Experienced PPP Lawyer
As a result of the COVID-19 pandemic, in early 2020, Congress passed legislation containing an unprecedented amount of financial benefits for affected businesses and individuals. Although the Paycheck Protection Program (PPP) was perhaps the most publicized stimulus available for businesses, the Employee Retention Credits offer potentially significant benefits to businesses not qualifying for the PPP or, in some cases, in addition to the PPP. Businesses negatively impacted by COVID-19 should consult with a tax professional to determine both prior and ongoing eligibility for Employee Retention Credits (ERC).
What is the Employee Retention Credit?
As part of the CARES Act, Congress authorized the ERC. The ERC is a fully refundable tax credit equal to up to 50 percent of qualified wages paid by eligible employers. The maximum available credit is calculated on an employee-by-employee basis and maxes out at $5,000. To qualify for the maximum credit, an employer must pay qualifying wages of at least $10,000 during specified periods in 2020 – from March 12, 2020, through December 31, 2020. Importantly, to be eligible for the ERC, an employer must have carried on business during 2020 and must have either (1) had operations fully or partially suspended in any calendar quarter of 2020 due to orders from an appropriate government authority due to COVID-19 or (2) experienced a significant decline in gross receipts during the calendar quarter. While the Internal Revenue Service (IRS) promulgated guidance regarding eligibility requirements, it is believed that a significant number of eligible businesses have failed to claim the ERC.
Moreover, through the Consolidated Appropriations Act and American Rescue Plan Act, Congress has authorized a second round of ERC, which contains slightly different operative provisions than the version contained in the CARES Act. The new rules relating to the ERC are, at least in many cases, even more, generous to prospective businesses. For example, the new legislation allows for credit of up to $7,000 per quarter and extends the relief to all quarters of 2021, amongst other things.
Is This the Same as the PPP?
The ERC is a different program from the PPP. While both programs use payroll to determine the number of eligible benefits and both encourage the retention of employees, the ERC is administered through the employment tax mechanism of the IRS. The ERC and PPP also have different limitations that could render a business eligible for one but not the other – e.g., the ERC requires proof of suspension or financial impact while the PPP is limited to small businesses and excludes certain industries. In addition, to claim the ERC, an employer must make a designation on their employment tax returns and is entitled to an offset or refund of employment taxes where the ERC applies.
Furthermore, businesses that received first draw funding under the PPP were not able to receive the ERC – at least until recently. Importantly, while businesses may still not use payroll amounts for which loan forgiveness was afforded under the PPP to obtain ERC, a business may qualify for both programs based on the new legislation. More guidance is in the process of being issued by the IRS, but the latest guidance (Notice 2021-20) highlights some of the more generous provisions. For affected businesses, it is important to understand these new rules and to keep tabs on changing legislation and administrative guidance.
Can a Tax Professional Help My Business Obtain the ERC in 2021?
It depends. For businesses that were impacted by COVID-19 in 2020 and did not apply for the PPP or ERC, there may still be opportunities to claim credits from 2020. For instance, an employer may be able to file amended employment tax returns to seek full benefits from the ERC. If a business previously was precluded from the ERC because they received PPP funding, they may want to revisit their eligibility for this funding in 2020 as a result of the American Rescue Plan Act. Finally, whether or not a business received PPP funding, a review of their situation should be conducted to determine enhanced eligibility for the ERC in 2021 and to determine how relief under other programs may impact the maximization of benefits.
Given the ever-evolving business benefits offered by the federal government, it is more important than ever that businesses and their advisors keep abreast of any updates. These benefits seemingly change every week. The advice from a PPP Lawyer Hanover, MD from a law firm like Crepeau Mourges, businesses could be able to maximize the financial assistance of the ERC (and the PPP) and can also help to mitigate the extended financial issues posed by COVID-19.