On Sunday, May 17, in a previous client update note on the Paycheck Protection Plan (PPP) loan forgiveness, we informed you that the Department of Treasury (USDT) had provided an alternative time frame for consideration of what would be forgiven. That change permitted both paid and incurred eligible expenses as part of what could be forgiven under the PPP. There are, however, other things that employers should consider as they prepare to reopen their businesses and turn their attention to consideration of how they will be able to keep get their businesses back to a reasonable level of profitability that will help them to survive.
Although much has been discussed about the PPP loans, there are other methods by which an employer may be able to recoup some employment related expenses. One alternative methodology is the Employee Retention Credit (ERC). According to the USDT, the ERC is not available to employers who applied for and received a PPP loan.
The ERC can be used by employers who, on average, employed 100 or fewer employees in 2019. If the employer meets this criterion, and if the business either completely suspended its operations or partially suspended its operations as a result of the ‘Stay at Home’ orders from their respective state governments and if the business had a reduction of 50% or more of their gross revenue as compared to the comparable quarter in 2019, the business can claim this credit on their taxes. However, when an employer’s gross receipts return to 80% of the gross receipts that were received in the comparable quarter in 2019, the employer loses the ability to further claim the credit.
The ERC credit can be received on wages which are paid to employees between March 13, 2020 and December 2020.
In recent guidance, the IRS has clarified that any employer who originally obtained PPP funds but returned them prior to May 18, 2020 will be eligible to receive the ERC benefit.
Exact details on how this credit will be applied appears to be still under consideration by the IRS. However, employers may view the anticipated methods of obtaining the credit can be found on the draft IRS Form 941 which will ultimately be used by employers to file their quarterly taxes. See attached draft form here. https://www.irs.gov/pub/irs-dft/f941–dft.pdf
If you did not apply for and receive a PPP loan, contact your accountant and discuss with them how you can take advantage of this Coronavirus related benefit.
Stay tuned for additional guidance. If you have further questions, about these or other questions about the Paycheck Protection Plan loans click on this link to review the most recent Paycheck Protection Plan FAQ’s.
If you have additional questions, on this or other employment related issues arising in the context of COVID-19, feel free to contact Sheryl J. Willert at SWillert@williamskastner.com.