Employee Retention Credit and PPP Program
It is possible to get the Employee Retention Credit and PPP money. There are just some rules you have to follow to adhere to the rules and regulations. Here we will discuss what a business needs to look out for when figuring ERC wages and PPP loans.
Understanding ERC and PPP
Toward the end of 2020, 11,475,003 PPP loans were outstanding, with the approximate debt amounting to $69,087 per person. In addition to the Payroll Protection Program, employers can benefit from ERC, which are tax-deductible—specific credits designed to help companies keep employees on the job during the COVID pandemic.
Remember a PPP loan is not an ERC loan. They are completely separate government programs. ERC is a refundable tax credit and is not a loan. However, surprisingly, just 8% of company owners used this tax benefit in 2021.
Continue reading if you are unfamiliar with the government initiatives and incentives available to aid companies that have suffered losses due to the COVID-19 pandemic. Below, we’ll cover what ERC and PPP funds are, how to apply for each, and whether you can obtain both simultaneously.
Pandemic Assistance for ERC Personal Businesses
The Infrastructure Investment and Jobs Act offers support to individuals whose businesses were either partly or entirely affected due to COVID orders issued by the federal government beginning in 2020.
They might qualify for this tax credit if their closure decreased gross revenues for 2020. The company’s gross revenues for the first quarter of 2020 must be less than 50% of the company’s gross receipts for the same quarter in 2019.
This entirely refundable ERC tax credit is available to those who qualify and applies to salaries earned in the second, third, and fourth quarters of 2020. Until the ERC was passed, employers who participated in the PPP could not participate in the program.
Due to the provision of retroactive application in the Consolidated Appropriations Act (CAA), the government extended the program through the first, second, and third quarters of 2021.
Can You Get Employee Retention Credit and PPP
Another change is that borrowers of PPP loans will now be eligible for ERC benefits. According to the American Rescue Plan Act, ERC will be accessible for all four quarters of 2021.
It alters the applicable credit so that the credit will be applied to Medicare rather than Social Security contributions during the second half of the year. In addition, the Act expands the eligibility of recovery starting firms.
Even though ERC has been terminated, employers may still apply for this credit retrospectively. If you have a three-year look-back record, you may be able to amend your quarterly tax return to account for the ERC credit you did not claim when the program was in full swing.
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A qualified employer must meet the following condition to be eligible for ERC in 2020: gross revenues for any one quarter in 2020 should be less than half of the same quarter in the previous year. If you meet the criteria, submit an ERC application for a credit equal to 50% of the first $10,000 in qualifying wages paid to each employee during the second, third, and fourth quarters of 2020.
This implies that the maximum amount of money earned through this scheme is $5,000 every quarter per employee. On the other hand, ERC eligibility for 2021 will be determined by your ability to achieve the following requirements:
- Activities must be halted in part or whole due to the government order during the COVID-19 pandemic
- Gross revenues for any quarter in 2021 should be less than 80 percent of the comparable quarter in 2019.
Employee Retention Credit and PPP Examples
Consider the following scenario: you are eligible and submit an ERC application. In such an event, you will get 70% of the first $10,000 in qualifying wages paid to each employee during Q1-Q4 of 2021. Aside from that, the ERC per employee for each quarter is $7,000 max; however, ERC per employee was $28,000 annually at the time of implementation.
The CARES Act provides for establishing the Payroll Protection Program (PPP). It gives small companies cash-flow help for eight weeks, allowing businesses that kept staff on the payroll during the COVID-19 to benefit from 100 percent government-guaranteed loans.
The firm forgave the loan because the funds were used for payroll expenditures, mortgages, utilities, or rent. An application for debt forgiveness must be submitted before the loan’s maturity date. If you do not submit your application within the allotted period, your PPP payment will no longer be deferred and repaid to the provider.
ERC Meaning and PPP Money
Payroll Protection Program (PPP) and Employee Retention Credits (ERC) vary significantly: the type of financing provided, when the firm gets cash, and the program’s cost. The differences between the two programs are as follows:
- Under the PPP changes, a forgiving loan is given to a company, providing that they adhere to the loan conditions, including using the cash for rent or payroll—the loan does not have to be returned to the bank. The ERC is in the form of a tax credit. It is payable to the firm from the Internal Revenue Service and does not need to be repaid.
- The money is sent to the employer via direct deposit into their bank account when using the PPP, usually within a week of approval. However, ERC is a credit that the employer gets after submitting Form 941 to the IRS. The credit is applied to the payroll taxes collected from workers when they process payroll for the company.
- A firm that applies for the Payroll Protection Program incurs no up-front fees. The only cost incurred is if the company does not spend the loan in full according to the loan conditions. The same is the case with ERC; the company claims a tax deduction when filing quarterly tax returns and will only be charged for the specialist service to file tax returns.
Following the Consolidated Appropriations Act, an employer that receives a PPP loan may be qualified to get PPP and ERC benefits; however, different earnings sets must be utilized. Specifically, the IRS has determined that payroll expenditures reported by a business for forgiveness in 2020 are not eligible for ERC relief.
ERTC vs PPP: The ERC Tax Credit is allowed only if the following conditions are met.
- An ERC claim was made by a group member that doesn’t get PPP.
- The PPP loan does not cover the cost of the employer’s qualified wages.
- When an employer receives qualified wages from a forgiven loan (the forgiveness does not apply to the same earnings as the qualifying ERC wages).
Several significant differences exist between the Employee Retention Credit and Payroll Protection Program. You must examine each program individually and compare it to the others to determine eligibility and which program will benefit your company most.
Due to many changes and the distinctions between the two programs, you may still have questions about how to get payroll relief. Check with an ERC expert to ensure you get all the help your business needs for 2020 and 2021.
Next Steps for Claiming Both ERC and PPP
They will look at your company information and see if you qualify. Then, if you are eligible, they can help you file quarterly Form 941-X. Finally, once everything is sorted, the IRS sends you a check.
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According to the Consolidated Appropriations Act of 2021, your business can now benefit from loan forgiveness under the PPP while remaining eligible for the ERC. This is provided you do not use the same earnings to determine your eligibility for both programs. However, to maximize the overall advantage while avoiding “double-dipping,” you must develop a carefully calculated approach that considers your company’s specific requirements and circumstances.
Getting ERC Assistance
So what are you waiting for? Don’t let this chance to obtain payroll aid pass you by. In the following years, the incentives you get through Payroll Protection Program and Employee Retention Credits may provide a breakthrough for your company’s growth. Complete our qualification form to determine if your company is eligible for ERC and PPP in 2022.