PPP and Employee Retention Credit Update

The Consolidated Appropriations Act of 2021 (Act), signed into law on December 27, 2020, contains significant enhancements and improvements to the Employee Retention Credit (ERC). Here are a few items we are seeing our clients taking immediate advantage of:

• Revisit the Employee Retention Credit: Companies that received PPP Loans were originally ineligible for the employee retention credits, but the Appropriations Act revised that requirement, allowing companies to revisit their qualifications in 2020 and amend 941’s to claim the credits, even if they received a forgivable PPP Loan. Commencing January 1, 2021, companies will only have to experience a decline in gross receipts of 20% (instead of 50% as required in 2020) for the 2021 quarter when compared to the same quarter in 2019. We would recommend that any company that received a PPP loan review their 2020 operations to see if they qualify for a refund of the employee retention credits
• Tax Deductibility of expenses paid with PPP Loans: The Appropriations Act finally legislated that expense paid using forgiven PPP funds are fully tax deductible, as many organizations had been pushing for all along. The deductibility applies to both the 1st and 2nd round of loans if a 2nd loan is taken.
• PPP Loans – Round 2: A second round of PPP funding is available to companies regardless of whether they received a loan the first time around. A summary of the differences between the first and second round is as follows:

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