The Consolidated Appropriations Act, 2021 (CCA), which was passed by Congress and signed by the president late last December, included a very tax-beneficial provision that liberalized the interaction between PPP loans and the Employee Retention Credit (ERC). Prior to its passage, if an employer obtained a Paycheck Protection Program (PPP) loan, the employer was ineligible to claim the ERC.
However, under the legislation, an employer that is eligible for the ERC can claim the ERC even if the employer has received a PPP loan, under the following circumstances.
This gives rise to some beneficial tax opportunities.
The ERC is a government-sponsored program to keep workers employed and is funded by providing qualifying employers with a refundable credit against certain employment taxes. For 2020, the credit is a refundable payroll tax credit equal to 50% of qualified wages, up to maximum wages of $10,000 per employee. Thus, $5,000 is the maximum credit for qualified wages paid to any employee for 2020.
Example 1: Eligible Employer pays $10,000 in qualified wages to Employee A in Q2 2020. The Employee Retention Credit available to Eligible Employer for the qualified wages paid to Employee A is $5,000.
Example 2: Eligible Employer pays Employee B $8,000 in qualified wages in Q2 2020 and $8,000 in qualified wages in Q3 2020. The credit available to Eligible Employer for the qualified wages paid to Employee B is equal to $4,000 in Q2 and $1,000 in Q3 due to the overall limit of $10,000 on qualified wages per employee for all calendar quarters of 2020.
No credit is available for any period for which an employer is allowed a Work Opportunity Credit with respect to an employee.
Please give this office a call at (616) 957-2055 to determine if your business might benefit from this law change or other employer-beneficial changes to the ERC that are effective for 2021 and aren’t covered in this article.