As of December 2020, the Paycheck Protection Program (PPP) had given out 11,475,003 loans, and the average loan was $69,087.
In addition to the PPP, businesses can also take advantage of benefits for keeping employees. This is a special credit that will help companies keep their employees during COVID-19. Only 8% of business owners took advantage of this tax break in 2020, which was a surprise.
If you don’t know about these programs to help businesses that lost money because of the pandemic, keep reading. We will explain what each of these programs is, how to apply, and answer the question “Can I get both PPP and Employee Retention Credit?”
What Are Employee Retention Credits?
The Employee Retention Tax Credit (ERTC) helps businesses that had to close all or part of their doors in 2020 because of COVID-19 orders from the government. If that closing causes them to lose money in any quarter of 2020, they may be eligible for this tax credit.
Gross sales for 2020 must be less than 50% of what the company made in the same quarter in 2019. Those who qualified can get an Employee Retention Credit (ERC) that can be paid back in full.
This credit is for wages given in the second, third, and fourth quarters of 2020. When the ERC was made law, companies who took part in the Payroll Protection Program (PPP) were not allowed to join.
The Consolidated Appropriations Act of 2021 extends the scheme and makes it better by allowing it to be used in the past. It also adds Q1 and Q2 of 2021 to the scheme. Another change is that people who get PPP loans can now get ERC.
Even better, the American Recovery and Reinvestment Act made ERC available for all four quarters of 2021. It changes the credit so that in the second half of the year, the credit goes against Medicare instead of Social Security. The Act also makes it possible for businesses to start up again after a disaster.
Even though the program has ended, companies can still file for this credit even though the program has ended. Using a three-year “look-back” time, you can change your quarterly tax form to include the ERC credit you didn’t use while the program was running.
Eligible Employer
In 2020, you must meet the standards of an eligible employer to be eligible for ERC.
Because of the COVID-19 government order, some or all activities have been put on hold.
Any quarter in 2020 with gross sales that are less than 50% of the same quarter in 2019
If you are eligible and apply for ERC, you will get a refund for 50% of the first $10,000 you pay in qualified wages to each employee in Q2, Q3, or Q4 of 2020. This means that the most an employee can get out of this program is $5,000 per quarter.
In 2021, you must meet the following standards to be eligible for ERC:
Because of the COVID-19 government order, some or all activities have been put on hold.
Any quarter in 2021 with gross sales that are less than 80% of the same quarter in 2019
If you are eligible and apply for ERC, you will get 70% of the first $10,000 you pay in approved wages to each employee during each of the four quarters of 2021. The most an employee can get in ERC for each quarter is $7,000. Originally, the most an employee could get in ERC for the whole year was $28,000.
Later, the fourth quarter of 2021 was taken out, which brought the total cost of the whole quarter down to $21,000. There are times when you might be able to get your Q4 ERC back.
What Is The Payroll Protection Program?
The CARES Act is what set up the Payroll Protection Program. It helps small businesses with their cash flow for eight weeks. This is done by giving companies that keep paying their workers during the COVID-19 pandemic loans that are fully backed by the government.
The business doesn’t have to pay back the loan at all as long as the money is used for payroll, a business debt, rent, or utilities. Before the loan is due, you must fill out a form asking for forgiveness. If you don’t apply within the time limit, your payment won’t be put off, and you’ll have to pay it back to the loan.
To apply for PPP, you must fill out SBA form 3508, 3508EZ, 3508S, or another form your loan uses that is the same. You’ll need to send in paperwork with your application, such as salary and tax forms and proof of business costs.
3 Differences Between PPP and ERC
The Payroll Protection Program and Employee Retention Credits are different in three key ways: the type of funding, when the business gets the money, and how much the program costs.
1. Types of Funding
The PPP gives a business a loan that can be paid back. If they follow the loan’s rules, which include using the money for payroll or rent, they don’t have to pay back the loan.
A tax credit is what the ERC is. It is paid by check from the IRS to the business and does not have to be paid back.
2. When Business Receives Funding
With the PPP, the money goes straight into the business’s bank account. Most of the time, this happens within a week of the loan being approved.
The ERC is a credit that the business gets when it files its Form 941 every three months. When they do payroll, they subtract the credit from the taxes that they take from the employees.
3. Cost Comparison
A business that wants a PPP loan doesn’t have to pay anything upfront. The only cost is if you don’t pay back the loan in full by the due date.
ERC doesn’t cost anything. It is a tax credit that you can claim when you fill out your quarterly tax return. Only if you use a service to file your tax forms will you have to pay a fee.
Can You Get Employee Retention Credit and PPP?
Yes, thanks to the Consolidated Appropriations Act, an employer who gets a PPP loan can also be qualified for ERC. Though different pay must be used for each program’s application. The PPP loan is meant to help companies keep their workers on the payroll, while the ERTC gives employers a refundable tax credit to encourage them to keep their staff. Both programs have different requirements, so business owners should carefully look over each one before applying.
The IRS says that an employer’s salary costs that are listed on a PPP application for forgiveness in 2020 do not qualify for ERC. The Employee Retention Credit can be given to a company who gets PPP if:
- A member of a controlled group is getting PPP, but another member of the group who is not getting PPP has filed for ERC.
- The PPP loan does not pay the qualified wages of the employer.
- The employer gets qualifying wages with the money from a forgiven PPP loan, but the forgiveness is not for the same wages as the ERC qualified wages.
There are some things that set the PPP apart from the ERC. You need to look at each program separately and then compare them to find out if you are eligible and which program will help your business the most.
How to Apply for PPP and ERC
You may still have questions about getting payroll relief because of the many changes and differences between the two systems.
Talk to an expert at ERC Together to make sure your business gets all the payroll help it is eligible for in 2020 and 2021. They will look at the facts about your business and decide if you can join one or both of the programs.
If you qualify, they can help you file Form 941-X revised payroll returns three times a year. After you put in your amended tax returns, the IRS checks to see if you are owed a credit and sends you a check.