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Paycheck Protection Program Loans and the Employee Retention Credit

 

Trying to navigate the relationship between the Paycheck Protection Program (PPP) Loans and the Employee Retention Credit (ERC) is confusing and constantly changing. Previously, you could not receive a PPP loan and claim the ERC on your Quarterly Tax Payments, although recent legislation has changed to allow employers to take both. Due to this change, employers will likely have to amend previous quarterly 941 forms, since the ERC was added to this form recently.

There is a snag for organizations that claimed more payroll costs on the PPP loan forgiveness documents than necessary for forgiveness. We know that the ERC cannot be based off any amounts that were covered by the PPP loan, including any amounts that were claimed in excess of what was required for the PPP Loan. We agree with the AICPA that employers should be allowed to utilize funds that were in excess of the amount required for forgiveness. The American Institute of Certified Public Accountants (AICPA) has issued a letter to the Treasury asking for consideration and guidance on this matter.

“The AICPA in its letter recommends that the IRS and Treasury issue guidance providing that the filing of a PPP loan forgiveness application does not constitute an election to forgo the ERC with respect to the amount of wages reported on the application exceeding the amount of wages necessary for loan forgiveness.”

Here is the current information from the Journal of Accountancy:

“CAA 2021 amended the CARES Act to allow employers that received a PPP loan to retroactively claim the ERC for wages paid after March 12, 2020, but not for the wages used to obtain PPP loan forgiveness. However, it is unclear how the reporting of wages as payroll costs on a previously filed PPP loan forgiveness application affects an employer’s ability to claim the ERC for wages that were included on a loan forgiveness application but did not affect the amount of loan forgiveness.”

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