PPP and Tax Credits Under New COVID Legislation
Federal COVID relief legislation signed on Dec. 27 offers a new round of Paycheck Protection Program (PPP) loans for qualifying businesses and an expansion of the Employee Retention Tax Credit (ERTC) eligibility.
For the new round of PPP loans, a business must demonstrate at least a 25% reduction in gross receipts in any one quarter of 2020 compared to 2019 in order to qualify. If you meet this 25% reduction in 2020, you may qualify for a second round of PPP loans at 2.5 times your business's average monthly payroll. This can be calculated using your 2019 payroll (same as round 1) or a look back at your previous 12 months.
EMPLOYEE RETENTION TAX CREDIT
The ERTC eligibility was expanded with this new legislation. Previously, if you received a PPP loan you were ineligible for the ERTC; now, you can claim both. For 2020, you needed to have a 50% or greater reduction in gross receipts for any quarter compared to 2019, OR have been partially or fully shut down due to a government order. Beginning Jan. 1, 2021, you may be eligible for the credit if you experience a 20% or greater reduction in gross receipts.
The ERTC eligibility is fairly complicated and must be looked at in conjunction with any PPP forgiveness to ensure that you’re not ‘double dipping’ on eligible wages. It's recommended that you consult with your accountant to stay in compliance.
Thank you to K•COE ISOM for interpreting the latest legislation.