Categories: ERC

Employee Retention Credit / ERC and PPP

In the wake of the COVID-19 pandemic, businesses have been presented with two major options for financial relief: the Paycheck Protection Program Loans (PPP) and Employee Retention Credit (ERC). This post will provide an overview of both options, compare their pros and cons, and discuss the questions employers have when they wonder if they can get both ERC and PPP.

What is the Paycheck Protection Program (PPP)?

The Paycheck Protection Program (PPP) is a loan program established by the CARES Act and administered by the U.S. Small Business Administration (SBA). Through this program, small business owners who have been impacted financially by COVID-19 can apply for loans of up to $10 million to help cover costs related to payroll and other qualifying expenses.

The loan amount disbursed is 2.5 times the applicant's average monthly payroll costs. This loan can be completely forgiven if the applicant files a forgiveness application and shows they have used the money to cover rent, utilities, payroll costs, and other applicable expenses.

By providing organizations with access to capital through the PPP loan program, businesses can continue operating, retain their employees and keep the economy going. The purpose of PPP is to provide financial assistance to businesses to help them cover payroll costs, rent, mortgage interest, and utilities during the COVID-19 pandemic.

What is Employee Retention Tax Credit (ERTC)?

The Employee Retention Tax Credit (ERTC) is a refundable payroll tax credit available to employers in 2020 and 2021. It was created under the CARES Act and administered by the Internal Revenue Service (IRS) to incentivize businesses to retain their employees during the pandemic.

To qualify for this credit, employers must have experienced either a full or partial shutdown due to government orders or a significant decline in quarterly gross receipts due to COVID-19. If eligible, employers may receive a tax credit of up to $5,000 per employee in 2020 and up to $21,000 per employee in 2021.

The ERC is refundable, meaning employers can receive a refund even if they do not owe taxes. The credit can also be used against certain payroll taxes such as Social Security and Medicare.

Comparing ERTC and PPP loan

Funding Type

The PPP offers a forgivable loan that can be used to cover payroll, rent, and other qualifying expenses. If you don't use the funds for qualifying purposes, the portion of the loan not forgiven will have to be repaid over two or five years at a 1% interest rate. In contrast, the ERC is a tax credit that doesn't need to be repaid.

Funding Time

If you qualified for the PPP loan, you would receive the funds via direct deposit within ten days of approval. The ERC will take longer because it needs to be claimed through filing Form 941-X and reviewed by the IRS before you can receive a check. This process can take anywhere from 3 to 6 months or even longer.

Cost

The PPP loan is free to apply for, and any cost incurred would only be if you don't use the loan proceeds for qualifying costs and have to pay it back. For the ERC, there are no government fees involved in receiving it; however, you may incur a service cost if you get an accountant or tax professional to help you file your returns.

All in all, both PPP and ERC offer great fiscal support to businesses that have been affected by the pandemic. Understanding the differences between them is important to ensure you are getting the most out of either program.

Can You Get Employee Retention Credit and PPP?

Yes, receiving both the Employee Retention Credit (ERC) and a Paycheck Protection Program (PPP) loan is possible. Thanks to the Consolidated Appropriations Act of 2021, businesses that have received a PPP loan may also apply for ERC retroactively from 2020. However, it is important to note that you cannot use the same wages that qualify for PPP loan forgiveness to determine your ERC amount. You will need documentation to prove that you are not 'double dipping' and using both programs to cover the same wages.

For example, if you used your PPP funds to pay for $50,000 in wages and expect to qualify for loan forgiveness, you cannot use those wages to calculate your ERC. It is important to consider each program's restrictions when making decisions related to both.

Considerations for Employers in 2023

When deciding which option is best for them in 2023, employers should consider the following:

• How much funding do they need to cover their expenses? This will help them decide whether a loan or a tax credit is more appropriate.

• What type of costs can they use the funds towards? Both programs have different restrictions on what types of business expenses qualify for funding.

• What is the timeline for receiving the funds? Depending on their budget and needs, employers may prefer one option over the other based on how quickly they can access the money.

• Are there any additional costs associated with either program? It is important to understand if any service or filing fees are associated with either option.

By considering all these factors, employers can make the best decision for their business needs in 2023.

Conclusion

In conclusion, the PPP loan and ERC are popular options for employers affected by COVID-19. Each program offers different advantages and benefits, so it is important to understand the details of each before making a decision. Ultimately, the best program for your business will depend on its unique needs and circumstances.

FAQ's

What Types of Wages Qualify for the Employee Retention Credit (ERC)?

The Employee Retention Credit is a refundable tax credit available to eligible employers affected by the COVID-19 pandemic. The Consolidated Appropriations Act of 2021 extended the ERC until June 30, 2021, and expanded its eligibility requirements.

To qualify, businesses must have been fully or partially suspended due to governmental orders related to COVID-19 or experienced a significant decline in gross receipts. For 2021, qualified wages paid by employers include wages and health plan expenses paid between January 1, 2021, and June 30, 2021, for up to $10,000 per employee. Qualified wages for 2020 and 2021 can be used to claim the ERC, but wages used toward a PPP loan forgiveness application are not eligible.

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