As the pandemic continues to impact businesses, expanded Employee Retention Credit (ERC) and Paycheck Protection Program (PPP) loan forgiveness options were passed in December 2020 as part of the Consolidated Appropriations Act. This new provision applies retroactively to the pandemic-impacted quarters of 2020 to allow PPP loan recipients to claim ERC for those periods. Further, it allows for new PPP loans and the expansion of ERC into the first half of 2021. The Second Draw PPP loan has a deadline for 3/31/21.
If you are a business owner who has relied or continues to rely on these relief programs to keep your employees on the payroll and working, now is the time to get with an accountant to maximize the benefits you can receive, including PPP forgiveness. At The Royce CPA Firm, we recommend delaying your application for PPP forgiveness to allow us to review your records with you. This will ensure you’re receiving all of the benefits for which you may be eligible. Here are the facts you need to know.
ERC and PPP Basics
Both ERC and PPP were designed to help businesses keep their employees on payroll, even in the face of declining business or government shutdowns. ERC takes the form of a tax credit of 50% of wages, up to $5,000 per employee, after meeting eligibility criteria. Businesses with fewer than 100 employees that were shut down because of COVID restrictions or that could demonstrate at least a 50% drop in gross receipts from the same quarter of the previous year are generally eligible for ERC.
PPP loans were granted to employers to help them continue to pay employees despite COVID-related impacts to the business. First draw and second draw PPP loans are available, allowing companies to receive two loan injections. Some PPP loans are also eligible for forgiveness.
Maximizing ERC and PPP Benefits
Because both of these benefits apply to payroll, your accountant can help you adjust your application of the benefits to make sure you’re getting the most from each. The first step in the process is to confirm the key details about your PPP loan, including which covered periods it should apply to and how it can be applied to wages, health insurance, and other approved, non-payroll costs.
Next, complete the same process with ERC. Which quarters qualify for ERC benefits, according to a year-over-year comparison of gross receipts? For any quarter showing a drop of 50%, ERC can be applied.
With a clear understanding of your qualifications for PPP and ERC according to your receipts, your accountant can then adjust your application of these benefits to ensure you maximize both. This process involves first applying 100% of your PPP loan forgiveness to eligible costs, using 40% of it for approved, non-payroll expenses. Then, apply ERC to the outstanding payroll expenses to receive the tax benefit.
Navigating these benefits, from eligibility to maximizing their impacts, can be a complex process. The Royce CPA Firm is here to help your business get the most from these benefits as you rebuild from the impacts of COVID-19. If you already use QuickBooks online and have shared your account with us, then we can start this process for you. If not, talk to us about how to use PPP forgiveness strategically to boost your business. You can reach our CPAs in Tucson at (520) 321-4626.