CAA: PPP Loan Recipients May Now Claim Employee Retention Credit for Wages Paid During 2020

CAA:  PPP Loan Recipients May Now Claim Employee Retention Credit for Wages Paid During 2020

 by Jill Clark, CPA

 The latest round of COVID-19 relief legislation has retroactively removed the restriction originally placed on employers that prohibited employers from claiming the Employee Retention Credit, as enacted under the Coronavirus Aid, Relief, and Economic Security Act passed March 27, 2020 (CARES Act), if they had taken out a Paycheck Protection Program (PPP) Loan.

So, what does this mean?

This means that employers that took out PPP loans may now be eligible for a refundable payroll tax credit for wages that they paid during 2020.  Employers who took out PPP loans are still subject to the rules and restrictions regarding eligibility for the Employee Retention Credit that were originally put into place by the CARES Act (see the link below to an article summarizing those rules).  In addition, it is important to note that wages that an employer considers as eligible wages for Employer Retention Credit purposes, will not be able to be utilized as eligible wages when calculating PPP loan forgiveness.  In other words, the wages can only be considered for either PPP loan forgiveness or for claiming an Employee Retention Credit, but not both.

In light of the recent changes made by the Consolidated Appropriations Act (CAA), employers who originally were barred from claiming this credit due to the fact that they took out a PPP loan, should review the applicable requirements to determine if they are eligible for these additional refundable payroll tax credits for wages they paid during 2020.  The Employee Retention Credit can equal up to $5,000 per employee for wages paid during 2020 which could provide a significant benefit to employers that are now eligible to claim these credits.

In order to simplify the process for claiming these credits for wages paid retroactively during 2020, the CAA includes a provision that allows employers that are now eligible to claim these credits to treat eligible wages paid during any eligible quarter of 2020 as having been paid during the 4th quarter of 2020.  This will allow employers who are now eligible for these credits to claim them on their 4th quarter payroll tax filing, regardless of the quarter in which the wages were actually paid during 2020.  With the deadline for those filings on February 1, 2021, employers should review these requirements in the coming weeks in order to apply for the credits.  However, do note that if a determination is made beyond the filing deadline, employers will still be able to claim the credits for which they are eligible, it will simply require their 4th quarter payroll tax filing to be amended.

Click Here – This will link you to BRC’s blog post in April 2020, “CARES Act: Business Tax Provisions”,  which includes a summary of the eligibility requirements and rules for employers to claim these credits.

Click Here – This will link you to BRC’s latest blog post, “CAA:  Payroll Tax Relief Provisions”,  which includes a summary of the additional changes made under the CAA to the Employee Retention Credit (as it relates to wages paid during 2021), as well as, the other payroll related relief provisions contained in the most recent legislation.