COVID‐19 Federal Relief Options Require Quick Decisions

Paycheck Protection Loan or Employee Retention Credit
By Jennifer Allen, CPA and James Bailey, CPA
Businesses and nonprofit organizations that are deemed “non‐essential” during the COVID‐19 crisis and are, thus, subject to shutdown orders, may find that they have difficulty qualifying for forgiveness of the loans available under the federal government’s new Paycheck Protection Program (PPP).
Since the PPP and the new Employee Retention Tax Credit cannot both be utilized by the same company, some employers may want to evaluate both options and decide which would be best for their unique circumstances.
In order to qualify for 100% loan forgiveness under the PPP, borrowers who have already laid off workers must rehire employees by June 30 to maintain the same headcount and salary levels. But in the case of non‐essential businesses – such as restaurants, medical and dental practices, and retail stores – that means rehiring workers during a period when they are under orders to remain closed.
Even though the PPP loans cover all payroll costs, including salary, wages and commissions, taxes, costs related to group health care benefits, and paid sick leave, the loan amounts are limited to two‐and‐a‐half months of payroll costs.
However, if the COVID‐19 outbreak continues into the summer and shut down orders are extended for several months, employers could face a conundrum. If they obtain a PPP loan and then lay off their workers when the PPP funds run out, they must repay the money because the CARES Act requires them to keep workers on the payroll through June 30, 2020, to qualify for loan forgiveness. But if they keep the workers on their payroll, they will have to pay them at a time when their revenues have dropped or disappeared, because the PPP funds may be exhausted.
Consider These 2 Scenarios:
Pressure to Act Quickly
You may be feeling pressured to decide immediately about applying for a PPP loan because it is widely believed that the $349 billion that has been authorized for the loans will dry up quickly.
But take a moment to catch your breath and weigh whether a loan that you may end up having to pay back is better than the tax credit that can produce cash for you almost as quickly.
If you need help to figure out this choice, please contact our advisors.