Were you among the folks who had an inbox packed with emails with ever changing terms of the PPP loans? With nearly 10 million Paycheck Protection Program loans (PPP loans) issued, and countless emails that you inevitably received from your various organizations, associations, CPA contacts, etc., there is a chance you missed that there was a modification that allows those with forgiven PPP loans to potentially also qualify for the Employee Retention Credit (ERC).
Yes, you read that right. It is possible to have both PPP loan forgiveness AND eligibility for the ERC.
Short story: If you had a full or partial suspension of operations and a significant decline in receipts during the corresponding calendar quarter due to COVID-19 shutdowns, you are very likely to be eligible for the ERC. To be able to qualify for both PPP loan forgiveness and the ERC, your company must document that the wages treated as payroll costs used in calculations for the PPP loan forgiveness are not being used to calculate the ERC.
This was not initially the case. Just as the PPP loan terms have changed, so did the ERC guidelines. When the Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted on December 27, 2020, modified the ERC, it changed the eligibility criteria. Now, the criteria includes either (A) a full/partial suspension of operations due to COVID-19, or (B) a decline in gross receipts in a calendar quarter in 2021 where that quarter is less than 80% of the same calendar quarter as compared to 2019 (ie. Q1 2021 would be 80% or less than Q1 2019, as shown most typically on your Form 941). These modifications made at the end of the 2020 calendar year also allowed employers who received a PPP loan to claim the ERC for qualified wages, retroactive to the March 27, 2020 CARES Act. The caveat is that those wages are not the same payroll costs used in the calculations for forgiveness of the PPP Loan.
Additionally, the credit in 2021 expanded to $7,000 per employee per quarter (70% of wages up to $14,000), where the credit in 2020 was up to $5,000 per employee (50% of wages up to $10,000).
Risk mitigation and strengthening of your balance sheet is always a priority for the health of your business – and, as we here at R&P will remind you, the same applies in securing your surety credit. There are more details and complexities on these programs than what I can squeeze into our newsletter, of course. However, if your business is able to take advantage of these opportunities, it is imperative to plan how to utilize wages to allow business to claim both an ERC and forgiveness of PPP loans. We highly recommend working with your CPA in making this determination.