One of the most often asked questions by business owners is whether they should apply for both the Employee Retention Credit and PPP. The answer is “Yes,” but there are some caveats you need to be aware of.
To help make the answer to this question clearer, let’s briefly look at the two programs.
Differences between ERC and PPP
Employee Retention Credit (ERC)
The ERC is a tax credit available to employers who retained their employees during the COVID-19 pandemic. It’s available to businesses of all sizes and all types of business entities, including sole proprietorships, partnerships, S-Corporations, and C-Corporations.
To qualify for the ERC, the business must have suffered a significant decline in gross receipts, or a government entity required a full or partial shutdown of the business during 2020 or 2021. The credit can be claimed for wages paid after March 12, 2020, and during the first three quarters of 2021.
Paycheck Protection Program (PPP)
The PPP is a loan program; it is not a tax credit like the Employee Retention Credit. Loans are available up to 2.5 times a small business,’ or certain nonprofit organizations, average monthly payroll costs. The PPP loan amount is capped at $10 million, and loans may be forgiven if they’re used for certain eligible business expenses.
To be eligible for a PPP loan and loan forgiveness, the business must have fewer than 500 employees and have experienced a decrease in business activity due to COVID-19.
While both programs have helped many businesses keep their doors open and weather the pandemic, it should be noted that each has its own distinct benefits and eligibility requirements.
Can You Get Both the Employee Retention Credit and Paycheck Protection Program Loan?
The Consolidated Appropriations Act, signed on March 15, 2022, enables employers receiving a PPP loan to be eligible for the Employee Retention Credit. However, different wages must be used when applying for each program.
The IRS has established that the payroll costs businesses report on a PPP application for forgiveness in 2020 are not eligible for the Employee Retention Credit. If an employer is receiving PPP, the ERC is allowable under three conditions:
- A controlled group member is receiving PPP, but another member of the group not receiving PPP applies to claim the ERC.
- The PPP loan is not providing the employer’s qualifying wages.
- The employer obtains qualifying wages with proceeds from a forgiven PPP loan, but the forgiveness isn’t for the same wages as the ERC qualifying wages.
Each program should be evaluated individually, and a comparison should be made between them to determine eligibility.
Questions? Bottom Line Concepts Can Help.
Don’t feel alone if you still have questions concerning PPP and ERC eligibility. We launched our Government Aid Division specifically to answer questions from businesses about the ERC program and to help them receive the largest tax credit possible.