What is the ERTC and PPP?
The Employee Retention Tax Credit (ERTC) and the Paycheck Protection Program (PPP) are two different financial relief programs established by the federal government to support eligible businesses during the COVID-19 pandemic. While they are intended to provide similar financial relief to eligible businesses, they have different eligibility criteria, application and qualification requirements, and repayment terms. This expert guide outlines the key differences between ERTC and PPP, their eligibility requirements, and how eligible businesses can apply for and claim both credits.
How Can You Claim ERTC and PPP?
If you're a business owner who has been impacted by the pandemic, you may be eligible for financial relief through the Employee Retention Tax Credit (ERTC) and Paycheck Protection Program (PPP). But can you claim both of these programs? The answer is yes, but there are certain steps you need to take to do so.
First, let's review the eligibility requirements for both programs. The ERTC is a refundable tax credit that is available to eligible employers who experienced a decline in revenue or were fully or partially closed due to government orders. To qualify for the credit, you must have had a decline in gross receipts of at least 50% in a calendar quarter compared to the same quarter in the previous year. If you received a PPP loan, you can still claim the ERTC, but you cannot include wages paid with PPP funds in your calculation of qualified wages for the credit.
The PPP, on the other hand, is a loan program that provides funding to small businesses to keep their employees on payroll during the pandemic. The loan can be fully or partially forgiven if certain eligibility criteria are met, such as using at least 60% of the loan proceeds for payroll costs and maintaining employee headcount and salary levels. If you received a PPP loan, you can claim the ERTC for wages paid with non-PPP funds.
To claim both the ERTC and PPP, there are specific steps you need to take. First, you'll need to determine your eligibility for both programs. If you qualify, you can claim the ERTC by reporting eligible expenses on your quarterly employment tax returns, such as Form 941. You'll need to calculate the qualified wages for the credit, which includes wages paid to full-time employees and certain health care benefits.
To claim the PPP, you'll need to complete the loan forgiveness application and submit it to your lender. The application will require you to provide documentation of how you spent the loan funds, including payroll costs, supplier costs, and rent or mortgage interest. You'll also need to certify that you used the funds according to the program's guidelines.
It's important to note that there are rules and limitations associated with claiming both the ERTC and PPP. For example, you cannot use the same wages for both programs, meaning you'll need to carefully track which wages are paid with PPP funds and which are not. Additionally, the maximum credit amount for the ERTC is $5,000 per employee, whereas the maximum loan amount for the PPP is $10 million.
In conclusion, claiming both the ERTC and PPP can be a complex process, but it can provide much-needed financial relief to small businesses. To do so, you'll need to carefully track your eligible expenses, file necessary forms and reports, and ensure you're meeting all eligibility and requirements for both programs. If you're unsure about how to proceed, it's recommended to consult with a tax expert or seek assistance from the federal government's relief programs for eligible businesses, including recovery startup businesses.
Eligibility Requirements for the Employee Retention Tax Credit (ERTC)
To qualify for the Employee Retention Tax Credit (ERTC), there are specific eligibility requirements that businesses must meet. The ERTC is a refundable tax credit that provides financial relief to eligible employers who have experienced a decline in revenue or were fully or partially closed due to government orders during the pandemic. In this article, we will review the eligibility requirements for the ERTC, including the decline in revenue and gross receipts criteria, and how it interacts with the Paycheck Protection Program (PPP).
Qualified Employers
Eligible Wages
Eligible wages are a crucial component of the Employee Retention Credit (ERTC), a refundable tax credit made available by the federal government to provide financial relief to businesses hit by the COVID-19 pandemic. Eligible wages are defined as the remuneration paid to employees, including qualified health plan expenses, and can include certain other personnel expenses for businesses of all sizes.
For businesses with 100 or fewer full-time employees, all wages paid to employees are considered qualified wages for the ERTC, regardless of whether the employees were working or not. In contrast, for businesses with more than 100 full-time employees, qualified wages only include those paid to employees who were not providing services or were not providing full services due to the COVID-19 related decline in gross receipts.
To qualify for the ERTC, eligible wages must be paid to employees between March 13, 2020, and December 31, 2021. Businesses must meet eligibility criteria to claim the credit, such as experiencing a significant decline in gross receipts or a complete or partial shutdown of their operations. The credit is calculated by multiplying 70% of eligible wages by a set limit of $10,000 per calendar quarter per employee, making the maximum credit $28,000 per employee over the eligible period.
In summary, eligible wages are a significant factor in determining the amount of the ERTC that businesses can claim. By knowing which wages qualify, business owners can maximize their tax credit and get the financial relief they need to keep their operations running during these unprecedented times.
Time Frame for ERTC
The Employee Retention Tax Credit (ERTC) is a valuable tax credit that eligible businesses with qualified wages can claim to offset the economic hardships caused by the COVID-19 pandemic.
For businesses that file annual tax returns, eligible quarters for claiming the tax credit in 2020 include Q2 (April 1, 2020, to June 30, 2020) and Q3 (July 1, 2020, to September 30, 2020). For 2021, eligible quarters for claiming the ERTC include Q1 (January 1, 2021, to March 31, 2021), Q2 (April 1, 2021, to June 30, 2021), Q3 (July 1, 2021, to September 30, 2021), and Q4 (October 1, 2021, to December 31, 2021).
Eligible employers can receive a maximum credit of $7,000 per employee per quarter for 2021. The maximum credit represents 70% of qualified wages, with a cap of $10,000 per employee per quarter. Therefore, the maximum credit an employer can claim per eligible employee in 2021 is $28,000.
Employers can claim the ERTC for a maximum of three eligible quarters in 2021, which means they can receive a total credit of up to $21,000 per eligible employee for the year.
It's important to note that eligible employers need to file their claims quickly to avoid losing out on the benefits. The claims need to be filed annually on their federal employment tax returns (Form 941) or quarterly on their payroll tax returns. If an employer overclaims the ERTC, the excess credit amount will be treated as an underpayment of the employer's share of Social Security taxes.
In conclusion, eligible employers can claim the ERTC for specific quarters in 2020 and 2021, with a maximum credit of $7,000 per employee per quarter for 2021. Employers can claim the credit for up to three qualifying quarters in 2021, subject to a maximum credit of $21,000 per eligible employee for the year. Lastly, eligible employers need to file their claims promptly to avoid missing out on this valuable financial relief.
Decline in Revenue Requirement
The decline in revenue requirement is a key factor for businesses to be eligible for the Employee Retention Tax Credit (ERTC). This requirement states that businesses must have experienced a significant decline in gross receipts compared to the same quarter in the previous year.
To calculate the decrease in revenue, businesses should compare their quarterly gross receipts from 2021 against those from 2019. If a business was not in operation during the first or second quarter of 2019, they could compare their gross receipts against the same quarter of 2020.
If a business's gross receipts for a quarter in 2021 are less than 80% of the gross receipts for the same quarter in 2019, they have experienced a significant decline in revenue. This decline in revenue makes them eligible for the ERTC.
Businesses can also elect to use the immediately preceding quarter's gross receipts to determine eligibility. For example, if a business wants to claim the ERTC for Q3 (July 1, 2021, to September 30, 2021), they can compare their Q2 (April 1, 2021, to June 30, 2021) gross receipts to their Q2 gross receipts from 2019. If their Q2 2021 gross receipts are less than 80% of their Q2 2019 gross receipts, they would qualify for the ERTC.
There are some exclusions to the annual gross receipts of an organization that can be considered when calculating eligibility for the ERTC. For example, gifts or donations are not included in the calculation, nor are any amounts received from another business that are not considered gross income. Additionally, the ERTC does not apply to governmental employers or any business that received a PPP loan during the same calendar quarter as the wages or compensation that are being claimed for the ERTC.
Businesses that are more likely to receive the ERTC include car washes, auto repair and body shops, restaurants and bars, religious buildings, home builders, construction firms, contractors, and moving and shipping companies. These industries have been hit particularly hard by the pandemic, and the decline in revenue requirement for the ERTC can provide much-needed relief to these eligible employers.
Loan Funds Available Through the Paycheck Protection Program (PPP)
The Paycheck Protection Program (PPP) was established by the federal government to provide financial relief to eligible businesses affected by the economic hardships brought by the COVID-19 pandemic. One of the key benefits of the program is access to loan funds that can be used to cover payroll costs, supplier costs, and other eligible expenses. In this guide, we will provide information on how to determine your eligibility for PPP loan funds, how to apply for them, and how they can be used to support your business operations.
Eligible Expenses
One of the most significant benefits of the Paycheck Protection Program (PPP) and the Employee Retention Tax Credit (ERTC) is the ability to have certain expenses forgiven. However, it is essential to ensure that these expenses are accurately documented, as the Small Business Administration (SBA) or Internal Revenue Service (IRS) could request verification of these records during an audit.
Under the PPP, businesses are eligible for loan forgiveness for specific expenses incurred during the 8- to the 24-week period following disbursement of their loan. To qualify for loan forgiveness, PPP borrowers must use at least 60% of the loan funds for eligible payroll costs. The remaining 40% can be allocated towards other eligible expenses, which include rent payments, mortgage interest, and utilities.
Payroll costs are the most substantial eligible expense for PPP loan forgiveness and include the following:
- Salary, wages, commissions, and tips (up to a maximum of $100,000 per employee per year)
- Employee benefits, such as healthcare and retirement contributions
- State and local payroll taxes
For the ERTC, employers can claim a refundable tax credit of up to 70% of the qualified wages paid to their employees from March 12, 2020, to January 1, 2021. Eligible wages for ERTC depend on the number of full-time employees the employer had in 2019. For employers with more than 100 full-time employees, qualified wages are limited to employees who were not providing services due to a full or partial suspension of business operations or a significant decline in revenue. For employers with 100 or fewer full-time employees, all wages paid during the eligible time frame may qualify for the ERTC.
In conclusion, PPP loan forgiveness and ERTC are two programs that offer significant financial relief to eligible businesses. Properly documenting eligible expenses is crucial to ensure that loan funds are used for the right purposes and to avoid potential audits or other issues.
Business Owners' Eligibility Criteria
To claim the Employee Retention Tax Credit (ERTC) and Paycheck Protection Program (PPP) benefits, business owners must meet specific eligibility criteria. For the ERTC, the business must have experienced either a 20% or 50% decline in gross receipts. Businesses with gross receipts below $1 million in the preceding year are exempted from this criterion. The decline in gross receipts is determined by comparing the business's quarterly gross receipts for 2020 to the same quarter's receipts for 2019. Alternatively, businesses can compare gross receipts for the same quarter in 2020 to the preceding quarter in 2020 to demonstrate eligibility.
The ERTC tax credit is available for wages paid between March 12th, 2020, and January 1st, 2021. To claim the ERTC, employers must have had their operations either partially or fully suspended due to government orders related to Covid-19. Additionally, the credit applies to employers experiencing significant declines in gross receipts during the relevant quarters.
When it comes to employee types, to claim the ERTC credit, businesses can include wages paid to all employees. However, the employee retention credit cannot be claimed for the same employee claiming the Work Opportunity Tax Credit for the same period.
For the PPP, businesses must demonstrate eligibility through a decline in gross receipts. The PPP loans are available to businesses with up to 500 employees, including businesses, non-profits, veterans’ organizations, and sole proprietors. Newly established businesses are also eligible to apply, and the SBA has waived its requirement for businesses to operate for at least one year. The PPP's loan amount is determined based on the 2.5-month average payroll costs.
In conclusion, business owners must satisfy specific eligibility criteria to claim benefits from the PPP and ERTC. This includes a decline in gross receipts, full-time employees, and specific employee types. Business owners should consult tax experts to determine their eligibility and ensure compliance with the programs' guidelines.
Loan Proceeds & Repayment Terms
Loan proceeds and Repayment Terms Associated with PPP Loans
PPP loans were a lifeline for many small businesses affected by the pandemic. The loans' proceeds were intended to help businesses keep their employees on the payroll and cover other eligible expenses. The loan amount a business could receive was based on its average payroll costs.
PPP loans are 100% forgivable if businesses use them correctly. Eligible expenses include rent, utilities, mortgage interest, property damage costs, worker protection expenditures, and supplier costs. At least 60% of the loan needs to be forgivable based on payroll costs during the covered period, with a maximum of 40% forgivable on non-payroll costs.
To be eligible for loan forgiveness, businesses must use the loan proceeds during their covered period. The covered period for PPP loans is either the first 8 or the first 24 weeks after receiving the loan. Forgiveness is based on the qualified expenses incurred during that period.
Repayment of the PPP loan starts after the forgiveness application is submitted. The forgiveness application needs to be submitted within ten months after the end of the covered period; otherwise, the repayment of the loan will begin. Repayment typically begins after 10 months if the application is incomplete, denied, or reduced.
The loans' repayment terms are quite lenient, with only a 1% interest rate over two years. On top of that, the loans would be deferred for the first six months of the loan term. As long as a business uses the loan correctly and submits the forgiveness application within the given time frame, they should not have to worry about repaying the loan.
In conclusion, the PPP loan is a forgivable loan that can help small businesses affected by the pandemic with their payroll and eligible expenses. It is crucial for businesses to use the loan proceeds within the covered period and submit the forgiveness application within ten months. The loans have a low-interest rate and repayment terms, making it an excellent option for small business owners looking for financial relief during these difficult times.
Advance Payment Option
The Employee Retention Tax Credit (ERTC) is a refundable tax credit, part of the COVID-19 relief program, that provides financial relief to eligible employers who have been adversely affected by the pandemic. Eligible employers can access advanced payments for the ERTC through the Advance Payment Option.
The advance payment option is beneficial for employers who are struggling to meet payroll expenses and other qualified expenses. It allows eligible employers to receive the ERTC in advance, thus providing them with much-needed cash flow to keep their business running.
To qualify for the advance payment option, employers must have 500 or fewer full-time employees. The maximum amount available for the advance payment is equal to 70% of the average quarterly wages paid by the employer in 2019.
To apply for the advance payment, eligible employers need to accurately fill out Form 7200, which is the employer's request for advance payment of the credit. They must submit this form to the IRS before the end of the calendar quarter in which the wages were paid.
Calculating the credit and the reduction of the advance payment can be complex. There are specific requirements that employers need to meet, including determining their eligible wages and the number of full-time employees they have. If the employer's advanced payment is more than the actual credit, the excess needs to be repaid to the IRS.
It is essential to accurately fill out Form 7200 as errors can result in delays in receiving the advanced payment. It is also crucial to keep accurate records as the IRS has the right to review and audit the employer's application at any time.
In conclusion, the Advance Payment Option provides eligible employers with the much-needed cash flow to keep their business running during these difficult times. By accurately filling out the required forms and meeting the eligibility criteria and requirements, employers can successfully access the advance payment and benefit from the Employee Retention Tax Credit.
Filing Forms and Claims for ERTC and PPP Benefits
As a business owner, navigating the various relief programs and tax credits can be challenging. In this guide, we will provide you with an expert's overview of filing forms and claims for the Employee Retention Tax Credit (ERTC) and Paycheck Protection Program (PPP) benefits. Understanding the eligibility requirements and filing processes for these programs is crucial to ensuring that your business maximizes its benefits and receives much-needed financial relief.
Form 941-X: Claiming Refundable Payroll Tax Credits
As an eligible employer, claiming refundable payroll tax credits through Form 941-X can provide significant financial relief during periods of economic hardship. One such credit is the Employee Retention Tax Credit (ERTC), which can be claimed retroactively by filling out Form 941-X for each quarter in which qualifying wages were paid.
To use Form 941-X to claim the ERTC, employers must follow specific instructions. Firstly, the form can be filed up to three years after the original payroll taxes were due. This means that eligible employers can still claim the 2020 ERTC until April 15, 2024, and the 2021 ERTC until April 15, 2025.
While filling out Form 941-X, employers must carefully list the number of employees retained during the pandemic and the total amount of qualified wages paid during each quarter. Eligible employers must also make sure they meet the specific eligibility requirements for the ERTC, such as a decline in revenue or significant changes in business operations due to COVID-19.
In addition to claiming the ERTC, Form 941-X can also be used to claim other refundable payroll tax credits. These credits can be used to offset payroll taxes, taking the form of an advance payment or a refund on past payments made.
By following the eligibility criteria and carefully filling out Form 941-X, eligible employers can claim the maximum credit available and receive relief on their federal income tax returns. Overall, this process can significantly help eligible businesses during challenging economic times.
Employment Tax Return: Claiming Employee Retention Credits
Employers who are eligible for the Employee Retention Credit (ERC) can claim it through their employment tax return. The ERC is a refundable tax credit aimed at helping employers recover some of the costs incurred in retaining their employees during the COVID-19 pandemic. To claim the ERC, employers must report the credit on their quarterly employment tax returns.
The Form 941, which is the Employer's Quarterly Federal Tax Return, is the document on which employers can claim the ERC. Employers must indicate the total ERC amount for each quarter on their employment tax returns. It is also important to include the IRS-approved amount of the credit that was refunded or offset against taxes.
The process for claiming the ERC on an employment tax return is relatively simple. For the second quarter of 2021, which runs from April 1 to June 30, eligible employers can claim the ERC by filing their Q2 return before August 2, 2021. This is the deadline for employers to report their employment taxes for the quarter and claim the ERC for any eligible wages paid during the quarter.
To claim the ERC on employment tax returns, eligible employers must meet certain eligibility criteria. This includes a decline in revenue or significant changes in business operations due to COVID-19. Additionally, the ERC can only be claimed on wages paid from March 13, 2020, to December 31, 2021.
In summary, eligible employers can easily claim the ERC by reporting the credit on their quarterly employment tax returns. The Form 941 is the document on which the ERC can be claimed, and employers must include the total ERC amount for each quarter, including any refunded or offset credits. The deadline for the second quarter of 2021 is August 2, 2021, and employers must meet specific eligibility criteria to claim the ERC.
