Claiming the PPP Loan and ERC Together

On December 27, 2020, the Consolidated Appropriations Act 2021 (CAA 2021) was signed into law, providing another COVID-19 stimulus package for small businesses and individuals.
PPP Loan Preparation

Besides the second round of the PPP loan and the stimulus check, one of the highlights of the CAA 2021 is to allow Paycheck Protection Program (PPP) loan recipients to obtain Employee Retention Credit (ERC) for the wages not paid for with forgiven PPP funds.  This is a major turnaround from the earlier CARES Act (Coronavirus Aid, Relief, and Economic Security Act), where the double-dipping of the PPP and the ERC were explicitly prohibited.

CAA 2021 amended the CARES Act to allow PPP loan borrowers to retroactively claim the ERC for wages paid or incurred after March 12, 2020 and before June 30, 2021.  If eligible for ERC, employers can claim a payroll tax credit up to $19,000 per employee ($5,000 for the entire 2020 and $14,000 for the 2 quarters of 2021).  In addition, employers can be immediately reimbursed by the payroll tax deposits withheld from employees’ wages up to the credit amount.  Unlike the PPP loan, you do not have to fill out the application to claim the ERC; you can directly claim it on the payroll tax returns.  On the other hand, the ERC claimant should be able to demonstrate full or partial shutdown of operations or gross receipts decline compared to the same quarter in 2019 in accordance with the CAA 2021 and CARES.

Treasury Secretary and Small Business Administration (SBA) will soon issue a detailed guidance on this PPP – ERC interaction.  We will keep you posted.

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CDL Experience​

If you’d like more information about this topic, please contact Tax Senior Manager Masami Fujimoto or your CDL tax professional at 561-832-9292.

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