If COVID-19 impacted your business, you have likely heard about the Payroll Protection Program (PPP) and the Employee Retention Tax Credit (ERTC). The government created these programs to help companies stay afloat during the pandemic. While both programs aimed to assist struggling businesses, there are some core differences between the two. Let’s examine the major differences between the ERTC and the PPP and how business owners can potentially claim both.
What Is the Payroll Protection Program?
The Payroll Protection Program was created under the Coronavirus Aid, Relief, and Economic Security Act (CARES), a $2.2 trillion stimulus bill, in March 2020. Backed by the Small Business Administration, the PPP provided loans to small businesses to cover up to 8 weeks of payroll costs, benefits, mortgages, utilities, rent, and other expenses. It dedicated up to $659 billion to financially suffering businesses to help them keep employees on payroll.
Small businesses with 500 or fewer employees could qualify, including:
- Self-employed individuals
- Sole proprietorships
- Independent contractors
What Is the Employee Retention Tax Credit?
The Employee Retention Tax Credit is a refundable tax credit to encourage employers to retain staff during the pandemic. Businesses affected by governmental mandates or that suffered a decline in revenue can qualify for the ERTC.
Like the PPP, the ERTC was originally part of the 2020 CARES Act. Congress included the ERTC to encourage businesses to keep employees on payroll during 2020 and 2021. The ERTC offers a refund for wages paid to eligible employees for tax quarters in 2020 and 2021. Businesses can recover up to $5,000 per employee for 2020 and up to $7,000 for the first three quarters of 2021.
Therefore, business owners can get up to $26,000 per employee through the Employee Retention Tax Credit.
Payroll Protection Program vs. the Employee Retention Tax Credit
You may think the Payroll Protection Program and the Employee Retention Tax Credit are identical. The goal of each program was to give financial help to businesses impacted by COVID-19 while ensuring companies continued to employ their staff. Small and medium-sized businesses secured much-needed relief thanks to the PPP and the ERTC, saving the jobs of millions of Americans.
Despite these similarities, the PPP and the ERTC have different eligibility requirements and benefits.
Loan vs. Refundable Tax Credit
The PPP is a forgivable loan, while the ERTC is a refundable tax credit. Businesses used PPP funds to cover payroll and other expenses to keep staff employed. Yet, the ERTC is available only for wages already paid to employees.
If businesses spent PPP money on qualifying expenses like rent, utilities, and payroll, they may be eligible for loan forgiveness. However, business owners must repay the loan if PPP funds went towards non-qualifying expenses. Also, you must pay off PPP money if you do not apply for loan forgiveness in the required timeframe. The PPP loan is paid back with interest over time.
On the other hand, business owners never have to repay the Employee Retention Tax Credit. The ERTC is a tax credit, not a loan like the PPP.
ERTC and PPP Processing Time
The time it takes to get PPP money compared to your ERTC refund also differs. Eligible businesses could receive a PPP loan direct via deposit in as little as 10 to 14 days. The Small Business Administration and banks processed and allocated funds for the PPP.
However, it takes longer to recover the ERTC. Qualifying business owners must submit proper documentation and IRS tax forms to file their ERTC claims. The IRS then reviews the claim and eventually issues a check.
Turnaround for the Employee Retention Tax Credit varies, but it can take 3 to 6 months to receive your refund. It is advisable to file your ERTC claim now due to the extended waiting period to obtain your credit.
The Employee Retention Tax Credit Is Still Available
The PPP ended on May 31, 2021, so businesses can no longer apply for the loan. But there is still time left for business owners to take advantage of the Employee Retention Tax Credit. Although the PPP has expired, the ERTC has not. That said, keep in mind that crucial ERTC deadlines are approaching.
Differences in How Much Businesses Could Get
First-time PPP borrowers could receive 2.5 times their business’ average monthly payroll costs, with a maximum loan size of $10 million and a maximum of $2 million the second time.
The ERTC offers up to $26,000 per W-2 employee to eligible businesses. This amount depends on qualified wages paid to eligible employees in 2020 and 2021. Determining your eligibility and calculating your refund can be challenging to do on your own. Enlisting the help of a skilled ERTC advisor is a fantastic way to ensure you submit an accurate claim while maximizing your potential refund.
Can I Get the PPP and the ERTC?
Yes! A common misconception is that business owners can’t claim the PPP and the ERTC. You may still be eligible for the ERTC even if you already collected a PPP loan.
The Consolidated Appropriations Act of 2021 made it possible for businesses that received a PPP loan to apply for the ERTC. However, there are some exceptions to claiming both the ERTC and PPP. Business owners cannot use the programs for the same wages. For example, if the wages paid to an employee are used for PPP forgiveness, those same wages cannot count toward the ERTC.
The Lake Law Firm Can File Your ERTC Claim
Knowing the differences between the ERTC and PPP is necessary if you plan on filing for the ERTC. Even though you can no longer obtain a PPP loan, you may still qualify for the ERTC. Applying for this refund is slightly more complicated than doing so for the PPP. You can file by yourself, but you must perform the correct calculations, gather supporting documents, and fill out confusing IRS tax forms.
The Lake Law Firm can shoulder the burden of applying for the Employee Retention Tax Credit. We offer free evaluations, so you can find out if you qualify, and from there, we do all the heavy lifting. Our filing services make the ERTC process safe and easy for business owners. Contact The Lake Law Firm today at (888) LAKE-LAW.