Taxpayers cannot claim the ERC on PPP salaries used for PPP loan forgiveness. While forgiven PPP loans are excluded from taxpayer gross income, they must be included in gross income for other purposes, such as proof of gross income and certain filing requirement thresholds for tax-exempt organizations. The taxpayer cannot apply for an ERC for salaries paid to an employee if those salaries are used for PPP forgiveness. In its original form, as set out in the CARES Act, the ERTC was not available to any applicant who had received PPP loans.
However, after the enactment of the Consolidated Appropriations Act (CAA), even applicants who had received PPP loans were eligible for the ERTC as long as they met all other eligibility requirements. However, it is important to note that the ERTC provisions state that the ERTC rules will not apply to any qualified wage for which the employer chooses that the provisions do not apply. In addition, an ERTC could not be claimed using salaries that were paid with the forgiven income from a PPP loan. Previously, there was little guidance as to what exactly constitutes this election and how that election would interact with PPP loan forgiveness.
However, an employer cannot claim the ERC on the salaries it uses to receive loan forgiveness from the PPP. This double drop is avoided because an eligible employer is considered to choose not to consider the qualifying wages reported in the employer's PPP loan forgiveness application for the purpose of applying for the ERC. This supposed election has raised many questions, and the notice addresses some of them. These frequently asked questions are not included in the Internal Revenue Bulletin and therefore cannot be relied upon as a legal authority.
This means that information cannot be used to support a legal argument in a court case. An employer cannot receive the employee retention credit if it receives a PPP loan authorized under the CARES Act. An eligible employer receiving a PPP loan, regardless of the date of the loan, cannot apply for the employee retention credit. An employer that is treated as a single employer under the aggregation rules cannot receive the employee retention credit if any member of the employer's aggregate group receives a PPP loan.
For more information on aggregation rules, see Determining which entities are considered a single employer under aggregation rules. An employer receiving a PPP loan cannot receive an employee retention credit, regardless of if and when the loan is forgiven. For more information on eligible employers, see Determining Which Employers Are Eligible to Apply for the Employee Retention Credit. An acquiring employer that acquires the assets of a target employer that has received a PPP loan will not be considered to have received a PPP loan by virtue of the acquisition of assets, provided that the acquiring employer does not assume the target employer's obligations under the PPP loan.
In this case, the acquiring employer will be eligible for the employee retention credit after the closing date of the transaction if the employer meets the requirements to apply for the credit. In addition, any employee retention credit claimed by the acquiring employer for qualified wages paid before the closing date will not be subject to recovery under section 2301 (l) () (of the CARES Act). If, as part of the acquisition of the assets and liabilities of the target employer, the acquiring employer assumes the obligations of the target employer under the PPP loan, then, after the closing date of the transaction, the acquiring employer will generally not be considered to have received a PPP loan, provided that The employer acquirer had not received a PPP loan before, during, or after the closing date; however, salaries that may be treated as qualified wages after the closing date will be limited. Specifically, salaries paid by the acquiring employer after the closing date to any person who was employed by the target employer on the closing date will not be treated as qualified wages.
Subject to this limitation, the acquiring employer may apply for the employee retention credit for qualified wages paid on and after the closing date, provided that the employer meets the requirements to apply for the employee retention credit. Yes, but not for the same salary payments. Any qualifying salary for which an eligible employer applies for the employee retention credit cannot be considered for the purpose of determining a section 45S credit. Therefore, an employer cannot apply for a credit under section 45S with respect to the qualified wages for which it is requesting the employee retention credit, but may apply for a credit under section 45S with respect to any additional salary paid, provided that the requirements of section 45S are met with respect to additional salaries.
An eligible employer cannot apply for the employee retention credit and the WOTC for the same employee for the same period of time. That's why it's important to analyze when your PPP loans were granted, when they were issued and when the funds were used, so you can find blocks of time around that and apply for the ERTC. Basically, the shorter the deadline you can use to waive your PPP, the larger the window you'll create for your company to apply for the ERTC. Companies cannot claim a payroll expense as an ERTC salary and as a forgivable payroll cost in the PPP waiver request.
As these examples illustrate, when there are other eligible costs stated in the PPP loan forgiveness application, an employer can apply the reported payroll costs to the ERTC, as well as to the forgiveness of PPP loans. To maximize the benefits of both the PPP and the ERTC, be sure to use all covered non-payroll costs as allowed when calculating PPP forgiveness. If your company received second-contract PPP funding and qualifies for the ERTC, be careful not to choose more payroll costs than necessary when completing your PPP loan forgiveness application. There are also differences between programs in terms of how payroll costs are defined between PPP and ERTC.
In fact, applying for the ERTC reduces deductible expenses for federal income tax purposes because the deduction for qualified wages, including health plan expenses, is reduced by the amount of the credit. As companies seek forgiveness from their lender, there are strategies they should consider to maximize both their PPP forgiveness and their ability to apply for the ERTC. If your company is eligible, Asure can help you review qualified salaries, calculate credits and file amended payroll tax returns that allow you to claim your ERTC credits with the IRS. If your company reports more payroll costs than necessary (more than 60% of loan income) on its PPP forgiveness application, you could lose the opportunity to receive the ERTC.
At the same time, many employers ignored the employee retention tax credit (ERTC) because they couldn't apply for the ERTC if they applied for a PPP loan. . .