Answering Question About PPP
Are you a business owner that applied for round one of the Paycheck Protection Program (PPP), but didn't use the tax credit from the Employee Retention Tax Credit (ERTC) due to the fact that you had to choose one or the other?
You now have the capability to go back and determine if you qualify for the ERTC, file amended payroll returns, and apply that credit to your 2020 income tax return.
If you had a 50% reduction in your 2020 income compared to the same period in 2019, or you were mandated to shut down either partially or completely, you can review your numbers and determine the credit amount that you would be due. Up to $10,000 of wages for any employee paid after March 12th through December 31st would qualify at a 50% credit of compensation. This would be up to $5,000 per employee.
The Taxpayer Certainty and Disaster Tax Relief Act of 2020 has taken that credit now through the second quarter of 2021, but there are some differences.
Rather than $10,000 total compensation for the year, you can have total compensation of $10,000 per quarter, and you only need to have a 20% reduction of income over what you had in 2019 to qualify. And the credit percentage is now 70% of compensation (up to $14,000 per employee).
You can’t use the same payroll dollars to get the ERTC and PPP forgiveness, so it’s important to review the amounts from each period to make sure you properly apply the legislation accurately.
There's also round two of the PPP funding available which requires a 25% reduction in your 2020 income compared to the same period in 2019. You’ll apply with the same banking institution used for round 1. Most businesses will calculate 2.5 months of payroll to determine the amount of the funding, or if you're in the hospitality or restaurant industry, those with NAICS code starting with 72, you can calculate 3.5 months.
It can be quite confusing to determine what amounts can be used when combining the Employee Retention Tax Credit and the Paycheck Protection Program. If you have questions or need assistance with the PPP Forgiveness or Employee Retention Tax Credit calculations, reach out to us at 310-534-5577 or contact@abandp.com.
