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Opinion: Don’t rush and leave ERC money on the table

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As autumn sets in, businesses that received Paycheck Protection Program loans earlier this year have reached the end of the loan’s maximum 24-week covered period. The opportunity to submit the PPP forgiveness application may seem to be the next logical step at this time – but wait.

You may be leaving money on the table. A lot of money.

Businesses are anxious to complete this final step with their PPP loan, receive the confirmed cancellation of the debt and remove this liability from their balance sheets, understandably so. However, many businesses receiving PPP loans also qualify for the IRS employee retention credit. The caveat is each of these programs requires the use of payroll wages, but the same wages cannot be used for both. While achieving full PPP forgiveness should be the primary goal, businesses also should understand the significant impact that filing for PPP forgiveness will have on any available ERC.

Once the application is filed without regard to possible ERC, achieving the maximum ERC refund is nearly impossible. Likewise, claiming ERC prior to determining the wages needed for PPP forgiveness could result in less than 100% PPP forgiveness. In order to utilize wages, in both areas to the fullest extent, it is recommended to determine them simultaneously.

The U.S. Small Business Administration has deferred repayment of the PPP loans for 10 months from the last day in the loans covered period. Since borrowers can elect a minimum of eight weeks up to 24 weeks in 2021, the interest-free deferment period is nearly 16 months from the date the loan originated. For the average PPP loan, this places the filing deadline for forgiveness somewhere around June 2022, so just stop and breathe for a minute. There is not near the rush to file for forgiveness as one may have thought, and there is ample time to evaluate ERC eligibility first. As stated earlier, the dollar amount can be substantial.

ERC is taken against employer-paid payroll taxes when filing the IRS Form 941, for quarterly federal returns. Overpayment due to ERC results in a refund check being issued directly to the business. Form 941 returns that already have been filed for the first, second and even third quarter of this year can be amended in order to take the credit.

In 2021, the credit is a maximum of $7,000 per employee, per quarter. For example, a company with 15 employees could maximize a total credit/refund check of $105,000 each quarter. Do I have your attention yet?

In a broad overview, 2021 ERC eligibility is determined by local ordinances which limited normal business operations and/or reductions in gross receipts during the quarter in 2021 versus the same quarter in 2019. Even further, normal business operations also may be deemed as limited due to certain supply chain constraints that is continuing to plague many business operations even as local ordinance restrictions are being lifted.

ERC in 2021 can be claimed against 70% of each employee’s first $10,000 in wages per quarter. The calculations can become complex and are further complicated when having to exclude the overlapping wages being needed for PPP forgiveness. Other factors that can come into account include owner wages and owner related-employee wages, employer-paid health insurance and utilizing nonpayroll expenses within the PPP forgiveness application. However, the potential return on the time invested can be worth it.

Filing for ERC in 2020 is also still possible. Although the rules changed in 2021, ERC can still be claimed by filing an amended Form 941 for the eligible quarters in 2020, even with a 2020 PPP loan and even if that PPP loan already has been forgiven. The same holds true in 2021. Even if a 2021 PPP loan has been forgiven, 2021 ERC can still be claimed by amending Form 941 for eligible quarters. In either case, the ERC may not be as sizeable as it could have been, but a smaller credit/refund is still possible. ERC also can be claimed by businesses that never received a PPP loan in either 2020 or 2021.

To determine if a business is eligible for ERC does not take long. Calculating the maximum use of ERC versus PPP wages and avoiding the pitfalls and consequences of double dipping into the wages requires more time but can be accomplished by those knowledgeable and experienced in this area. Speak with your financial adviser or payroll provider to learn more. Whatever you do, wait to file that PPP forgiveness application until an ERC determination is made. You still have plenty of time.

Kelley Self is a certified fraud examiner and consulting specialist at Elliott, Robinson & Co. LLP. She can be reached at


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