In 2023, businesses are presented with two vital lifelines: the Paycheck Protection Program (PPP) and the Employee Retention Credit (ERC). These programs were crafted to help businesses endure the hardships brought on by the COVID-19 pandemic. If your small business has been impacted, you might be wondering if you can harness the benefits of both. Let's delve into the details to find out.
- PPP: Forgivable Loan vs. ERC: Refundable Tax CreditThe PPP offered forgivable loans, while the ERC is a refundable tax credit.Example: If you received a PPP loan and used it to cover payroll, rent, utilities, and qualifying expenses, you could potentially have the entire loan forgiven.Example: With the ERC, you won't need to repay the credit; it's a tax benefit directly reducing your tax liability.
- PPP Loan Availability and Retroactive ERC ClaimsThe PPP loan program is no longer available, but you can still retroactively claim the ERC.Example: If you had applied for a PPP loan before it closed, you're eligible to apply for ERC, which is still accessible.
- Combining PPP and ERCBusinesses that received a PPP loan can still apply for the ERC, but there's a caveat.Example: Let's say you used your PPP funds to cover $50,000 in wages, expecting loan forgiveness. In this case, you can't include those wages in your ERC calculation.
- Funding Time and CostThere are differences in the funding process and associated costs for PPP and ERC.Example: PPP funds were typically disbursed within ten days of approval, while ERC claims can take 3-6 months+ to process.Example: Both PPP and ERC did not come with direct costs; however, using PPP funds for non-qualifying expenses meant repayment with a fixed interest rate.
- Eligibility CriteriaEligibility criteria vary for both programs and were updated for the ERC in 2021.Example: In 2020, ERC required a decrease in gross revenue of at least 50% compared to the corresponding quarter in 2019.Example: For PPP, eligibility included having 500 or fewer employees and demonstrating a 25% or more reduction in gross revenue for second-draw loans.
- Applying for PPP and ERCYou can no longer apply for a PPP loan, but ERC applications are still open.Example: To claim the ERC, complete Form 941-X, and consider seeking assistance from a tax professional.
- Maximizing PPP and ERC BenefitsStrategies for maximizing the benefits of both programs:Example: If you applied for PPP forgiveness, ensure at least 60% of the loan went to payroll expenses for full forgiveness.Example: Clearly explain how government orders impacted your business to maximize ERC benefits.Example: Separate payroll costs used for PPP from those claimed with the ERC to avoid issues.Example: Enlist a tax professional's help for expert guidance on both programs and compliance.
Seizing the PPP and ERC opportunities in 2023 can help your business not only recover from the pandemic's challenges but also position itself for a brighter future.
To seize these benefits, take these quick steps:
- Collect necessary information.
- Consult a tax professional for guidance.
- Review eligibility requirements.
- Calculate the credit amount.
- File for the credit promptly.
Don't miss out on this opportunity! Contact our tax professionals or accounting department today to initiate the filing process and secure our organization's financial stability.
