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The Interplay Between the Paycheck Protection Program and the Employee Retention Credit: How to Receive the Maximum Benefit

Anchin AlertSeptember 13, 2021Joseph Molloy, CPA - Tax Partner

The Interplay Between the Paycheck Protection Program and the Employee Retention Credit: How to Receive the Maximum Benefit

The Consolidated Appropriation Act (CAA) has enabled relief, but also created complexity for taxpayers that received a Paycheck Protection Program (PPP) loan and qualified for the Employee Retention Credit (ERC). These taxpayers should seek advice to get full forgiveness of the PPP loan and maximize the benefit available under the ERC, as the rules can get quite complicated.

  • Taxpayers may qualify for the ERC, retroactively, even if they received a PPP loan in 2020.

  • Taxpayers cannot claim the ERC on PPP wages used for PPP loan forgiveness. There is no “double-dipping.”

Items to consider when attempting to maximize both benefits, and obtain the most favorable interplay between ERC and PPP:

  • When completing the PPP forgiveness application, choosing whether to use anywhere between the 8-week period or the 24-week covered period should be analyzed so as to maximize both the PPP forgiveness and the ERC without utilizing the same wages for both.

  • Reporting more than necessary wages on the PPP forgiveness application is not the same as electing not to use the wages for ERC. The IRS does know that borrowers may list wages on the application past the minimum needed to gain forgiveness of the entire loan, so the agency allows the taxpayer to limit the number of wages for which the ERC “opt-out” election is made to the minimum necessary to obtain forgiveness based on the expenses listed on the filed application.

    • The minimum necessary amount of payroll costs is 60% of the total loan, together with any other eligible expenses, reported on the PPP loan forgiveness application. If there are no nonpayroll costs on the PPP forgiveness application, the minimum amount of payroll costs is 100% of the loan amount. As such, it’s important to include eligible nonpayroll costs on the application.

Additional items to consider:

  • When a taxpayer qualifies for two consecutive quarters for ERC during a PPP-covered period, the 24-week approach may also work. In this situation, it is important to take advantage of nonpayroll costs such as utilities, rent, mortgage interest, and some others available, to increase the number of payroll costs overstated on the PPP forgiveness application to use for both quarters of ERC. Wages limited for PPP for employees making over $100,000 are available to the ERC calculation.

  • Employer-Provided Health Insurance is available for both ERC and PPP

  • Qualified wages not paid in a PPP-covered period should be reviewed to see if they can qualify for the ERC.

  • The IRS recently released guidance stating the PPP forgiveness did not have to be included in the Gross Receipts test to determine whether or not taxpayers met the 50% reduction in 2020 or the 20% reduction in 2021 in order to qualify.

  • It is worth noting that the Infrastructure Bill that was passed by the Senate on August 10, 2021 contains a provision that would terminate the ERC for most employers as of September 30, 2021, one full quarter earlier than the current termination date of December 31, 2021. If enacted into law, this could impact the analysis of which period to choose for the PPP covered period, since PPP wages paid beyond September 30th could still qualify.

For further clarification on how to best maximize the interplay between PPP and ERC, please reach out to Joseph Molloy or your Anchin Relationship Partner.

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