Summer Hot Topics - PPP Forgiveness Applications and Employee Retention Credits

PPP Forgiveness

Loan payments are scheduled to begin 10 months after the 8 or 24 week covered period ends. This date is fast approaching for many round 1 PPP loans. Plan to submit your forgiveness application soon if you have not already. The SBA is launching a new portal to apply for forgiveness directly through the SBA (instead of through a bank) for loans under $150,000. This portal will open on August 4th. 

Businesses can apply for forgiveness later than the 10 months, and even after payments begin.  It is our understanding that even if payments have started, when PPP forgiveness is approved, payments made will be refunded.

Employee Retention Credit (ERC)

The ERC is in place through the end of 2021 to incentive businesses that have been impacted by COVID-19 to retain employees. This credit may result in a large benefit to businesses that were partially or fully closed in 2020 or 2021, or that experienced a decline in revenues above certain thresholds.

Primary Eligibility Requirements

2020:

  • Employers with 100 or fewer full-time employees are eligible to claim the credit if they carry on a trade or business and experience either of the following:

     

    1. Full or partial suspension of operations during any 2020 calendar quarter due to orders from government limiting commerce, travel, or group meetings due to COVID-19  OR

       

    2. Significant decline in gross receipts in the quarter in which gross receipts are less than 50% of gross receipts vs. the same calendar quarter in 2019

       

2021:

  • The full-time employee limit was raised to 500 employees.

     

  • The decline in gross receipts test is modified to less than 80% of gross receipts (20% reduction) in the same calendar quarter in 2021 vs. 2019. 

     

Credit

2020:

  • The credit is 50% of qualified wages. $5,000 max credit per employee for the year.

     

2021:

  • The credit is 70% of qualified wages. $7,000 max credit per employee per quarter.

     

The credit is claimed on Form 941 quarterly payroll tax returns. Form 7200 is used if an advance payment of the credit is desired. If 941s are already filed, they may be amended.

 

There is interaction between expenses used for PPP forgiveness and the ERC, so additional planning is warranted in many cases to maximize the benefits available. The ERC cannot be claimed while utilizing PPP funds. We are ready to assist with these complex calculations to maximize the overall benefit. 

Please contact your LFCO team with additional questions.