Employee Retention Credit and PPP Loan Combo Affects Tax Credit

LOS ANGELES, CA / ACCESSWIRE / July 13, 2023 / The Employee Retention Credit (ERC) and the Paycheck Protection Program (PPP) are two benefits designed to help businesses impacted by the COVID-19 pandemic. However, many business owners are left wondering if they can use the Employee Retention Credit and PPP loan together. The short answer is yes, as long as they are not claimed for the same wages and payroll costs. It’s important for business owners to understand the rules and regulations surrounding these two government benefits to avoid any potential legal or financial issues.

“This is often misunderstood among business owners and even accounting and tax professionals, on how to properly deduct forgivable PPP loan proceeds used for payroll from eligible Employee Retention Tax Credit wages,” said Marty Stewart, Chief Strategy Officer (CSO) with Disaster Loan Advisors (DLA). DLA has assisted over 700+ companies with their ERC / ERTC Tax Credit claims, by-the-book per current IRS tax credit rules and guidelines.

Employee Retention Credit and PPP Loan Key ERC Takeaways to Understand:

Businesses cannot use the Employee Retention Credit and PPP loan proceeds together for the exact same wages and payroll expenses.

The ERC can be claimed for qualifying wages paid between March 12, 2020 and December 31, 2021, while the PPP covers eligible payroll and other expenses incurred during certain covered periods.

Businesses can still claim the ERC tax credit for any qualifying wages not covered by PPP loan funds.

Overview of the Employee Retention Credit (ERC) and the Paycheck Protection Program (PPP) Programs

The Employee Retention Credit and Paycheck Protection Program, ERC and PPP, are financial relief measures designed to help small to medium-sized businesses stay afloat during challenging economic times.

The ERC is a refundable tax credit implemented under the CARES Act to encourage employers to retain employees and maintain payroll continuity. On the other hand, the SBA PPP loan program, also initiated under the CARES Act, provides forgivable loans for struggling business owners who need assistance covering essential operational expenses like payroll costs, rent payments, mortgage interest, or utilities.

One significant advantage of PPP loans is that if recipients meet specific criteria, primarily utilizing the funds for eligible expenses within a designated time frame, these loans can be completely forgiven without affecting the business’s taxable income.

How Do These COVID Relief Programs Work?

Understanding the Employee Retention Credit (ERC) and Paycheck Protection Program (PPP) can be challenging, but breaking down their mechanics makes it easier to comprehend. Here’s how each program works:

1. Employee Retention Credit (ERC) from the IRS:

a. This is a refundable tax credit applied against payroll taxes.
b. Eligible employers receive a credit for 50% (in 2020) and 70% (in 2021) of qualified employee wages.
c. The maximum credit per employee is $5,000 per employee in 2020, and $7,000 per quarter, per employee, in 2021.
d. Employers must experience a significant decline in gross receipts or have operations partially suspended due to government orders.
e. The ERC can be claimed on filing an amended quarterly tax return, Form 941-X, for each quarter from 2020 or 2021 that qualifies.
f. Businesses have an ERTC deadline of April 15th, 2024, for retroactively filing the IRS ERC credit claims for eligible quarters from the 2020 tax year. April 15th, 2025, is the deadline to claim the tax credit for eligible quarters from the 2021 tax year.

2. Paycheck Protection Program (PPP) from the SBA:

a. This is a forgivable loan provided by the Small Business Administration (SBA) for eligible small businesses, non-profits, and self-employed individuals.
b. Loan amounts are calculated based on average monthly payroll costs, with a maximum loan amount of 2.5 times the average monthly payroll costs or $10 million, whichever is less.
c. At least 60% of the PPP loan must be used for eligible payroll expenses, while up to 40% can be used for non-payroll costs such as rent, mortgage interest, and utilities.
d. To obtain forgiveness, borrowers must submit the PPP Loan Forgiveness Application to their lender and documentation supporting eligible expenses.
e. The PPP loan program has been closed for several years already, and is no longer available.

By understanding how these programs work and their respective eligibility criteria, small to medium-sized business owners can determine if they qualify for ERC and PPP benefits and make informed decisions about their financial options during unprecedented times.

Can You Use Both ERC And PPP?

Employers can receive the PPP loan and ERC if they meet the eligibility criteria, but there are guidelines and limitations for using both programs together.

Guidelines And Limitations For Using Both Programs

Small to medium-sized business owners should consider certain guidelines and limitations to using both the Employee Retention Tax Credit (ERTC) and Paycheck Protection Program (PPP).

Firstly, employers cannot claim the ERC for wages forgiven under PPP loans. However, they can claim ERC on qualified wages not included in PPP forgiveness.

For example, suppose an employer receives a PPP loan and uses it for payroll expenses during a covered period. In that case, they cannot claim those same expenses as eligible wages for the ERTC during that same time frame.

It’s important for small business owners to seek professional guidance from accountants or tax advisors when applying for or coordinating both programs together.

Using Both the IRS and SBA Programs Together

Combining the Employee Retention Credit (ERC) and Paycheck Protection Program (PPP) can benefit small to medium-sized businesses. Here are some advantages of using both programs together:

1. Increased funding: Using both programs simultaneously can increase the amount of funding available for your business.
2. Flexibility: The ERTC tax credit and PPP have different uses, so you may have more flexibility in using the funds.
3. No Double-Dipping: Using both programs allows you to take advantage of two separate forms of relief, however, no “double-dipping” on the same exact wages.
4. Cover more expenses: The ERC covers employee wages, while the PPP can cover a wider range of business expenses such as rent or utilities. Together, these programs can cover more expenses than if used separately.
5. Keep employees on payroll: Both programs incentivize employers to keep employees on payroll during the pandemic, which is important for maintaining a stable workforce and ensuring business continuity.

Employee Retention Credit Updates from the IRS

The Internal Revenue Service (IRS) wants business owners to stay protected. They have issued warnings about ERC credit frauds and scams so businesses stay aware. Furthermore, the IRS warns you never pay an ERC contingency fee or percentage based on your employee retention credit tax refund amount.

For ERTC 2023 updates and beyond, eligible employers and businesses have an ERTC deadline of April 15th, 2024, for retroactively filing ERC credit claims for eligible quarters from the 2020 tax year. April 15th, 2025, is the deadline to claim the tax credit for eligible quarters from the 2021 tax year.

About Disaster Loan Advisors™ Employee Retention Credit (ERC) Services

Disaster Loan Advisors™ (DLA) is a trusted team of financial tax professionals and Employee Retention Credit (ERC) consulting specialists dedicated to saving businesses from lost sales, lost customers and clients, lost revenue due to financial and economic harm caused by the COVID-19 / Coronavirus disaster, Delta and Omicron variants, and other recession and inflation downturns in the economy.

Having worked with over 1500+ business clients navigate the SBA Economic Injury Disaster Loan (EIDL), Paycheck Protection Program (PPP), and Restaurant Revitalization Fund (RRF) programs, DLA further refined its expertise in the ERC Tax Credit IRS program having assisted more than 700+ companies with their ERC Claims. Assisting ownership groups with multiple business entities, multiple location business owners, and other complex situations that require an expert tax and accounting strategist to be brought in to assess the situation and create the most strategic path forward.

DLA further specializes in another key pandemic-era SBA / IRS program where business owners are leaving a lot of relief fund money on the table. It is the often misunderstood and confusing Employee Retention Tax Credit (ERC) / Employee Retention Tax Credit (ERTC) program whereby company owners and partners can retroactively receive up to $26,000 to $33,000 back for each W-2 employee they had on payroll for the 2020 and 2021 tax filing years. Done correctly, these tax credits or cash refunds can be claimed retroactively for up to 3 years.

It’s encouraged that business owners obtain professional assistance in going through the complex 941-X amended filing process to help your company maximize the full value of the ERC Credit Program, while staying safe and compliant within the complex IRS rules and regulations for claiming the ERC Credits.

DLA doesn’t charge a percentage (%) of your ERC refund like many companies are charging. Instead, DLA works on a reasonable professional flat-fee basis. If you are looking for an ERC company that believes in providing professional ERC services and value for small business owners, in exchange for a fair, reasonable, and ethical fee for the amount of work required, Disaster Loan Advisors is a good fit for you.

Need Strategic Employee Retention Tax Credit Guidance?

CONTACT:
Disaster Loan Advisors
Elena Goldstein
Director of Media Relations
877-463-9777 ext. 3
[email protected]

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For an Employee Retention Tax Credit Deep-Dive Evaluation Analysis for Your Business, Visit:
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SOURCE: Disaster Loan Advisors™ (DLA)