You Can Have Tax-Free PPP Money

AND Tax Credits from the Employee Retention Credit

The CARES Act, enacted on March 27, 2020, prohibited you from getting both Paycheck Protection Program (PPP) money and tax credits from the Employee Retention Credit (ERC); you had to choose one benefit or the other.

Now, thanks to the new December law, you can have both:
Tax-free PPP money and Tax credits from the ERC

And perhaps the best news of all comes from the IRS in its recently released, business-friendly guidance on how the rules work when you want to claim both PPP and ERC benefits.

GLO CPAs has studied the COVID legislation—tens of thousands of pages and detailed potential applications and exclusions including contingencies such as impacts for the Texas Winter Storm.  The legislative timeline shown below shows just how much things have changed in the last year. To take advantage of this, your company will need detailed work papers for gross receipts tests, analysis of governmental shut down impacts and winter storm impacts, even with the PPP loan forgiveness process.  GLO can help you navigate the rules. It’s complicated, but it’s worth the effort.

COVID Legislation Timeline

How the Law Changed

The act made four important changes retroactive to 2020:

  • You may now qualify (yes, retroactively) to claim the ERC for 2020 wages even though you had a 2020 PPP loan.
  • You may not claim the ERC on PPP wages used for PPP loan forgiveness.
  • You can elect not to claim the ERC, so as to increase your tax-free PPP monies.
  • If your lender denies your PPP loan forgiveness, you can claim the ERC for the qualified wages even when you made the election not to claim the ERC for those wages.

With the Consolidated Appropriations Act, millions of small-business owners like you now qualify for the employee retention credit (ERC), thanks to three big changes:

  1. You can now obtain the ERC and the Paycheck Protection Program loan, but not on the same wages.
  2. This new rule applies retroactively to 2020.
  3. The new law adds an enhanced ERC for 2021.

Congress made the changes retroactive to March 13, 2020, allowing you to now amend your 2020 payroll tax returns to claim the employee tax credits for which you are eligible.

You likely hadn’t thought of amending payroll tax returns, because it’s not often done. But you have the three-year statute of limitations for amending payroll taxes just as you have it for your income tax returns.

With the American Rescue Plan Act of 2021 (ARPA), the already enhanced 2021 ERC is extended for an additional six months, through December 31, 2021. It’s time to get started while there’s still time.

Let’s see an example. Say during the first quarter of this year (2021) your S corporation paid the following wage and health expenses.

You$30,000in wages$30,000$10,000
Employee 1$10,000$1,500$11,500$10,000
Employee 2$12,000$1,500$13,500$10,000
Employee 3$15,000$1,500$16,500$10,000
Employee Retention Credit Example

For the first quarter of 2021, the credit rate is 70 percent on up to $10,000 of W-2 wages per employee.

Your Employee Retention Credit for the first quarter of 2021 would be $40,00 * 70% or $28,000. That’s a hefty chunk of change!

All of this can seem confusing, but we’re here to help!
The Employee Retention Credit program is a big deal.

It can put tens of thousands of dollars directly in your pocket.
Give us a call!

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