Interaction between PPP Loans and the Employee Retention CreditBack to all blogs
- Consolidated Appropriations Act, 2021
- Interaction between PPP loans and the ERC
- PPP Loan Forgiveness Denied
- Amending Forms 941
- Qualified but Never Claimed the ERC
However, under the legislation, an employer that is eligible for the ERC can claim the ERC even if the employer has received a PPP loan, under the following circumstances.
- An eligible employer can claim the ERC on any qualified wages that are not counted as payroll costs in obtaining PPP loan forgiveness.
- Any wages that could count toward eligibility for the ERC or for PPP loan forgiveness can be applied to either of these two programs but not both.
- PPP Loan Forgiveness Denied – If an employer received a PPP loan and included wages they paid in the second and/or third quarter of 2020 as payroll costs in support of an application to obtain forgiveness of the loan (rather than claiming the ERC for those wages) and if the request for forgiveness was denied, then the employer can claim the ERC related to those qualified wages retroactively by amending their Forms 941 for 2020. This is done by using Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.
- Business Qualified but Never Claimed the ERC – If a taxpayer did not obtain a PPP loan, qualified for the ERC in 2020, and did not previously take the payroll credit, they can still do so by filing Form 941-X. Form 7200, which is used to request advance payment of the credit, cannot be used in this situation because it must be filed before the original 941 forms are.
Example 1: Eligible Employer pays $10,000 in qualified wages to Employee A in Q2 2020. The Employee Retention Credit available to Eligible Employer for the qualified wages paid to Employee A is $5,000.
Example 2: Eligible Employer pays Employee B $8,000 in qualified wages in Q2 2020 and $8,000 in qualified wages in Q3 2020. The credit available to Eligible Employer for the qualified wages paid to Employee B is equal to $4,000 in Q2 and $1,000 in Q3 due to the overall limit of $10,000 on qualified wages per employee for all calendar quarters of 2020.
No credit is available for any period for which an employer is allowed a Work Opportunity Credit with respect to an employee.
Please give this office a call to determine if your business might benefit from this law change or other employer-beneficial changes to the ERC that are effective for 2021 and aren’t covered in this article.