An employer may not receive the employee retention credit if it receives a Paycheck Protection Program (PPP) loan authorized under the CARES Act. So when it comes to a PPP loan versus an employee retention credit, which one should you choose? Thanks to the Consolidated Appropriations Act, you no longer have to choose. You can now apply for the ERC and apply for a PPP loan. The Coronavirus Aid, Relief and Economic Security Act (CARES Act) established both the Paycheck Protection Program and the Employee Retention Credit.
In addition, several laws since then (for example, you can apply for the Paycheck Protection Program loan, apply for the employee retention credit, and apply for the paid leave credit from the FFCRA). If you choose to apply for the employee retention credit and the credits for paid vacation, you won't be able to apply for those credits with the same salary. Because you can only claim paid vacation credits on paid vacation wages, you cannot claim the employee retention credit on paid vacation wages from the FFCRA. Change the applicable credit so that, in the second half of the year, the credit goes to Medicare instead of Social Security.
The Wage Protection Program (PPP) and the Employee Retention Credit (ERC) were created to help companies stay afloat during COVID-19. If you averaged less than 500 full-time hours, your tax credit is based on the wages paid to all employees during the period when operations were suspended or gross revenues declined. However, the ERC will be a Medicare tax credit for the third and fourth quarters, unlike what was previously a Social Security tax credit. The Consolidated Allocation Act (CAA) has made it possible to obtain aid, but it has also created complexity for taxpayers who received a loan from the Check Protection Program (PPP) and who qualified to receive the employee retention credit (ERC). In addition to the PPP, companies have the opportunity to take advantage of employee retention credits. The funds you receive from employee retention credits or from the Payroll Protection Program can help your business succeed for years to come. The difference between the Payroll Protection Program and employee retention credits covers three main areas: type of funding, time at which company receives funding, and cost of program. The PPP is a loan program that provides businesses with funds to cover payroll costs and other expenses.
The loan is forgiven if certain criteria are met. The ERC is a refundable tax credit that employers can claim against their payroll taxes. It is available for employers whose operations have been suspended due to COVID-19 or whose gross receipts have declined by more than 50%.The PPP loan is available immediately upon approval while employers must wait until they file their quarterly payroll taxes to receive their ERC refund. The cost of applying for a PPP loan is minimal compared to applying for an ERC refund. In conclusion, both programs are designed to help businesses stay afloat during COVID-19. Depending on your business needs, you may decide that one program is better suited than another.
However, thanks to recent legislation, you no longer have to choose between them.