June 7th, 2023
In this blog post, we aim to address a common question amongst small business owners: Can you still be eligible for the Employee Retention Credit if you have a Paycheck Protection Program (PPP) loan?
Understanding the Interaction between ERC and PPP:
The PPP, a federal loan program established in response to the COVID-19 pandemic, aimed to provide financial assistance to small businesses to cover payroll and other eligible expenses.
On the other hand, the Employee Retention Credit was designed to incentivize businesses to retain employees during challenging times.
Initially, the IRS prohibited businesses from claiming the ERC if they received a PPP loan. However, recent legislation has expanded eligibility, allowing businesses to qualify for both the ERC and PPP loan forgiveness. This change presents an incredible opportunity for small business owners to maximize their benefits and further support their recovery efforts.
Here are three requirements to consider regarding being able to qualify for the ERC even though you took a PPP loan in either 2020 or 2021:
1. Qualified Wages
You can only claim the ERC for wages that were not paid using PPP loan funds. This means that if you utilized your PPP loan to cover employee wages, those wages would not qualify for the tax credit. However, any additional wages paid beyond the PPP-covered amount may be eligible for the ERC.
2. Qualified Period
The period for which you can claim the ERC and the period designated for the PPP loan forgiveness may overlap, but the wages claimed for each program should not be the same. Ensure clear separation between the wages covered by PPP and those claimed for the ERC, as they serve different purposes.
3. Maximum Credit
The maximum credit available under the ERC is 70% of qualified wages in 2021 (up to $7,000 per employee per quarter in Q1, Q2, and Q3 of 2021; $21,000 total per employee in 2021) and up to $5,000 per employee total for all of 2020. That's where the infamous "up to $26,000 per employee" phrase comes from regarding the ERC. Be mindful of these limits to maximize your benefits while ensuring compliance with the program requirements.
At Resolute Tax Credits, we understand the nuances of navigating the ERC with a PPP loan, and we're here to help you unlock the full potential of both programs. Our team, equipped with the same tools as the Big 4 firms, combines expertise, credibility, and a personalized approach to ensure you receive the guidance you need.
Led by a co-founder with extensive experience in leading Tax Credit verticals for major firms, Resolute Tax Credits was born out of a passion for supporting small businesses. We go above and beyond to empower entrepreneurs like you to make informed decisions and leverage every available opportunity for recovery and growth.
Feel free to submit an inquiry with any questions.
We're here and ready to serve you in capturing these opportunities.