Can a Business Get Employee Retention Credit if it Received PPP?

The COVID pandemic created significant challenges for businesses worldwide. In the United States the government stepped in to help businesses and introduced government relief programs like the Paycheck Protection Program (PPP) and the Employee Retention Credit (ERC). Many businesses wonder whether they can benefit from both programs simultaneously. This article aims to shed light on the ERC frequently asked question, “can a business get Employee Retention Credit if it received PPP?”

Understanding the Paycheck Protection Program 

The Paycheck Protection Program was administered by the Small Business Administration (SBA) and was designed to provide funds to eligible businesses to help them retain employees during the shutdown caused by the pandemic. With the PPP, these forgivable loans were intended to cover business expenses such as payroll costs, lease or rent, mortgage interest, and utilities for a specified period during the pandemic.

Employee Retention Credit Explained 

While PPP is a forgivable loan, the Employee Retention Credit on the other hand, is a refundable tax credit provided under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. ERC’s objective is to provide an incentive for businesses that struggled but managed to retain employees during the pandemic. Eligible employers can claim a credit against payroll taxes for a portion of qualified wages paid to employees. 

Like the forgivable PPP loan, ERC funds that a business receives do not have to be paid back. But unlike PPP, the tax credit funds are not earmarked, and businesses may use the funds for any purpose that they desire. Also the PPP application and approval process is relatively straightforward, while ERC is more complex and has specific ERC qualification criteria.

Business Eligibility for Both PPP & ERC Programs

Initially, the IRS did not allow businesses to claim the Employee Retention Credit if they received PPP funds. However, the Consolidated Appropriations Act that was signed into law in December 2020 changed this rule retroactively. Now with the revised law, eligible businesses can get Employee Retention Credit if they receive PPP. But there are some restrictions.

Restrictions and Limitations 

While the revision to the law now allows businesses to claim ERC even if they received PPP funds, certain restrictions and limitations apply. First, the wages used to qualify for PPP loan forgiveness cannot be considered for the Employee Retention Credit. In other words, businesses cannot double-dip by claiming the same wages for both programs. Additionally, the credit cannot be claimed for wages paid with forgiven PPP funds.

Conclusion

If you own or manage a business you may have wondered, “can a business get employee retention credit if it received PPP?” The short answer is yes. With the revision to the law, businesses that have received PPP funds can now also claim the ERC. 

However, it is crucial to understand the limitations and restrictions associated with both programs. Furthermore, the ERC program is complex, and it is recommended that you consult with a tax professional or seek guidance from an experienced ERC specialist to ensure accurate compliance. This will help you to maximize the benefits available if your business was negatively impacted by the restrictions during the pandemic.