PPP and ERC Opportunities

The COVID Tax Relief Act (COVIDTRA) that was passed late December made drastic changes to the Paycheck Protection Program (PPP) and the Employee Retention Credit (ERC) for both 2020 and 2021. The most critical changes for eligible employers include:

Qualifying expenses paid with PPP funds are now deductible for federal income tax purposes, however, we are still waiting on guidance from most state legislatures regarding state deductibility. This change officially means that PPP loans and their forgiveness will not be subject to federal income tax.
Employers may now be eligible for the Employee Retention Credit (ERC). Previously, organizations which received a PPP loan were ineligible to claim the ERC. That requirement has been removed and the credit has been extended through the first six months of 2021. To employers that are eligible, the ERC may provide up to a $7,000 per employee tax credit per quarter.
The SBA announced they will begin accepting applications for new PPP loans from limited borrowers beginning January 15, 2021. Minority and women-owned businesses will be able to borrow first-time PPP loans initially, followed by minority and women-owned businesses requesting a second-time loan.

The COVIDTRA legislation is good news for many employers. There are several critical planning considerations to discuss with your tax advisor to maximize your credit eligibility and avoid missing out on significant funding. Key decisions that should be discussed include:

Applying for a first-time or second-time PPP loan.
Applying for 1st round PPP loan forgiveness if your organization experienced a partial or complete operational shutdown or a significant reduction in 2020 gross receipts.
Electing to take the Employee Retention Credit for 2020 or 2021.

Please contact your AEM advisor to discuss your organization’s relief options and ensure that you don’t miss significant tax credits and funding opportunities.