One of the most common misconceptions among companies is that they believe they do not qualify for the Employee Retention Tax Credit (ERTC) if they opt for a Paycheck Protection Program (PPP) funding round. In reality, it is possible for companies to take advantage of both types of COVID relief funds, but there may be some interaction between the two programs. Companies must be careful not to fall between the PPP and the ERTC, especially when it comes to salaries. These FAQs are not included in the Internal Revenue Bulletin and therefore cannot be relied upon as a legal authority.
This means that the information cannot be used to support a legal argument in a court case. An employer may not receive the employee retention credit if it receives a PPP loan authorized under the CARES Act. An eligible employer who receives a PPP loan, regardless of the date of the loan, cannot apply for the employee retention credit. An employer that is considered a single employer under the aggregation rules cannot receive the employee retention credit if any member of the employer's aggregate group receives a PPP loan. For more information on aggregation rules, see Determining which entities are considered a single employer under aggregation rules.
An employer receiving a PPP loan may not receive an employee retention credit, regardless of if and when the loan is forgiven. For more information on eligible employers, see Determining Which Employers Are Eligible to Apply for the Employee Retention Credit. An acquiring employer that purchases the assets of a target employer that has received a PPP loan will not be considered to have received a PPP loan by virtue of the acquisition of assets, provided that the acquiring employer does not assume the obligations of the target employer under the PPP loan. In this case, the acquiring employer may apply for the employee retention credit after the closing date of the transaction if they meet all requirements to apply for it. In addition, any employee retention credit requested by the acquiring employer for qualified wages paid before the closing date will not be subject to recovery under section 2301 (l) () (of the CARES Act).
If, as part of the acquisition of assets and liabilities of the target employer, the acquiring employer assumes obligations of the target employer under the PPP loan after closing date of transaction, they will generally not be considered to have received a PPP loan, provided that they have not received a PPP loan before, on or after closing date; however, salaries that can be considered qualifying wages after closing date will be limited. Specifically, wages paid by acquiring employer after closing date to any person who was employed by target employer on closing date will not be considered qualifying wages. Subject to this limitation, an acquiring employer may request employee retention credit for qualified wages paid on and after closing date, provided that they meet all requirements to apply for it. Yes, but not for same wage payments. Any qualifying salary for which an eligible employer applies for employee retention credit will not be considered for purpose of determining section 45S credit.
Therefore, an employer cannot request credit under section 45S with respect to qualified wages for which they are requesting employee retention credit but may request credit under section 45S with respect to any additional wages paid, provided that requirements of section 45S with respect to additional wages are met. An eligible employer cannot apply for employee retention credit and Work Opportunity Tax Credit (WOTC) for same employee for same period of time. Companies cannot claim payroll expense as ERTC salary and as forgivable payroll cost in PPP waiver request. Companies that were unduly disrupted by government closures or orders or were unable to make transition to teleworking can opt for ERTC. Number and type of employees are also factors that companies want to combine ERTC and PPP funds to. In fact, applying for ERTC reduces deductible expenses for federal income tax purposes because deduction for qualified wages including health plan expenses is reduced by amount of credit.
Companies that can allocate 40% of their PPP loan revenues to eligible expenses could release additional salaries that could qualify for ERTC. To maximize benefits of both PPP and ERTC, be sure to use all covered non-payroll costs as allowed when calculating PPP waiver. Companies that are eligible to receive grant for closed space operators (SVOG) or restaurant revitalization fund (RRF) cannot include amount of payroll they paid with these grants in their ERTC calculations. At same time many employers overlooked Employee Retention Tax Credit (ERTC) because they couldn't apply for ERTC if they applied for PPP loan. The Employee Retention Credit (ERC), also known as Employee Retention Tax Credit (ERTC), is valuable tool that is still available to small businesses in recovery. If your company records more payroll costs than necessary (more than 60% of loan revenues) in its PPP forgiveness request you could lose opportunity to receive ERTC.
Whether they receive income from PPP loan, apply for loan forgiveness or apply for ERTC it's critical that companies document everything. If your company is eligible Asure can help you review qualifying salaries, calculate credits and file amended payroll tax returns that allow you to apply for your ERTC credits with IRS. Basically shorter time period you can use to waive your PPP longer you will create for your company to request ERTC. While both PPP and ERTC offer tax-free cash there are certain tax variations between two programs that you should consider before determining how to continue. IRS guidelines state that an eligible employer can receive both benefits but must take into account certain restrictions when doing so.