You’re juggling the complexities of running a business, and you’ve heard about PPP loans and ERC. Both sound promising. Can you apply for ERC and PPP?
With recent changes you may be eligible for both but you can’t double dip, so be careful with your calculations. Note the PPP closed for new business on May 31st, 2021.
This article will help you understand the guidelines to maximize these benefits without stepping on any legal landmines.
Don’t worry; we’ll break everything down for you right here.
What is the Paycheck Protection Program?
The Paycheck Protection Program, or PPP, was a program that provided SBA-backed loans to eligible small businesses hit by the COVID-19 pandemic. You could have your loan fully forgiven if it was spent on qualifying expenses like payroll costs. This initiative aimed at helping you keep your workforce employed during the financial crisis brought about by the pandemic.
As an eligible business owner, you could have applied for a loan up to 2.5 times your average monthly payroll costs. The best part? If you followed the rules laid out by the SBA, this loan could turn into a grant. All you needed to do was show proof that at least 60% of the funds were used for payroll costs within a given period after receiving the loan.
Moreover, even non-payroll costs like mortgage interest payments, rent or lease payments, and utility bills also counted towards forgiveness if they didn’t exceed 40% of total spending from PPP funds. But remember: in order to ensure full forgiveness, maintaining employee and compensation levels was key.
However, PPP ended on May 31st, 2021. So if you’re still looking for financial assistance due to ongoing impacts of COVID-19 on your business operations, other options such as ERTC or Economic Injury Disaster Loans (EIDLs) might be worth exploring.
Remember though – every business is unique so we recommend you always consult with an ERC Tax Expert before making any decisions!
What is the Employee Retention Tax Credit?
It’s a refundable tax credit known as Employee Retention Tax Credit (ERTC aka ERC), which is available to eligible employers who’ve been impacted by COVID-19. The ERC was established under the CARES Act and is administered by the Internal Revenue Service (IRS). Its main purpose is to provide financial relief for businesses and encourage employee retention during the pandemic.
Here are three crucial aspects of the ERC:
- Qualification Criteria: You may qualify for this credit if your business operations were either fully or partially suspended due to government orders related to COVID-19, or you experienced significant declines in quarterly gross receipts.
- Credit Amount: The amount of credit you can claim varies between 2020 and 2021. For 2020, you could claim up to $5,000 per employee, while in 2021, this amount increased significantly to $21,000 per employee.
- Retroactive Claims: If you failed to claim the ERTC initially, it’s still possible to file an amended quarterly return on Form 941-X and receive a refund from IRS retroactively.
For further information here is A complete guide to ERC and ERTC. How it benefits your business.
Remember that while both PPP loan forgiveness and ERC are designed with similar goals in mind – keeping businesses afloat and employees on payroll during these tough times – they operate differently. Be sure that wages used for PPP loan forgiveness cannot also be claimed towards your ERC calculation; ‘double-dipping’ is not allowed under current rules set forth by IRS. Always consider seeking professional advice from an ERC Tax Expert when accessing these programs for optimal benefits and to reduce the risk of an audit if the calculations are incorrect.
Differences Between PPP and ERC
Note: The Payment Protection Program (PPP) closed on May 31st, 2021 so you can no longer apply for it.
You’re about to delve into a comparative analysis of the Paycheck Protection Program (PPP) and Employee Retention Credit (ERC), two critical funding mechanisms designed to assist businesses during these challenging economic times.
You’ll explore the nature of their respective funding types, understand the timelines for receiving funds, weigh up their associated costs, and get a clear grasp on eligibility criteria.
Type of Funding
Differing in nature, PPP offered a forgivable loan while ERC provides a non-repayable tax credit. As you navigate these funding options, it’s important to grasp the key differences and how they affect your business.
- PPP (Paycheck Protection Program): Closed as of May 31st 2021. If you have already received PPP and you’ve used the funds on payroll or rent expenses, you won’t have to pay back anything. However, if any portion is used for non-qualifying expenses, that part will require repayment with a fixed interest rate.
- ERC (Employee Retention Credit): This is not money upfront but rather a credit applied against your payroll taxes when you file your quarterly Form 941.
- Cost Comparison: While there were no upfront costs for the PPP loan, using ERC might incur costs if you engage an ERC Tax Expert.
Funding Time
ERC funding comes in the form of a refundable tax credit and is applied to your company’s payroll taxes when you file Form 941-X. The IRS generally takes about 3-6 months or even longer to review and process your claim before sending a check.
Cost
- ERC: This tax credit is free of governmental charges too. However, preparing and filing amended payroll tax forms may require professional assistance, which could come at a cost.
Eligibility
Eligibility requirements for both programs have specific criteria that need to be met, and they’re not exactly the same.
For PPP loans (which are now closed as of May 31st 2021 to new applications), your business needed to have less than 500 employees and be operational before February 15, 2020. Plus, for second-draw loans, you had to show a 25% or more reduction in gross revenue and have used up previous loan funds.
On the other hand, ERC eligibility in 2021 required fewer than 500 full-time employees and either a decrease in gross revenue of at least 20% compared to the corresponding quarter in 2019 or a full or partial suspension of operations due to a government mandate.
Can you apply for ERC if you received PPP?
You’re allowed to apply for the Employee Retention Credit (ERC) even if you’ve received a Paycheck Protection Program (PPP) loan. This was not the case initially, but changes in legislation have made it possible. The Consolidated Appropriations Act of 2021 revised the rules and now enables PPP recipients to also receive ERC if they meet eligibility criteria.
However, remember that there are specific stipulations in place to prevent double-dipping. Here’s an outline:
- Wage allocation: Wages used to qualify for PPP loan forgiveness can’t be used for calculating your ERC. Conversely, wages not utilized for PPP loan forgiveness can go towards your ERC calculation.
- Documentation: Keep meticulous records of all payroll expenses and how your PPP funds were allocated. This documentation is crucial as proof of how you qualified for both programs, and ensures accuracy when applying for ERC.
- Calculating credits: For instance, if your business has $25,000 in payroll expenses and $15,000 of those were covered by forgiven PPP funds; only the remaining $10,000 could be considered when calculating your potential ERC.
Navigating these financial aid programs might seem daunting but understanding these nuances can help maximize benefit from both schemes concurrently while staying within legal boundaries. It’s critical to stay diligent with record-keeping and understand the specifics on wage allocation between programs.
Employee Retention Credit and PPP Loan Requirements
Navigating the requirements for both the Employee Retention Credit (ERC) and PPP loan can get complex, but they’re crucial to understand in order to fully benefit from these programs.
Despite targeting the same issue of employee retention, these two programs have distinct features and eligibility criteria.
For PPP loans, your business must have experienced a drop in gross receipts of over 25% compared to the same quarter last year. Also, it’s important to note that this program offers more flexibility on how you can use the loan proceeds. However, be aware that if any part of this forgivable loan is used for non-qualifying expenses, repayment will become necessary.
On the other hand, ERC is available for employers who’ve seen a fall in gross revenue of more than 50% when contrasted with the same quarter from last year or those forced to halt operations due to government orders related to COVID-19. This refundable tax credit doesn’t need repayment – but remember, wages used towards ERC cannot be considered for PPP forgiveness.
Furthermore, bear in mind that even though an employer eligible for ERC can claim it upon receiving a PPP loan, it’s essential not to double-dip. That means salaries may be allocated either towards ERC or PPP forgiveness – not both simultaneously.
Understanding these intricate aspects might seem overwhelming initially but stay diligent. Comprehending and effectively manoeuvering through these guidelines could significantly impact your business’s fiscal health during challenging times.
Conclusion
So, you could have already applied for PPP in the past and can now apply for ERC if your business is eligible, but it’s crucial to avoid ‘double-dipping’.
Remember, wages used for PPP forgiveness cannot be claimed for the ERC.
Although the PPP loan application has closed on May 31st 2021, you can still claim the ERC via Form 941-X.
Claiming ERC requires careful documentation and potentially professional ERC tax advice.
