Maximizing the Employee Retention Credit and Paycheck Protection Program
By: Kristie R. Adams, CPA - Senior Manager of Tax & Business Services Department
Before employers rush to ask for forgiveness on their Small Business Interruption Loans issued under the Paycheck Protection Program (PPP) they may want to check their eligibility for the Employee Retention Credit (ERC) first. New legislation from the Consolidated Appropriations Act (CCA) 2021 created the opportunity for businesses to take advantage of both the PPP and the ERC.
The CCA 2021 expanded and extended the Employee Retention Credit to include several changes for the period January 1, 2021 through June 30, 2021:
• Increased the credit rate from 50% to 70% on qualified wages
• Reduced the gross receipts decline from 50% to 20%
• Increased the wage limit to $10,000 per employee per quarter rather than $10,000 per year
• Increased the “large employer” full time employee limit from 100 to 500
• New employers who were not in existence all or part of 2019 can use the comparable 2020 calendar quarter
to determine the extent of the decline in gross receipts
• Employers can receive the ERC even if they received the PPP, as long as the PPP forgiveness and the ERC
are NOT claimed on the same wages
The CCA 2021 did not change the requirements or the limits for wages paid in 2020 but it now allows employers to retroactively go back and claim the ERC on 2020 wages, even if they had received the PPP loan. There are planning opportunities to maximize ERC while still receiving full forgiveness on a PPP loan. Employers may want to increase their eligible non-payroll costs on the PPP forgiveness application, limiting their payroll costs to the 60% threshold, so that they use the remaining payroll to maximize their Employee Retention Credit.
The new economic stimulus measures created by the CCA 2021 are helping businesses continue to employ and pay their employees through the COVID crisis by offsetting the employee costs. The Employee Retention Credit will be claimed by employers through their employment tax returns.
As with most new legislation, there are unanswered questions and parts that will need further clarification due to the unclear language.
Buckingham Advisors is a unique team of financial professionals working together to help clients achieve their business and personal financial goals. We would welcome an opportunity to help you in the same way. If you have any questions or need assistance, please contact one of our team members. To learn more, visit our website at mybuckingham.com.