The Paycheck Protection Program (PPP) and Employee Retention Credit (ERC) are two of the most important financial relief programs created to help businesses stay afloat during the COVID-19 pandemic. While both programs are designed to provide financial assistance to small businesses, there are some key differences between them. The PPP is a loan program that provides funds to small businesses to help them keep their employees on the payroll. The funds are received by direct deposit into the company's bank account, usually one week after the loan is approved.
There is no upfront cost for the loan, but if it is not repaid in full according to the terms, there may be a penalty. The ERC, on the other hand, is a tax credit that companies can request for eligible salaries paid to employees during the pandemic. This credit is not included in the Internal Revenue Bulletin and therefore cannot be used as a legal authority in court cases. An employer may not receive the employee retention credit if it receives a PPP loan authorized under the CARES Act.
An employer that is considered a single employer under the aggregation rules cannot receive the employee retention credit if any member of the employer's aggregate group receives a PPP loan. An employer receiving a PPP loan may not receive an employee retention credit, regardless of if and when the loan is forgiven. An acquiring employer that purchases the assets of a target employer that has received a PPP loan will not be considered to have received a PPP loan by virtue of the acquisition of assets, provided that the acquiring employer does not assume the obligations of the target employer under the PPP loan. In this case, the acquiring employer may apply for the employee retention credit after the closing date of the transaction if they meet all requirements. An eligible employer cannot apply for both an employee retention credit and a Work Opportunity Tax Credit (WOTC) for the same wage payments.
Any qualifying salary for which an eligible employer applies for an employee retention credit will not be considered for determining a section 45S credit. Therefore, an employer cannot request a credit under section 45S with respect to qualified wages for which they are requesting an employee retention credit. Disaster loan counselors can help businesses navigate complex and confusing employee retention credit (ERC) and employee retention tax credit (ERTC) programs. The Consolidated Allocation Act (CAA) has allowed for relief, but it has also created complexity for taxpayers who received a loan from the Check Protection Program (PPP) and who qualified for an employee retention credit (ERC).In summary, while both programs are designed to provide financial assistance to small businesses, there are some key differences between them. The PPP is a loan program while ERC is a tax credit; PPP funds are received by direct deposit into a company's bank account while ERC is not included in Internal Revenue Bulletin; and an employer may not receive ERC if it receives a PPP loan authorized under CARES Act.