Mar 15, 2021, 2:44 PM
(From CliftonLarsonAllen) On March 1, 2021, the IRS issued highly anticipated guidance regarding the employee retention credit (ERC) and includes rules explaining how businesses with forgivable Paycheck Protection Program (PPP) loans can now qualify for the ERC retroactively for 2020. Under the CARES Act, employers that received funding from the PPP were not allowed to claim an ERC. However, the Consolidated Appropriations Act (CAA) repealed this restriction retroactively and permits employers that received a PPP loan in 2020 to apply for ERCs. The Notice reflects this updated eligibility provision and clarifies that the credit may not be claimed for wages that were paid with the proceeds of a PPP loan that has been forgiven.
"If you only reported wages to get forgiveness, you are stuck with not allowing the wages (up to the loan amount) for ERC. If you reported other qualifying costs plus the wages, then more wages will be allowed for ERC," explained Paul Neiffer, principal at CliftonLarsonAllen. Neiffer also outlined three examples that demonstrate how this will likely work in most situations.
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