PPP Loan and Employee Retention Tax Credit:
If your business has a PPP loan, please read on. This is TIME SENSITIVE.
The recent congressional stimulus package includes a new rule, which says that if your business took out a PPP loan, your business may now also qualify for the ERTC. This changes the former rule, which disqualified eligibility for ERTC when taking a PPP loan.
The ERTC can produce significant tax savings, retroactive back to 2020.
The credit is equal to 50% of qualified wages paid to an employee between March 12, 2020 and Dec 31,2020, including qualified health plan expenses. The maximum credit for any one employee is $5,000.
There are two ways for an employer to qualify for ERTC:
Fully or partially suspend operations at any point during 2020 due to a coronavirus government mandate.
Show a significant decline in gross receipts during a calendar quarter in 2020.
A significant decline in gross receipts begins:
on the first day of the first calendar quarter of 2020
for which an employer’s gross receipts are less than 50% of its gross receipts
for the same calendar quarter in 2019.
The significant decline in gross receipts ends:
on the first day of the first calendar quarter following the calendar quarter
in which gross receipts are more than of 80% of its gross receipts
for the same calendar quarter in 2019.
Qualified wages The definition of qualified wages depends on how many employees an eligible employer has. If an employer averaged more than 100 full-time employees during 2019, qualified wages are wages paid only to employees that are not providing services If an employer averaged 100 or fewer full-time employees (most restaurants and bars) during 2019, qualified wages are those wages (including health care costs)paid to any employee , regardless of whether or not its employees are providing services. THE CATCH Employee wages claimed for PPP forgiveness may not also be used to claim the ERTC. In other words, wages can either be used for PPP forgiveness or ERTC. For example, if your business applied for a $100k PPP loan and are using those funds for PPP forgiveness, none of those wages can be used for ERTC. Meaning that anyone applying for PPP forgiveness, before submitting the PPP forgiveness application, should calculate whether PPP forgiveness or claiming ERTC is more favorable. Yes, this is a huge surprise since at the time of using PPP, it was not known that ERTC could have been claimed. I am guessing that in most cases, using the wages for PPP forgiveness will still produce a larger financial savings (including loan forgiveness). Nevertheless, it's worthwhile for each of you to at least take a look at your wages during the covered PPP period and see if ERTC makes a difference. IMPORTANT TO ALSO READ THIS (TIME SENSITIVE) Even if using wages for PPP forgiveness is still the way to go, you may be eligible to claim ERTC after your PPP covered period ended. For example, let's say your covered period ended November 1. From Nov 1 - Dec 31, you're still paying wages and those wages won't be used for PPP. Seems to me that you are eligible to claim ERTC for those 2 months. ERTC is claimed by notating the credit on the quarterly IRS payroll tax return. That return is due January 31 2021 and is probably being prepared by your payroll processor right now. I suggest you reach out to your processor ASAP and let them know you may want to claim ERTC, need some extra time (a week?) to provide the amounts and ask them to delay finalizing the return. If this is too much of a rush, or if your payroll processor cannot delay the preparation of the return, don't worry about it. I believe the credit can be claimed on the 2021 Q1 payroll tax return (due April 30 2021). And 2020 Q4 wages can be claimed on that return. I say "I believe" because the new stimulus rules are silent on how to retroactively claim the credit. Thus my advice about doing your best to claim on the upcoming return due Jan 31 2021. Sorry if this is confusing, but it's a last minute retroactive change we're all dealing with.
If you have questions, feel free to reach out.