The pandemic took a toll on many economies and individuals. However, small businesses took the biggest hit. Therefore, the ERTC (Employee Retention Tax Credit or ERC – Employee Retention Credit) and PPP (Paycheck Protection Program) was formed to keep these small businesses from drowning at the hands of COVID-19. The core purpose of these two programs was to motivate employers to keep their employees on the payroll, whether they worked during the payroll period or not. However, many FAQs for PPP and ERTC are being asked.
Various legislation laws allow companies to request employee retention tax credits. Additionally, these also offer guidance on the collaboration between PPP and ERTC.
Therefore, if you need insight into claiming your business’s tax credits and want to learn more about these programs, continue reading this ERTC loan guide.
What Is an ERTC Loan?
Various laws were set in place to aid those affected by the pandemic. These included the CARES (Coronavirus Aid, Relief, and Economic Security) Act, which took the liberty of authorizing the Employee Retention Tax Credit.
This form of payroll tax credit is refundable and motivates employers to sustain their employees on the payroll. This also applies to those who did not work during the payroll period because of COVID-19.
Therefore, if you owned a business and had to shut it down due to a government order amid the pandemic, you may be able to claim this employee retention tax credit. Moreover, you can even claim this if you were subject to a substantial decrease in gross receipts.
What Is A PPP Loan For?
The PPP loan, also known as the Paycheck Protection Program loan, was formed to offer forgivable loans. Like the Employee Retention Tax Credit loan, the PPP loan aims to sustain employees on their payroll. This allows employers to re-employ workers who were laid off and lost salaries due to COVID-19.
The Connection Between the ERTC and the PPP
The original norm suggested that the PPP and the ERTC were exclusive, and someone who gets the ERTC could not claim the PPP. However, the Consolidated Appropriations Act 2021 reversed this rule. Therefore, if you get a PPP loan, you still can claim the ERTC. Continue reading for more FAQs for PPP and ERTC filing.
What Are the Consolidated Appropriations Act Updates?
All amendments for the Consolidated Appropriations Act 2021 particularly apply between March 13th, 2020, to December 31st, 2020. This allows your business to still be eligible for the Employee Retention Tax Credit.
However, this only applies to the wages that were not paid with your PPP loan funds. The Consolidated Appropriations Act update also offers the incentive of claiming group healthcare expenses by considering these as part of qualified wages. This is still valid even if your workers did not receive any wages.
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What Are Employee Retention Tax Credit Updates?
Employee Retention Tax Credit was updated by increasing the rate per worker from 50% to 70%. Additionally, the wage limit for every employee will be raised from $10,000 yearly to $10,000 quarterly in 2021.
This update states that a business’ eligibility now depends on gross receipts lower than 80% in comparison to the same quarter in 2019. The implication is that if your gross receipts fall more than 20% in 2021, you can claim the ERTC credit.
What Are the Common Concerns Regarding the PPP and the ERTC?
It is common for people to have some concerns if they file for the ERTC before the PPP forgiveness loan. Generally, most people who filed for the first round of PPP loans did so before the Consolidated Appropriations Act was passed.
Businesses that fell under this category had their wages reported for the PPP and were excluded from the ERTC eligible wages. Therefore, the leftover wages were used for the Employee Retention Tax Credit.
Most businesses ended their PPP second application period near the end of the 3rd quarter in 2021. However, eligible companies managed to file amended 941X forms for the ERTC during the second quarter.
What Are the PPP Loan Forgiveness Concerns?
A core issue arises if you file for the ERTC loan before receiving forgiveness for the PPP loan. For example, suppose your business received $800,000 from the second application for the PPP loan on January 1st and $480,000 in salaries for quarters 1 and 2. In that case, this amount may be adequate to cover the PPP loan when you file for the PPP forgiveness.
On the contrary, if the eligibility criteria for ERTC was $240,000 dollars per quarter, and you file for the ERTC before the PPP, only $320,000 will be leftover in salaries for the PPP forgiveness. Although you can opt to cover maximum expenses that aren’t payroll related for the PPP loan forgiveness, the payroll needs to be at least 60% of the total expenses. Therefore, the above scenario would require you to report $480,000 of your PPP forgiveness, but it is common for business owners to go against that.
How Can I Maximize the ERTC?
If you wish to maximize the Employee Retention Tax Credit, you need to have a consistent plan to minimize any surprises you may have when you file for the PPP loan forgiveness. For example, it would help you to keep track of qualified non-payroll expenses.
When the requirement only allows a business owner to report roughly 40% of the total loan amount as non-payroll expenses, they are helped because it frees up wages that can be used for the Employee Retention Tax Credit. Businesses that applied for PPP 1 loan forgiveness in mid-2020 can claim other non-payroll expenses such as software expenditures, supplier costs, and worker protection expenses.
How Do I Review My ERTC Eligibility?
Your method to qualify for the Employee Retention Tax Credit may cause your qualification deadline to vary. However, there is a good chance that your qualification may end any quarter in 2021. The processes and periods also vary according to your qualification.
For example, suppose your PPP second application covers the period in the third quarter but doesn’t expect qualification for the ERTC in the third quarter. In that case, you can easily focus your salaries for your ERTC in the first and second quarters. This will get you complete loan forgiveness.
These FAQs for PPP and ERTC filing only touch the surface of what you need to know. Contact us now to file your claim.