PPP and the Employee Retention Credit – What to Understand?

The pandemic really did a number on us, right? A lot of people struggled and businesses seemed to shut down completely.

But, on the other hand, plenty of said businesses were given the tools they needed to weather the storm of COVID-19 with the introduction of the Paycheck Protection Program (PPP) and the Employee Retention Credit (ERC). You may be wondering if you qualify for both of these programs if the epidemic has harmed your small business.

So, our advice to you is to keep on reading to learn more.

What exactly is PPP?

The PPP was established by the CARES Act and is managed by the U.S. Small Business Administration (SBA) to assist small firms that have suffered losses as a result of COVID-19 by providing them with loans of up to $10 million.

You might have borrowed up to 2.5 times your regular monthly payroll if you qualified. If you can prove that you’ve utilized the loan money for things like rent, electricity, and payroll, you may be eligible to have the entire debt canceled.

What exactly is ERC?

Payroll taxes withheld from eligible earnings in 2020 and 2021 may be recoverable thanks to the ERC. It was set up by the IRS under the CARES Act to help companies keep their employees healthy and safe throughout the pandemic.

If your business was forced to close temporarily due to government orders or saw a large drop in quarterly gross receipts because of COVID-19, you may be eligible for assistance. If you meet the requirements, you can deduct up to $6,000 in 2020 and $21,000 in 2021 for each employee. You can discover more relevant if you check out this link https://www.cpapracticeadvisor.com/2022/09/28/who-actually-qualifies-for-the-employee-retention-credit/70935/.

The main differences between them

There are some key differences between the PPP and the ERC, despite the fact that both were created to help businesses that have suffered financially as a result of the pandemic.

Type of funding

A loan can be forgiven under the PPP. You wouldn’t have to repay the loan as long as the money went toward things like salaries and rent. A portion of the loan that was used for non-allowable expenses will not be forgiven. Over the course of two or five years, you’ll be charged a fixed interest rate of 1%. In contrast, the ERC is an interest-free tax credit.

Funding time

If you were approved for a PPP loan, the money would have been sent into your account by direct deposit within ten days. However, the IRS must first analyze your Form 941-X submission before releasing the ERC. A refund check will be issued to you once the IRS processes your tax refund.

The IRS can take three months or more to process your refund. So, we strongly advise you to reserve your place in line with the IRS as soon as possible by submitting the required papers.

Cost

When it comes to ERC and PPP interaction, it’s a good idea to know all there is to know before making a decision.

We want you to know folks that applying for the PPP loan didn’t cost anything. You’ll only have to pay back the loan and its interest if you don’t put the money toward necessary purchases.

Also, the government won’t charge you anything to get your hands on an ERC. You can claim this benefit by completing a revised payroll tax return for each applicable tax period. If you need help filling out your tax forms, the only cost you may incur is the service fee charged by your chosen accountant or tax expert.

Can I get both of them?

Well folks, at first companies who had taken out PPP loans were not permitted to apply for ERC funding. However, thanks to the Consolidated Appropriations Act of 2021, a company that has already received a PPP loan and is eligible to apply for the ERC in 2020 can do so retrospectively.

However, the wages that trigger PPP loan forgiveness cannot be used to calculate your ERC. You’ll need to provide evidence that you are not “double dipping” by receiving payment from both programs for the same wages.

Let’s imagine you spent $50,000 of your PPP funds on salary and are hoping to get it forgiven. In this case, the forgiven salaries cannot be factored into the ERC.

Am I eligible?

While it’s possible, qualification for both the ERC credit and the PPP loan is based on meeting specific criteria. All businesses with 500 or less employees are eligible for a PPP loan, and larger businesses operating in certain industries are also eligible.

This includes freelancers, sole proprietorships, nonprofits, military organizations, tribal businesses, housing cooperatives, media outlets, and farmer’s cooperatives.

Requirements

The ERC is available to businesses who have seen a decline in sales or have been forced to close as a result of government measures related to COVID-19. Read more on this page.

There are some key differences between the two programs, as we’ve explained below, despite the fact that they both aim to address the issue of employee retention. The most notable difference is that PPPs provide businesses more leeway in how they spend their loan profits.

To qualify for the PPP, businesses must have had a decrease in quarterly gross receipts of at least 25% compared to the corresponding period in the prior year.

If their quarterly gross income was less than 50% of what it was the year before, they may qualify for the ERC.