Navigating the COVID-19 Relief Programs: A comparison of the Employee Retention Tax Credit and the Paycheck Protection Program"

The Employee Retention Tax Credit (ERTC) and the Paycheck Protection Program (PPP) are two different programs established by the government to assist businesses affected by the COVID-19 pandemic.

The ERTC is a tax credit that employers can claim on their federal income tax return if they have experienced a significant decline in gross receipts or if they have been forced to fully or partially shut down due to government orders. The credit is equal to 50% of qualified wages, up to $10,000 per employee, per year. The ERTC is available for wages paid from March 13, 2020 through December 31, 2020.

The PPP, on the other hand, is a loan program that provides small businesses with funds to cover payroll and other approved expenses, such as rent and utilities. The loans are forgivable if the funds are used for these approved expenses and if certain employee retention and compensation conditions are met. The program was established by the CARES Act, and later extended by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act and the Consolidated Appropriations Act, 2021.

In summary, the ERTC is a tax credit for employers who have experienced a significant decline in gross receipts or have been forced to shut down, while the PPP is a loan program for small businesses to cover payroll and other approved expenses, with the possibility of loan forgiveness if certain conditions are met.

Here are some more examples:

Some additional examples of how these programs may be used by a business:

• A restaurant that was forced to close for several months due to government orders could claim the ERTC for wages paid to its employees during that time. The restaurant may also apply for a PPP loan to cover payroll and other expenses while it was closed.
• A retail store that saw a significant decline in sales due to the pandemic could claim the ERTC for wages paid to its employees. The store may also apply for a PPP loan to cover payroll and other expenses while it struggled with decreased revenue.
• A small business that was able to continue operating during the pandemic but had to reduce its workforce due to the economic downturn could claim the ERTC for wages paid to its remaining employees. It could also apply for a PPP loan to cover payroll and other expenses while it navigated the economic challenges caused by the pandemic.

It is important to note that the PPP loan forgiveness is subject to some terms and conditions, like the percentage of the loan used for payroll, the number of employees retained, and the average salary of the employees. Furthermore, the ERTC is a non-refundable credit, meaning that if the credit exceeds the employer's income tax liability for the year, the excess credit will not be refunded to the employer.

I recommend that you click on this link to find information on the Employee Retention Credit, including information on how to calculate the credit and how to claim it on your tax return. To begin your ERC or have questions click below

EMPLOYEE RETENTION CREDIT