Key Takeaways:
- PPP borrowers can also apply for ERC (Employee Retention Credit) for wages not covered by the PPP loan.
- The ERC is a credit against payroll taxes and can be claimed retroactively for 2020 and forward until December 31, 2021.
- ERC eligibility for PPP borrowers has been expanded under the Consolidated Appropriations Act of 2021.
- PPP borrowers can now take advantage of both PPP and ERC, subject to certain restrictions.
- There are two relevant time periods when calculating the ERC: March 13, 2020 – December 31, 2020 and January 1, 2021 – June 30, 2021.
- Businesses that experienced a decline of at least 20% in gross receipts compared to the same quarter in 2019 are eligible for ERC.
- For employers with more than 100 full-time employees, the credit is available only for wages paid to employees who are not providing services due to the pandemic.
- For businesses with 100 or fewer full-time employees, the credit is available for wages paid to all employees, regardless of whether they worked during the pandemic.
How to Secure Federal PPP and ERC Funds in 2021
Businesses are still struggling as the COVID-19 pandemic continues to cause shortages, closures, and uncertainties. The federal government has passed several rounds of legislation over the last year and a half to help support Americans and business owners through these challenging times.
Lawmakers passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in March 2020, near the start of the pandemic, to create several relief programs. One was the Payment Protection Program (PPP), which aimed to help businesses keep their employees on the payroll during the pandemic or hire back furloughed workers.
Laws passed after the initial act have since expanded the PPP and other relief programs, including the Employee Retention Credit (ERC), which was also created under the CARES Act. This credit is another relief measure that targets employers who may be having trouble paying their full tax bill. U.S. businesses would be wise to explore whether they qualify for relief under these programs.
This guide will cover what PPP loans entail, an overview of the ERC, and other facts you need to know when you’re looking for business relief during the pandemic.
A Brief Overview of the PPP
The PPP has been instrumental in helping small businesses stay afloat. Loans under this program are implemented by the Small Business Administration (SBA) and the Treasury Department. Loans can pay for up to eight weeks of payroll costs, as well as mortgage interest, rent, and utility expenses.
This relief funding has helped many employers pay and retain workers they would have otherwise had to let go or furlough. One of the biggest benefits of the PPP is that the government can forgive loans completely if certain guidelines are followed.
Small businesses, nonprofits, veterans’ organizations, tribal businesses, and self-employed individuals or independent contractors are eligible if they meet the SBA’s size standards. The government can forgive PPP loans in full if:
- At least 60% of the funds are spent on payroll costs
- Employee and wage levels are maintained
- Funds are spent only on payroll and other eligible expenses
There are now first- and second-draw PPP loans because of subsequent legislation following the initial CARES Act. Some businesses that received a first-draw loan could apply for a PPP loan again and get second-draw funds, but that round of the PPP ended on May 31, 2021. Existing borrowers can still apply for PPP loan forgiveness, though, once all loan funds have been used, and they must make a forgiveness request within 10 months after the last day of the covered period, according to the SBA.
An Overview of the ERC
Many businesses may have already received a PPP loan or two, but if you still need assistance, you could qualify for the ERC, which is a tax credit instead of a business loan. You can now receive relief under both the PPP and ERC initiatives. You may be an eligible employer if you meet the following criteria:
Suspended Operations
Decline in Gross Receipts
Your gross receipts must have declined in 2020 or 2021 when compared with the same quarter in 2019. The decline must be at least 50% for 2020 or 20% for 2021.
Carried on a Trade or Business in 2020 or 2021
Businesses across the nation will have no trouble meeting these requirements since most organizations were impacted in some way by the pandemic. Governmental orders have affected whether or not businesses could operate during certain periods, and these orders varied by state and locality.
Contact ERC Today for more clarity about your eligibility.
5 Facts About the ERC
The ERC is a fully refundable tax credit that eligible employers can take to ease their tax burden. Here are a few more facts you need to know when you’re considering taking this credit:
1. Credit Limits
The initial 2020 ERC is equal to 50% of qualified wages paid to employees. This credit applies to wages paid between March 12, 2020, and January 1, 2021. The max for each employee for all quarters is $10,000, so the max credit is $5,000 per employee.
The terms changed for 2021. Lawmakers increased the credit to 70% of wages, and the $10,000 limit applies per quarter, so the maximum for each employee is $28,000.
2. PPP Loan Recipients
Businesses that also received a PPP loan are now eligible for the ERC, thanks to the Consolidated Appropriations Act of 2021 (CAA). Only wages that were not funded by the PPP loan will qualify.
3. Health Care Expenses
The CAA also changed the ERC to allow health care expenses as qualified wages.
4. Credit vs. Cash Payment
The ERC is different from other tax credits. It is not issued as an income tax credit but as a payment from the IRS.
5. IRS Form 941-X
Employers can claim the ERC by completing Form 941-X, Amended Quarterly Payroll Tax Return. They can do so up to three years following tax return filing.
The ERC is a potentially substantial benefit for eligible employers, and the process is pretty straightforward to claim it. Learn more by contacting the team at ERC Today.
Reach Out to the Experts for Help on the PPP and ERC
The professionals at ERC Today make the application process fast, easy, and flexible. Our tax experts can help you get everything filed on time and help you make sure you’re eligible. We know this credit inside and out, and we specialize in taxes. We ensure the process for both the PPP and ERC is safe so none of your information is ever at risk.
You will simply access our secure portal, upload your 941 returns, PPP loan information, and payroll data, and we will do all the credit calculating. We help you prepare your documents and make sure the IRS gets everything processed and paid back to you. Contact ERC Today or start filling out our ERC Initial Application online.
PPP & ERC FAQs
The maximum amount per employee that can be claimed as an ERC credit under the CAA for 2021 is $28,000.
Yes, PPP loan recipients are now eligible to apply for the ERC, but only for wages not funded by the PPP loan.
Health care expenses are considered qualified wages under the ERC.
The ERC is different from other tax credits and is issued as a payment from the IRS.
Employers should complete Form 941-X, Amended Quarterly Payroll Tax Return, to claim the ERC, up to three years following tax return filing.
The minimum decline in gross receipts required to qualify for ERC in 2021 compared to 2019 is 20%.
To be eligible for the ERC, businesses must have suspended their operations fully or partially during 2020 or 2021 because of a governmental order, experienced a decline of at least 50% in gross receipts compared to the same quarter in 2019, and must have been an employer in operation in one of the two qualifying years, 2020 or 2021.
