IRS issues new guidance on P3 eligibility and employee retention credit
The IRS issued long-awaited guidance regarding Employee Retention Credit (ERC) on March 1. We previously explained how the Consolidated Appropriations Act, passed in December, allowed employers receiving a Paycheck Protection Program (PPP) loan to claim the ERC, although the same wages cannot be counted. for both PPP loan cancellation and ERC. It was not clear how the PPP and the ERC would interact, and there were many questions about how loan cancellation requests submitted before the change might impact salaries eligible for the credit. The recently published guidelines provide some answers.
PPP + ERC: Eligible salaries and eligibility
The guidelines state that qualified salaries declared on a PPP loan cancellation application will be considered a “deemed election” outside of the ERC. More specifically, the amount for which the eligible employer is deemed to have made the election is the amount of the eligible salary included in the salary costs declared on the waiver request. The choice can be up to (but not exceeding) the minimum amount of salary costs, as well as any other eligible expenses declared on the forgiveness request, sufficient to support the amount of the PPP loan being forgiven.
We are aware of situations where loan recipients reported expenses in excess of the forgiveness amount, and it was not clear whether all salary expenses claimed on a forgiveness request would not qualify for the ERC. The new guidelines make it clear that only the amount of labor costs necessary to support the PPP exemption amount will be taken into account for such a choice.nm
The guidelines also make it clear that only expenses initially included in the rebate request will be considered. Therefore, if a PPP loan recipient only included salary costs on their forgiveness request, they cannot go back and recast the request to include other eligible expenses that were omitted, in the aim to save the salary of the ERC.
For example, if a taxpayer had a $ 1 million PPP loan and submitted a rebate request that included $ 1.1 million in salary costs and $ 400,000 in other eligible costs, the taxpayer could claim from the ERC up to ‘to $ 500,000 in eligible salaries. Indeed, the minimum amount of salary costs required for the forgiveness is 60% of the loan, or $ 600,000. If the taxpayer excluded other eligible costs, only $ 100,000 would be eligible for the ERC.
Example of PPP + ERC eligibility
The guidelines also allow the ERC to be claimed against salaries that were not considered eligible salaries for purposes of PPP loan cancellation. This means that taxpayers have the potential to qualify for the ERC on the salary amount greater than $ 100,000 that could not be factored into the loan forgiveness request.
If you think you might be eligible for ERC in 2020, we can help you navigate these rules and maximize credit and loan cancellation. Call us at 248.208.8860 or contact us today to find out more.