduction of income tool at the end of this article will help you see if you qualify.

Understanding “Gross Receipts.”

The language in the act and in the SBA guidance for the Paycheck Protection Program (PPP) 2.0 second draw uses the term “gross receipts.”

The SBA defines it: “Gross receipts includes all revenue in whatever form received or accrued.”

For those of us that are independent contractors, that means it's the money we've received. If you contract with gig companies like Doordash, Uber Eats, Lyft, Instacart, Grubhub, Postmates or any of the others, your gross receipts are whatever you received for your contract work including tips, delivery and trip fees, money received for referrals, bonuses.

In other words it's any money you received as part of your gig economy work.

If you ran a business that sold items, gross revenue means your sales minus cost of goods sold, returns and allowances.

For example, I used to buy and flip bicycles. If I bought a bike for $100, spent $25 on parts to fix it up, and sold it for $500, my cost of goods sold would be $125, my gross receipts would be $375 ($500 – $125).

Differences for those who started their business in 2019 or later.

It's easy enough to compare one quarter of 2020 to the same quarter in 2019 if you were in business all four quarters of 2019. But what if you weren't?

The latest stimulus act made some adjustments.

Any business that started before July 1, 2019 would compare each quarter of 2020 to the same quarter of 2019. In other words, if you started in April 2019, you can compare 4th quarter to 4th quarter, 3rd to 3rd, and 2nd to 2nd to see if you meet the income reduction qualification.

There's more flexibility for people who started later. If you started in the second half of 2019, you can compare any quarter of 2020 to either the third or fourth quarter of 2019.

You could pick the lowest earning quarter of 2020 and compare that to the highest of the 3rd or 4th quarters of 2019. If the reduction of income is 25% or more, you would meet the income qualification.

The paycheck protection program income reduction tool at the end of this article will make those comparisons for you.

How would an independent contractor find out their quarterly gross receipts?

An abacus sitting on top of a list of financial numbers that can be used to calculate receipts

You will need to find some way to add up your quarterly earnings for 2019 and 2020. The best way to do so is to use a bookkeeping program of some sort. But you can use a spreadsheet or just make lists.

This is a bit of a different thing for a lot of independent contractors. Many of us are used to just pulling all the numbers together for our taxes at the end of the year.

In fact, all we needed for the first round of the Paycheck Protection Program was our Schedule C.

But now we have to get quarterly revenue numbers. It's going to force us to up our games in treating this like a business.

Understand what quarterly means.

You are going to add up the money you received for each quarter of the past two years.

A quarter is a set three month period.

  • The first quarter is January, February, and March
  • The second quarter is April, May, and June
  • The third quarter is July, August, and September
  • The fourth quarter is October, November, December

I know you know that. I put that there for the benefit of someone who might wonder if they could say something like September, October and November. Or just pull any three months out whether they are consecutive. You can't do that for this program.

How do you determine what date the earnings came in on? It's based on when you were actually paid. When did the gig company send you the money?

For example, if you delivered delivered between December 27 and December 31 of 2020 but didn't get paid until January 5, that money counts as first quarter 2021 and not fourth quarter 2020.

Don't try to fudge on that. If the SBA wants to get documentation, as independent contractors they may look for bank records. If your numbers don't match your documentation, you can have some real problems.

Why I recommend using bookkeeping instead of just spreadsheets

There are a lot of reasons.

Man using pen calculator and ledger as tools for bookkeeping

One, you're running a business. Whether you planned to or not, you are. You're legally classified as such, you pay taxes as such. So, treat it that way.

The biggest reason comes down to documentation. As I write this, the specific rules and how-to's haven't been released yet. Like I said earlier, all that independent contractors needed for documentation the first time around was a Schedule C. I don't know the exact details of what they'll require this time.

Why would it be different? Last time everything was based on annual profits. This time, quarterly revenue is a qualifier. You need to demonstrate that. This is a business loan, they're going to ask for business documents.

In the recently released guidance from the SBA on the Paycheck Protection Program 2.0 Second Draw loans, they state that they'll be looking for documentation of income reduction.

Such documentation may include relevant tax forms, including annual tax forms, or, if relevant tax forms are not available, quarterly financial statements or bank statements.

SBA Guidance on Paycheck Protection Program

As an independent contractor, your tax documents aren't going to document your quarterly income. This indicates they're likely to ask for business financial statements, in particular a profit and loss statement, as well as bank records.

Not sure what a profit and loss statement is or how to create one? That's where a good bookkeeping program will come in handy. If you've entered all your transactions into a bookkeeping program, you can easily get the reports you need.

One more big advantage of using a bookkeeping program. You're better prepared for tax day.

Some bookkeeping resources for independent contractors

You can read more here about getting started with bookkeeping as an independent contractor with gig economy apps.

Here are three apps you can check out that are particularly geared for independent contractors. They're structured so you can get reports that line up with the Schedule C's that we fill out for our taxes.

Full disclosure: the following will include affiliate links. I may receive compensation when purchases are made.

There are a number of good options. My preference is Hurdlr, which offers both bookkeeping and mileage tracking and has a free version that will handle the basics.

Quickbooks Self Employed is another popular one. Quickbooks is an established name and many tax preparers prefer it. You can read my review on Quickbooks Self Employed for delivery independent contractors here.

One other you can check out is GoDaddy Bookkeeping. That's a bit less well known. I used it back in the day when I was flipping bikes and bike parts as it worked great with Paypal and eBay. You can read my review of Godaddy Bookkeeping and comparison to Quickbooks Self Employed

Paycheck Protection Program Reduction of Income Tool

Financial symbols on sheet of paper surrounded by several tools symbolizing financial tools

This tool will help you get an idea if you had a sufficient loss of income in 2020 compared to 2019.

Here are some things you must understand about this tool.

  1. There's nothing official about this. There's nothing guaranteed about this. It is just a tool to give you a quick glimpse.
  2. This is the first time I've created a tool like this. I've tested it several times in as many scenarios as I can think of. There may still be glitches that I haven't uncovered. If you run into glitches on it, please let me know in the comments so I can look into it.
  3. I am not a tax or financial professional. I'm not related to the SBA or any other government agency. I'm just a blogger who delivers in the gig economy and then uses my experience and research to assemble information that will be helpful to other gig economy contractors.
  4. Results of this tool do not guarantee approval for a second draw in the Paycheck Protection Program. Neither do negative results guarantee that you'll be denied. There may be other factors that impact your eligibility. If the information you put in is inaccurate or incomplete, that can impact your results. Glitches in the form could create inaccurate results. I try to present the results in a way that you can check the math.

Use of this tool signifies you understand and accept the points above.

Using the Paycheck Protection Program Reduction of Income Tool

There are four steps.

Select the quarter in which you started your business.

Based on your selection, you'll see the quarters for which you'll need to enter your income totals. Remember to enter gross income (income before expenses).

Verify that you have entered all of your information by checking the box. Make sure you do this after you've entered everything. Sometimes the form won't update or calculate all the income fields if you don't do this.

Read your results at the bottom.

That's it.

Getting your income information together.

Things will be easier if you get all your information together before starting this tool.

Make sure you've pulled in all of your income information. Don't rely on the gig apps to give you accurate information. Often their information is limited or completely missing. They may not have included certain bonuses, additions, referral fees, etc.

Using bank records will probably be your best avenue. Just make sure you've got all of them. If you used fast pay or instant pay, make sure you have checked records for any debit card you had money transferred to.

If you had to pay transaction fees for instant pay withdrawals, make sure to include them as part of your income. Say you made $100 and withdrew the money using instant pay with a $1.99 transaction fee. Your income is reported as $100. However, your bank deposit will be $98.01.

Enter all the information into your bookkeeping software.

Pull a report from your bookkeeping software if you have it. Some programs will let you pull a report based on quarters. Others you'll have to enter the date range (Like April 1 through June 30 for second quarter).

If you don't use the software, make sure to list all of your income by quarter, either on a spreadsheet or on a list. All of your payments you received in the first quarter of 2020 are listed together and added up. Do that will all four quarters of 2019 and all four of 2020.

Get your totals together, and then this tool can help you get a first look at if you would qualify. If you qualify, you can head over to Womply and begin the application process.

Paycheck Protection Program 2.0 Second Draw Income Qualification Tool

Click the button to begin entering your information or click here.

Button stating "Start the Income Reduction Tool"

Paycheck Protection Program Articles

Articles published at about the Paycheck Protection Program, starting with the CARES Act early in 2020, and about the renewal of the PPP program with the latest stimulus package signed December 27, 2020.

Could this help someone else? Please share it.

About the Author

Ron Walter made the move from business manager at a non-profit to full time gig economy delivery in 2018 to take advantage of the flexibility of self-employment. He applied his thirty years experience managing and owning small businesses to treat his independent contractor role as the business it is.

Realizing his experience could help other drivers, he founded to encourage delivery drivers to be the boss of their own gig economy business.

Ron has been quoted in several national outlets including Business Insider, the New York Times, CNN and Market Watch.

You can read more about Ron's story,, background, and why he believes making the switch from a career as a business manager to delivering as an independent contractor was the best decision he could have made.

red button labeled read Ron's story.