Get More Money In Your Pocket by Leveraging PPP & ERTC
Are You Maximizing the Benefits from both Programs?
If your business has used Paycheck Protection Program (PPP) loans and the Employee Retention Tax Credit (ERTC), you are in a unique position to maximize the benefits of these programs for 2020 and 2021. The key to getting the most out of these two COVID-19 relief programs is careful segregation of expenses. Determining your eligibility and award amount can be overwhelming, but it’s possible with the right support.
During a recent webinar, business owners and managers tuned in to learn about the differences between COVID-19 relief programs and how to maximize benefits from each. Keep reading or watch the on-demand webinar to learn about the ins and outs of PPP and ERTC.
Paycheck Protection Program
The Paycheck Protection Program (PPP) was originally a program designed to provide direct incentive to small businesses to keep their workers on payroll. Currently, most of the funds have been handed out, except for funds available through participating Community Financial Institutions. These institutions typically target lower income communities.
There is not much movement from the SBA regarding approval of forgiveness for loans above the $2 million audit threshold. Some banks are approving the forgiveness for these funds, but the SBA has also notified recipients of additional required documentation. This includes:
- An extensive questionnaire detailing dividends that were given out (such as raises or owner’s pay).
- Source documentation related to anything that forgiveness was requested upon.
There is also an SBA PPP data website where anyone can find which companies applied, what amount they received for both grants, and where they are in the forgiveness process. From the perspective of an employer, it is important to know what data is accessible by the public. There have been news stories regarding business owners taking this money out and using it to buy a new car or other items for themselves and then being prosecuted. Additionally, there is the potential for your employees to know this information. If they can access the fact that you received this money while they faced a situation with significant layoffs or pay cuts, this can create a difficult situation for employee morale.
Restaurant Revitalization Fund
The Restaurant Revitalization Fund (RRF) was originally established by the American Rescue Plan Act to provide funding to restaurants and other eligible businesses to help them keep their doors open. It will provide approximately up to $10 million per business and no more than $5 million per individual location for revenue lost during the 2020 fiscal year. This program is similar to the PPP where you receive funding that is forgivable if you are using it on eligible wages and expenses. Currently under this program, if you have received money you have until the first quarter of 2023 to use the funds.
Originally, there was $28.6 billion available in the RRF. Significant lobbying is underway to increase the amount of funds in the program. Recently there was a court case in Texas where the funding was found to be unconstitutional and illegal because it was prioritizing female, minority, and veteran owned businesses. This was a local court case but may affect the distribution of this funding moving forward.
Shuttered Venue Operators Grant
This grant is intended to target venue operators, promoters, theatrical producers, live performing arts companies, museums, movie theaters, and talent representatives. There were $16 billion in grants allotted to this program, and they are still struggling to award this money. If you fall into one of these potential eligible arts entities and you have a revenue reduction or a gross receipts reduction of equal to or greater than 45% you could be looking to this program as an alternative to the PPP. There is some benefit given to companies under 50 full time employees or less.
Employee Retention Tax Credit
This program was put into effect with the CARES Act in 2020 and was amended in late 2020. There are two sets of laws related to 2020 and another set of laws for 2021. The period of eligible wages for 2020 runs from March 12 until the end of the year if you meet the other eligibility tests. However, for 2021 it encompasses the full year. The eligibility rules are different for each year.
For 2020, you can get 50% of qualified wages for that year on each individual person, subject to a tax credit cap of $5,000. For 2021, you can receive 70% of qualified wages for each individual person. The cap on the tax credit for this year is $7,000, but you must meet the eligibility every quarter to receive this credit. You must meet one of the two eligibility criteria to qualify, either through the revenue test or the government shutdown test.
The business eligibility tests are different for the periods of 2020 and 2021. In 2020, you must meet one of these tests:
- Was your business fully or partially shut down by a government order due to the COVID-19 outbreak? Many businesses that weren’t considered essential in Missouri, Kansas, and Arkansas were closed from March-May by a government order.
- Did you have a significant decline in gross receipts during a particular quarter compared to 2019? If you had a gross receipt decrease of 50% or more, wages of all your employees qualify for the entire quarter.
The business eligibility tests for 2021 state:
- Did you have a gross receipt reduction of 20% or more in sales compared to the base quarter in a previous year? For most businesses, the base year will be 2019.
There are also differing eligibility requirements for businesses with either 100 or 300 employees or less.
Originally, the requirements stated PPP fund recipients were not eligible for the ERTC. These requirements changed, stating that you can receive funds from both but may not ‘double dip’ or use the funds from both programs on the same things. To file for the ERTC, you file an amended Form 941-X. Filing for this program doesn’t require detailed documents. At some point in the future, the government may start to look at the documents a bit closer and it is important to do a full study on the eligibility requirements to see if your business is eligible.
Special rules related to ERTC
There are various rules that provide further guidance on what wages are eligible for the ERTC. First, there are aggregation rules under the IRS codes. If you own over 50% of multiple types of businesses, you must go through aggregation rules, which will dictate how you analyze your eligibility for the ERTC.
The ERTC rules generically state self-employed business owners are not allowed to take credit on themselves. There is somewhat of a grey area because there is not a strict definition of self-employed individual in the ERTC rules. Generally, most businesses will consider someone self-employed if they own greater than 50% of the company, as they have control over it. The grey area is ownership under 50% of the company. Family members of anyone related to an owner (as defined by greater than 50% of the company specifically in ERTC documentation) would be disallowed as being able to take this credit to cover their family member’s wages. The PPP potentially allows these wages to be taken into account, so there are some planning opportunities available in this situation.
If you had a partial shutdown rather than a full shutdown, you are eligible for the ERTC. If there was a nominal impact on cash receipts or revenue from a partial shutdown, you would still qualify for the ERTC. Businesses that may fall under this category may be doctor’s offices, dental offices, restaurants, hotels, and retail businesses.
Unlike the PPP, funds from the ERTC are theoretically netted against payroll taxes and not deductible, so you will pay taxes on the money you get from this program. There are many different programs that business owners can utilize to recover from COVID-19 and its impact on your company. To ensure you are on the right path, contact Adams Brown today for consultation.