On March 1, 2021 the IRS published Notice 2021-20 addressing the Employee Retention Credit (ERC) for the 2020 tax year and the interaction with the Paycheck Protection Program (PPP). This notice is specific to the 2020 calendar year. We anticipate additional guidance related to the 2021 ERC to be released in the future.
Many taxpayers have expressed concern and confusion in regards to how the ERC will interplay with their PPP loan forgiveness process. Many believe that they are not eligible for the ERC. Our goal is to alleviate some of this confusion in order to make sure you are not leaving money on the table for your business.
While the March 1 IRS notice covered 102 pages, we have highlighted some of the key takeaways:
If you have not yet applied for PPP forgiveness
If you have not yet filed for PPP forgiveness, it is important to review what expenses are being included in your forgiveness application. Notice 2020-21 provided clarification that qualified wages used for purposes of computing the ERC cannot also be used as payroll costs in the PPP forgiveness application.
If you have both qualified and nonqualified wages for purposes of the ERC, consideration should be given as to the ordering of payroll costs on the PPP loan forgiveness application. You may also benefit from including other eligible non-payroll costs in your forgiveness application in order to maximize your available ERC qualified wages.
If you have already applied for PPP forgiveness
If you have already applied for forgiveness, your application cannot be modified to maximize the ERC. Many taxpayers filed their applications reporting only payroll costs in their request for forgiveness. While your application cannot be changed, there is an opportunity to potentially use any excess payroll costs (payroll costs in excess of the loan forgiveness amount) as qualified wages in your ERC calculations.
If you included both payroll and non-payroll costs in your application, Notice 2020-21 offers the ability to use the minimum amount of payroll costs needed in conjunction with non-payroll costs for forgiveness, while allowing the excess payroll costs (if applicable) to be used in the ERC calculation.
Should your PPP loan not be forgiven, or receive partial forgiveness, an opportunity may exist to increase the ERC.
Other key points
In addition to the above, the notice discusses how to determine whether your business meets the criteria for a full or partial shutdown under a nominal business rule and factors to determine whether your business is able to continue comparable operations prior to a closure.
The notice also provides clarification as to the process of filing for the ERC for calendar year 2020 and the necessary documentation to have on record to support the credit claimed.
While the details surrounding the ERC can seem complex, particularly when it comes to navigating the interplay between the credit and PPP loan forgiveness, we can help. Kreischer Miller has the tools and knowledge to assist your business in the calculation of the ERC. We are happy to discuss whether this credit opportunity can apply to your business and the best strategies for maximizing it. Please contact your Kreischer Miller relationship professional or any member of our Tax Strategies team at Email.
Information contained in this alert should not be construed as the rendering of specific accounting, tax, or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect, or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.