Is it possible to claim the employee retention credit even if I have received a ppp loan?
Consider this question: “Can I take the employee retention credit if I got a PPP loan?” The answer is more complex than a simple “yes” or “no”. According to the IRS, any business is eligible for both the Employee Retention Credit (ERC) and the Paycheck Protection Program (PPP) loan, but they cannot use both programs for the same payroll expenses.
In other words, a business that received a PPP loan can still claim the ERC for qualifying wages that are not paid for with PPP loan proceeds. This credit is equal to 50% of up to $10,000 in qualified wages paid to an employee between January 1 and June 30, 2021.
Here are some key takeaways to keep in mind when considering whether or not you can take the employee retention credit if you received a PPP loan:
Key ERC Credit Takeaways You Will Learn:
- Eligible for ERC and PPP Loan: Businesses can qualify for both ERC and a PPP loan, but not for identical payroll costs.
- ERC Claim Amount: The ERC equals 50% of up to $10,000 in qualified wages per employee.
- Retroactive Claim Opportunity: Businesses can file for the ERC retroactively in 2023, 2024, and 2025.
- IRS Processing Pause: The IRS has temporarily stopped processing ERC claims due to compliance concerns.
- Seek Professional Advice: It’s crucial to consult with professionals for ERC and PPP guidance.
See Important 2024 Employee Retention Tax Credit Deadline Information at the Bottom of This Article.
Comprehending the Relationship Between PPP Loans and the Employee Retention Credit (ERC)
The PPP loan is a forgivable loan designed to help businesses cover payroll and other eligible expenses. At the same time, the ERC is a refundable tax credit intended to encourage employers to retain their employees during the COVID-19 pandemic.
What Is The PPP Loan?
The Paycheck Protection Program (PPP) loan is a government-backed, forgivable financial assistance initiative created to support the United States’ small to medium-sized businesses.
Under PPP loans, eligible business owners can apply for funds that cover essential expenses such as payroll costs, mortgage interest payments, rent, and utilities. One notable feature of this program is its potential for forgiveness. Suppose borrowers meet certain conditions, such as maintaining their workforce size and using at least 60% of the loan amount on payroll costs within a designated time frame (typically 8 or 24 weeks). In that case, they may be eligible for full PPP loan forgiveness.
What Is The ERC?
The Employee Retention Credit (ERC) is a refundable tax credit designed to help businesses retain their employees during economic hardship caused by the COVID-19 pandemic.
Introduced as part of the CARES Act and later extended through the Consolidated Appropriations Act and the American Rescue Plan Act, the ERC aims to provide financial relief to small to medium-sized business owners experiencing revenue losses or facing operational challenges due to government-mandated closures or restrictions.
Eligibility And Qualifying Conditions For The ERC
Discover who is eligible for the ERC and the qualifying conditions, ensuring you can make the most informed decision regarding your small business interruption loan amount’s finances.
Who Is Eligible For The ERC?
Eligibility for the Employee Retention Credit (ERC) is extended to many businesses and organizations, including small to medium-sized business owners who meet certain criteria.
To further illustrate this criterion, let’s say your local government implemented stay-at-home orders, which forced you to temporarily close down your storefront. In such cases, these circumstances would qualify you as an eligible employer for the ERC program.
Other eligibility examples include
- non-profit organizations,
- tax-exempt entities under section 501(c), and
- certain governmental employers like public colleges and universities.
What Are The Qualifying Conditions For The ERC?
To qualify for the Employee Retention Credit (ERC), there are a few conditions that your small business administration now needs to meet. First, you must have experienced a significant decline in gross receipts due to the COVID-19 pandemic.
This involves comparing your gross receipts from 2020 to 2019 and seeing if they decreased by at least 50%.
Alternatively, you can also qualify for ERC if your business had operations partly or fully suspended during any quarter of 2020 due to government orders related to COVID-19.
For example, Sarah owns a small retail store with less than 500 employees. Due to the impact of COVID-19 on her business, she was forced to shut down temporarily for two months in early 2020 following government orders which affected her sales revenue significantly.
After reopening her store, she retained all her staff despite facing financial difficulties throughout the year.
Eligibility And Qualifying Conditions For The PPP Loan
To be eligible for the PPP loan, a small business must have 500 or fewer employees (including full and part-time workers), meet specific SBA size standards for their industry, and have been operational on February 15th, 2020.
Who Is Eligible For The PPP Loan?
To be eligible for the PPP Loan, your business must have been operational before February 15th, 2020. Your business must also meet certain size requirements: fewer than 500 employees or other industry-specific standards.
Also, sole proprietors and independent contractors can apply as long as they are in operation on or before February 15th, 2020. It is important to note that some businesses, such as those engaged in illegal activities or lobbying, are not eligible for a PPP loan.
What Are The Qualifying Expenses For The PPP Loan?
The PPP loan must be spent on specific expenses to be eligible for forgiveness. These include:
– Payroll costs, such as salaries, wages, and tips (up to $100,000 per employee), as well as benefits like health insurance and retirement contributions.
– Rent payments for leases in force before February 15th, 2020.
– Mortgage interest for mortgages in place before February 15th, 2020.
– Utilities including electricity, gas, water, transportation, internet access, and telephone services incurred before February 15th, 2020.
It’s important to note that at least 60% of the funds must be used for payroll-related expenses to qualify for full loan forgiveness. Additionally, these expenses must be documented and supported by appropriate records.
What Is PPP Loan Forgiveness?
PPP Loan forgiveness is a process where eligible borrowers can have their entire PPP loan balance forgiven if they meet certain criteria. The conditions for obtaining PPP loan forgiveness include
- using most of the loan to cover payroll costs,
- maintaining employee headcount and salary levels, and
- spending at least 60% of the loan on payroll expenses over a covered period.
For example, let’s say you received a PPP loan in April 2020 for $100,000 and used $60,000 toward payroll expenses during your covered period.
It is important to understand that not all borrowers will qualify for full forgiveness. Partial forgiveness may also be available if some but not all requirements are met.
Can You Get Both The PPP Loan And ERC?
It is possible to be eligible for the PPP loan and ERC, but certain requirements must be met.
The Original Rules From The CARES Act
When the CARES Act was initially implemented, businesses could not claim the PPP loan and ERC. This meant they had to choose between accepting PPP funds or taking advantage of the ERC.
Fortunately, retroactive changes from newly passed legislation like the Consolidated Appropriations Act (CAA) and American Rescue Plan Act (ARPA) have relaxed these restrictions for eligible employers who received PPP loans.
Now, they can qualify for both programs simultaneously under certain conditions.
Retroactive Changes From The Consolidated Appropriations Act (CAA)
The Consolidated Appropriations Act (CAA) has retroactively changed the Employee Retention Credit (ERC). Starting from January 1st, 2021, eligible employers can claim ERC even if they received PPP funds.
Additionally, for wages paid after March 12th, 2020, and before January 1st, 2021, employers who have seen a significant decline in gross receipts may qualify for the credit.
The CAA also expanded the eligibility of employers by increasing the limit on per-employee wages and extending it until June 30th, 2021.
Updates From The American Rescue Plan Act (ARPA)
The American Rescue Plan Act (ARPA), signed into law on March 11th, 2021, provides additional relief to small business owners affected by the COVID-19 pandemic.
A key provision of ARPA is that it extends and expands the ERC through December 31st, 2021. This means eligible employers can now claim up to $7,000 per employee per quarter for eligible wages paid from January 1st, 2021, through December 31st, 2021.
Additionally, the definition of an eligible employer has been expanded to include recovery start-up businesses and severely financially distressed small businesses with gross receipts of less than ten percent of what they were before the pandemic.
How To Calculate ERC Credit With PPP
To calculate the ERC credit with PPP debt forgiveness, employers must subtract any qualified wages used for PPP loan forgiveness from their total qualified wages and multiply that amount by 50%.
How PPP Loan Forgiveness Affects The ERC
If you applied for forgiveness for the PPP loan using payroll in 24 weeks, you might still be eligible for the ERC credit. However, eligible employers can only claim the ERC on any qualified wages not used to calculate the PPP loan forgiveness application.
If your qualifying expenses have been forgiven under your PPP loan, you cannot use those same expenses as part of your payment calculation when claiming the ERC credit.
It is also important to note that while any forgiven amount under a PPP loan reduces payroll tax credits available through the ERC program, it does not directly affect eligibility or qualification criteria.
Can You Claim Refundable Tax Credit For Wages Paid With PPP Loan Funds?
You can claim the Employee Retention Credit (ERC) for wages paid with PPP loan funds. However, certain limitations must be taken into account. Specifically, eligible employers can only claim the ERC on any qualified wages not used to calculate PPP loan forgiveness.
This means that if an employer used PPP funds to pay employee wages and later received loan forgiveness based on those wages, they cannot use those same wages as a basis for ERC eligibility.
For example, if a small business received a $50,000 PPP loan and spent all of it on payroll costs during their covered period but could only have $40,000 forgiven because other expenses like rent and utilities ate up the remaining amount.
It is important to understand how these two programs interact to take full advantage of both while avoiding double-dipping or penalties for over-claiming benefits.
Advantages of Claiming The ERC With a PPP Loan
Combining the PPP loan and ERC can provide significant benefits, including increased financial relief and tax credits.
Benefits of Combining The PPP Loan And ERC
By combining the PPP loan and ERC, small to medium-sized businesses can enjoy various benefits, including:
1. Increased Cash Flow: The PPP loan provides funding for payroll and certain other expenses, while the ERC offers a tax credit on qualified wages. By combining these two programs, employers can maximize their cash flow and improve their financial position.
2. Maximization of Tax Credits: Employers who take advantage of both programs can claim a tax credit on qualified wages not used to calculate PPP loan forgiveness. This can lead to significant savings on taxes owed.
3. Flexibility in Using Funds: While the PPP loan is intended primarily for payroll expenses, the ERC allows employers to use funds for other eligible expenses, such as rent or utilities. By combining the two programs, businesses have more flexibility in using the funds.
4. Prevention of Layoffs: The ERC was designed to encourage employers to retain employees during difficult economic times. By taking advantage of both programs, businesses can ensure they meet their payroll obligations and avoid layoffs.
5. Higher Forgiveness Rates: The PPP loan and ERC can lead to higher forgiveness rates for qualified businesses. This can help reduce debt burdens and free up capital for future investments.
By understanding the benefits of combining these two programs, small to medium-sized business owners can make informed decisions about how best to manage their finances during these challenging times. It is important to consult with professional advisors before applying for both programs to ensure eligibility requirements are met, and potential interactions between them are understood.
How To Maximize Your Benefits With Both Programs
To maximize your benefits with the Employee Retention Credit (ERC) and Paycheck Protection Program (PPP) loan, you must understand how they can work together. One way is to utilize the full retention credit and PPP only funds for non-payroll expenses and use the ERC credit for payroll costs.
Another way is to strategically time when you apply for each program so that they impact each other in the most advantageous way possible.
It’s crucial to consult with a professional tax adviser who understands both programs thoroughly and can help determine how best to optimize them.
How To Claim The ERC
To claim the ERC, eligible employers must report qualified wages and related expenses on their employment tax returns or file for an advance credit payment using Form 7200, with the option to amend payroll tax returns to claim any missed credits.
How To Apply For The ERC
Applying for the Employee Retention Credit (ERC) is fairly straightforward. Here are the steps you need to take:
1. Determine Eligibility: Carefully Review the eligibility requirements to ensure your business qualifies for the ERC.
2. Identify Qualified Wages: Identity which wages paid during the eligible period qualify for the credit.
3. Calculate Credit: Use Form 941, Employer’s Quarterly Federal Tax Return, or request an adjustment on previously filed Forms 941-X to calculate your credit and any advances received.
4. Submit Form 941: Report your total qualified wages and credits for each quarter on Form 941.
5. Claim Advance Payment: If you are eligible, you can request an advance payment of the expected credit by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
6. File Amended Returns: If you filed your quarterly tax return before claiming the ERC, file an amended return for each quarter you wish to claim the credit.
7. Keep Records: Keep records of all documents related to your ERC claim, including payroll records, tax returns, and other relevant documents.
Remember that there are specific time limits to claim the ERC, so submit your application promptly. Seeking professional advice can also help ensure that you follow all regulations and maximize your benefits with both programs.
Necessary Forms To Claim The ERC
To claim the Employee Retention Credit (ERC), you must fill out specific forms and provide the necessary documentation. Here are the necessary steps and forms you need to claim the ERC:
1. Determine your eligibility as an employer for the ERC.
2. Calculate your qualified wages and compute your ERC credit.
3. File Form 941, Employer’s Quarterly Federal Tax Return, for each calendar quarter, including eligible wages.
4. Fill out Form 7200, Advance Payment of Employer Credits Due to COVID-19, if you want to receive advance payment for the ERC.
5. Claim the employee retention tax credit on your annual tax return by filing Form 5884-C, Employee Retention Credit.
Ensure to gather all supporting documents, such as payroll records and other documentation required by IRS guidelines, before filing these forms. It is important to complete all forms accurately and completely, as any errors or omissions can delay the processing of your claim.
Remember that seeking professional advice can help navigate these processes effectively and maximize benefits under both programs.
Time Limits For Claiming The ERC
It’s important to act quickly when claiming the Employee Retention Credit (ERC). The deadline for claiming the credit is typically three years after filing your tax return.
However, we recommend that small and medium-sized business owners file as soon as possible to avoid missing out on these valuable benefits.
For example, you may lose those credits entirely if you are eligible for $10,000 in ERC credits but take over a year to claim them after filing your tax return.
To ensure the timely processing of your claim and maximize your benefits, seek professional advice and ensure all necessary forms are filed accurately and on time.
FAQs About PPP Loans And The ERC
What are some common questions businesses have about combining PPP loans and the ERC, and what expert advice is available to help navigate these programs?
Common Questions And Answers About PPP And ERC
Here are some common questions and answers about PPP and ERC that small to medium-sized business owners may have:
1. Can I apply for the PPP loan and Employee Retention Credit (ERC)? Yes, you can be eligible for both programs.
2. Can I claim the ERC if I received a PPP loan? You could claim the ERC even if you received a PPP loan.
3. How do I calculate my potential credit with both programs? It depends on various factors like eligible wages, qualified expenses, and other requirements of each program.
4. What are the differences between PPP loans and ERC? While PPP loans are forgivable to cover payroll costs, rent, mortgage interest, utilities, and other expenses, ERC is a refundable tax credit intended to incentivize businesses to retain employees during difficult times.
5. How do I apply for ERC if I have already applied for the PPP loan? You need to fill out Form 941-X or wait until filing your quarterly employment tax return (Form 941) to claim the credit on your wages not used to forgive your PPP loan.
6. Will taking both programs reduce my benefits from either program? It depends on your eligibility criteria and how you use each program’s funds.
7. What is the deadline for applying for these programs? The deadlines keep changing based on government guidelines and updated rules; checking with a professional advisor or reading updated information from relevant government agencies are best.
Remember that it’s essential to understand all eligibility requirements and the interaction between these two programs’ benefits before applying them in tandem – but there could be great advantages!
Expert Advice On Navigating The Programs
Navigating the Employee Retention Credit (ERC) and Paycheck Protection Program (PPP) loans can be tricky, so it’s always recommended to seek professional advice.
Many small business owners are unaware of how these programs interact, and expert guidance can help ensure that you make the most out of both programs.
For instance, one important piece of expert advice is to keep accurate records of all wage expenses and payroll taxes paid during the covered period. They will come in handy when claiming either program’s tax benefits.
Additionally, experts recommend working closely with an accountant to ensure you accurately calculate every aspect of eligibility criteria before applying for aid packages.
Seeking Professional Advice When Taking The ERC And PPP Loan
It is crucial to seek professional advice when applying for the ERC and PPP loan to ensure eligibility requirements are met and maximize your benefits.
Importance Of Professional Advice
Navigating the rules and regulations surrounding the Employee Retention Credit (ERC) and Paycheck Protection Program (PPP) can be complex and overwhelming. Seeking professional advice from an accountant or tax advisor is crucial to ensure you take advantage of all available benefits while avoiding potential pitfalls.
A knowledgeable advisor can help you understand eligibility requirements, calculate qualified wages, avoid overpayments, and maximize your credit.
Additionally, as government guidance changes rapidly due to COVID-19 developments, business owners must stay current on new rules and regulations that may impact their eligibility for relief programs like the ERC and PPP loan.
How Professionals Can Help
Navigating the complex PPP loan and ERC credit rules can be challenging for small to medium-sized business owners. That’s why it’s important to seek professional advice from tax professionals, accountants, or other financial advisors who are well-versed in both programs.
Moreover, they can help ensure you’re not double-dipping when using funds from the PPP loan and claiming the ERC credit. They can also assist with correctly filling out necessary tax forms and meeting all requirements within specified time limits so that you don’t miss out on potential opportunities for forgiveness or tax credits.
Conclusion and Summary Responding: Can I Take The Employee Retention Credit If I Got a PPP Loan?
Yes, it is possible to take advantage of both the Employee Retention Credit (ERC) and Paycheck Protection Program (PPP) loans. However, business owners must be aware of several eligibility requirements and interactions between the two programs before applying for both.
Remember that even if you received a forgiven PPP loan or funds, you could still claim the ERC on qualified wages not used to calculate PPP loan forgiveness. Seeking professional advice from tax law and finance experts can also help ensure that you maximize your benefits under these COVID relief programs.
Good news. There is still time to file! The employee retention tax credit can still be claimed retroactively and there is still time to file, even in 2023, 2024, and 2025 for the past tax years.
Employee Retention Tax Credit (ERC / ERTC) Help: Claim Up To a $26,000 Refund Per Employee for Your Business
Disaster Loan Advisors™ can assist your business with the complex and confusing Employee Retention Credit (ERC) and Employee Retention Tax Credit (ERTC) program, without you having to pay an excessive percentage of your hard earned ERC refund.
DLA doesn’t charge a percent like many companies do. Our flat fee structure is fair and reasonable based on the amount of work involved. Keep More of Your Refund™
Depending on eligibility, business owners can receive up to $26,000 to $33,000 per employee based on the number of W2 employees you had on the payroll in 2020 and 2021.
The ERC / ERTC Program is a valuable IRS tax credit you can claim. This is money you have already paid to the IRS in payroll taxes for your W2 employees.
Schedule Your Free Employee Retention Credit Consultation to see what amount $ of employee retention tax credit your company qualifies for.
ERC Deadline Urgency in 2024
April 15, 2024 Deadline for the 2020 ERC Tax Year
The deadline is coming up for the final opportunity to retroactively claim your business Employee Retention Credit for the past 2020 tax year. With the April 15, 2024 deadline fast approaching, we urge you; don’t let this final chance pass!
While not all businesses will qualify, as it depends on multiple factors per IRS Rules and Guidelines, you might be leaving significant financial relief on the table from prior COVID impact to your business during the past 2020 and 2021 business operation years.
Last year, in September 2023, the IRS temporarily paused processing ERC Claims for the remainder of last year. We at Disaster Loan Advisors (DLA) predicted this over one year ago when we made this ERC video warning business owners. See the ten-minute mark of the video for details.
TAKE ACTION NOW IN 2024
Even though the IRS has temporarily paused processing, you will still want to check eligibility and file now (if you qualify) because once the IRS will resume processing, ERC tax credit claims are processed in the order they are received.
If you haven’t previously filed for the ERC Credit, it is worth scheduling a phone call to at least explore your possible eligibility from both the past 2020 and 2021 business tax years. Contact us today for a deep-dive analysis to determine if your business qualifies one or more quarters from the 2020 and / or 2021 tax years.
As a leading dedicated member of the Tax and Accounting Team at Disaster Loan Advisors™, Mark focuses on unlocking the ERC Tax Credit's potential for eligible firms that qualify, providing strategic advice, and detailed guidance to ensure substantial financial recovery and growth. His methodical approach to client engagement includes comprehensive deep-dive analysis, customized consultation and guidance, and a commitment to achieving tangible results for each business served.
Disaster Loan Advisors™ (DLA) offers a comprehensive suite of services designed to navigate the complexities of the Employee Retention Tax Credit (ERC) program, ensuring that qualified businesses leverage the maximum possible benefit with minimum hassle. Unlike some firms that charge exorbitant contingency or percentage-based fees (often between 10% to 30% of your ERC refund), DLA operates on a fair and reasonable, transparent flat-fee structure that aligns with the IRS's guidelines.
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. STAY SAFE. STAY COMPLIANT. KEEP MORE OF YOUR REFUND.™
- 941-X: 17. Nonrefundable Portion of Credit for Qualified Sick and Family Leave Wages for Leave Taken After March 31, 2020, and Before April 1, 2021, Form Instructions (revised 2024) - April 29, 2024
- 941-X: 16. Qualified Small Business Payroll Tax Credit for Increasing Research Activities, Form Instructions (updated 2024) - April 28, 2024
- 941-X: 15. Tax Adjustments, Form Instructions (2024 updates) - April 27, 2024