PPP Loan And ERTC: Can I Apply For ERC If I Already Have A PPP Loan?

The Paycheck Protection Program (PPP) and Employee Retention Tax Credit (ERTC) are essential programs designed to aid small businesses stay afloat during the pandemic. The PPP loan provides financial assistance to cover payroll expenses, while the ERTC offers a tax credit for employers who retain their employees or rehire laid-off workers.

With both programs, businesses can get much-needed relief from economic hardship and keep their employees on staff. It is possible to apply for the PPP loan and ERTC simultaneously, allowing business owners to maximize their support options during this difficult time.

Understanding The Relationship Between PPP Loans And Employee Retention Credit (ERC)

The relationship between PPP loans and Employee Retention Tax Credit Eligibility depends on several factors. Businesses eligible for a PPP fund may also be eligible for the ERTC but must meet specific criteria to qualify.

To be qualified for the Employee Retention Tax Credit, a company's gross receipts must have decreased by more than 20% in the same quarter the previous year. To qualify for a PPP fund, businesses must also demonstrate that they have experienced economic hardship due to COVID-19.

Businesses with below 500 employees are qualified for both programs and can use funds from either one to cover payroll costs, health benefits, mortgage interest payments, rent, and utilities.

The most significant difference between the two programs is that PPP loans are forgivable if specific criteria are met, while the ERTC is a tax credit that must be claimed as income when filing payroll taxes.

Additionally, PPP loan funds can cover up to 8 weeks of payroll costs, while the ERTC covers qualifying wages paid from March 13, 2020, through December 31, 2020.

Eligibility and Qualifying Conditions For PPP Loans And Employee Retention Credit (ERC)

Eligibility and Qualifying Conditions For Payroll Protection Program (PPP) Loans

The eligibility and qualifying conditions for a PPP loan are relatively straightforward. To qualify, businesses must demonstrate that their operations have been affected by the COVID-19 pandemic. Businesses may be eligible if they can show that their revenue declined due to economic hardship due to the pandemic or if they had to make significant changes to their operations or staffing due to the pandemic.

Businesses must have less than 500 employees and have seen a 25% decrease in gross receipts during the quarter compared to the same quarter in 2019. Companies may also show that they experienced a decline in revenue due to restrictions imposed by federal, state, or local governments due to the pandemic.

Businesses must also demonstrate that they need financial assistance to remain viable. Companies must apply and provide evidence of their economic hardship and financial need to qualify for a PPP loan.

Eligibility Criteria and Qualifying Conditions For Employee Retention Credit

The eligibility and qualifying conditions for Employee Retention Credit (ERC) are slightly more complex. To qualify for the refundable tax credit, businesses must have undergone a decline in gross receipts of more than 20% in the same quarter from the previous year.

The credit is available to all eligible employers regardless of size, but certain wage limits apply if the business has fewer than 100 employees. Additionally, companies must meet specific criteria regarding their operations and staffing to qualify for the credit.

For instance, they must retain their employees or rehire laid-off workers and pay them at least 50% of their regular wages. Additionally, an eligible employer may not use funds from any other federal assistance program as a source of wage payments that can be claimed as part of the ERTC.

What Is PPP Loan Forgiveness?

The Paycheck Protection Program (PPP) loan provides businesses financial assistance to cover payroll expenses and other related costs. One of the main benefits of the PPP loan is that it is forgiven if specific criteria are met. Obtaining PPP loan forgiveness is a tax-free cancellation or reduction of a borrower's PPP fund debt obligation.

To qualify for a forgiven PPP loan, businesses must use at least 60% of the PPP funds for payroll costs and no more than 40% on other covered expenses such as rent, utilities, and mortgage interest. Additionally, businesses must maintain their employee headcount levels and wages from February 15 through December 31 of 2020 or face a partial reduction in the amount of forgiven PPP loans.

Businesses must also submit a PPP loan forgiveness application to their lender and provide documentation that shows how the PPP funds were used. The Small Business Administration (SBA) will then review the application and grant full or partial loan forgiveness depending on whether or not the criteria have been met.

Can You Apply For Employee Retention Credit Even If You Have An Existing PPP Loan?

Original Rules From CARES Act

Individuals, businesses, and state and municipal governments harmed by the COVID-19 pandemic received economic aid through the Coronavirus Aid, aid, and Economic Security (CARES) Act of 2020. Under the Act, businesses can apply for PPP loans and Employee Retention Credits (ERCs).

Initially, businesses that received PPP loans were not eligible to receive refundable payroll tax credits. Companies had to choose between one program and could not benefit from both. However, after further consideration, the IRS amended its rules in June 2020 to allow businesses access to both programs if they meet specific criteria.

The IRS now allows businesses to receive both a PPP loan and Employee Retention Credits as long as the funds are used for different costs. Companies can use their PPP loan funds for payroll expenses while using the refundable payroll tax credit for other eligible purposes such as rent, utilities, health benefits, etc. As long as the same wages are not being paid twice from both funding sources, businesses can receive both PPP loans and ERC credits.

Retroactive Changes From The Consolidated Appropriations Act (CAA)

The Consolidated Appropriations Act (CAA) of 2021 significantly changed the retention credit and PPP. One of the most significant changes was that businesses can now receive both PPP loans and ERCs, even if they have an existing PPP loan.

The CAA also made retroactive changes to the ERC credit program. Businesses are now eligible for a 50% tax credit on wages up to $10,000 per employee if they have been affected by a significant decline in revenue due to the pandemic. This change is effective for any wages paid between March 12, 2020, and January 1, 2021.

Updates From The American Rescue Plan Act (ARPA)

The American Rescue Plan Act (ARPA) of 2021 further changed the retention credit and PPP programs. One of the most notable changes was that employers are now eligible for an expanded tax credit of up to 80% of qualified wages, with a maximum of $7,000 per quarter per employee. This credit is in addition to the 50% credit that was previously available.

The ARPA also extended the deadline for businesses to apply for ERC credit until December 31, 2021, and increased the maximum amount of wages eligible for the credit from $10,000 per employee to $14,000. Additionally, businesses below 500 employees can now qualify for the tax credit, even if they have received a PPP loan.

Overall, the ERC program changes made by the CAA and ARPA have significantly expanded access to the program for many businesses. Businesses should take advantage of these changes and apply for ERC credit as soon as possible to maximize their potential savings.

Advantages of Claiming The ERC With a PPP Loan?

Claiming the Employee Retention Credit (ERC) with a Paycheck Protection Program loan (PPP) has several advantages for businesses. One of the key advantages is that enterprises can receive financial assistance from both programs at once, allowing them to cover more expenses and benefit from additional tax credits.

Businesses can maximize potential savings by claiming ERC credit with a PPP loan. For example, companies can use their PPP loan funds for payroll expenses and then apply for the ERC tax credit for other eligible costs such as rent, utilities, health benefits, etc. This allows businesses to receive more financial assistance than applying for just one program.

Additionally, businesses that claim the ERC credit with a PPP loan can receive an additional tax credit of up to 80% of their qualified wages, with a maximum of $7,000 per quarter per employee. This is significantly higher than the 50% credit they would have received if they had only applied for the ERC without a PPP loan.

Overall, claiming the ERC with a PPP loan has many advantages for businesses and can help them maximize their potential savings and benefit from additional tax credits. Businesses should take advantage of this opportunity if they are eligible.

Deadline For Claiming The ERC

As of writing, employers can still file for ERTC claims for 2020 and 2021. Additionally, the ERTC claims for all the quarters of 2020 should be submitted by April 15, 2024. The ERTC claims for all the quarters in the year 2021 must be submitted by April 15, 2025.

They know the deadlines and the significance of timely submission when applying for Employee Retention Tax Credit. The filing window for ERTC corresponds with businesses' typical income tax deadlines; delays should be avoided. Internal Revenue Service processes the ERC claims in the other in which the applications were received. With this, timely submission is essential.

How to Maximize the PPP Loan and ERC?

Businesses can maximize their PPP loan and Employee Retention Credit (ERC) by closely following the eligibility requirements of both programs and understanding how they can be used in conjunction. Businesses should also keep up to date with any changes to the PPP loan and ERC rules that have been made since the passing of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020.

Businesses should also be aware of the different costs that are eligible for both programs. For example, companies can use their PPP loan funds for payroll expenses while using ERC money for other suitable purposes such as rent, utilities, health benefits, etc. This ensures that businesses can receive maximum financial assistance from both programs.

Additionally, businesses should plan when applying for the PPP loan and ERC. Claiming the ERC with a PPP loan can provide more significant financial benefits than simply applying for one program, so it is vital to submit an application for both simultaneously if eligible.

Overall, understanding the requirements of both the PPP loan and ERC, being aware of any changes made to the program since the passage of the CARES Act, and applying for both programs at once can help businesses maximize their potential savings. As of the moment of writing PPP loan is no longer available, but business owners can still apply for ERC. If you need help with your application, ERTC Express can help!