Can You Apply For ERC If You Used PPP?

If you are a small business owner who received a Paycheck Protection Program loan, you may be wondering if you qualify for the Employee Retention Tax Credit. The good news is that many small business owners are able to take advantage of both ERC and PPP.

In this post, we’re going to look at ERC and PPP interaction to help you determine if you qualify for a tax credit refund after receiving a PPP loan.

We’ll also provide guidance as to how to retroactively claim your ERC if you qualify. Keep reading to find out more about PPP and ERC.

What Is The Paycheck Protection Program?

The Paycheck Protection Program (PPP) provided Small Business Administration-backed loans to eligible small business owners affected by the COVID-19 pandemic. Businesses that maintained employee and compensation levels and spent funds on eligible expenses (including payroll) could qualify for full or partial loan forgiveness. This program ended on May 31, 2021.

What Is The Employee Retention Tax Credit?

The Employee Retention Tax Credit is a refundable tax credit available to eligible employers that were affected by COVID-19. This credit can be claimed on qualified wages, which also includes certain healthcare expenses. The credit was used to reduce the amount of payroll taxes paid in 2020 and 2021. However, businesses that failed to claim the ERTC can still file an amended quarterly tax return to retroactively receive the credit in the form of a refund from the Internal Revenue Service.

Can You Apply For ERC If You Received PPP?

Initially, small business owners who received PPP loans were not eligible for the employee retention credit. However, the Consolidated Appropriations Act of 2021 changed the rules, allowing PPP recipients to also receive the ERC if they were eligible.

Wages used to qualify for PPP loan forgiveness can’t be used to calculate your ERC. However, any wages that were not used to qualify for PPP loan forgiveness can be used for the employee retention credit. These rules prohibit small business owners from “double-dipping.”

In short, any portion of wages that were used to qualify for PPP loan forgiveness can’t be used to qualify for the ERC and vice-versa.

Let’s look at a quick example. A business has $25,000 in payroll expenses. PPP funds were used to pay $15,000 for these expenses. The business obtained PPP loan forgiveness. This means that the business can only use the remaining $10,000 in payroll expenses to calculate the ERC.

If you have taken a PPP loan and plan to receive the ERC, it’s important to make sure you retain all payroll records and other important documentation to show how loan funds were used, to prove expenses used to qualify for loan forgiveness, and to verify that you qualify for both programs.

How To Retroactively File For The Employee Retention Credit

If you qualified for the employee retention credit but failed to claim the credit on your quarterly returns, you have the option to retroactively file with the IRS. If eligible, you will receive a refund by check from the IRS.

To retroactively claim the employee retention credit, you will use IRS Form 941-X to file an amended quarterly return. Note that one Form 941-X must be used for each quarter for which you are claiming the ERTC/ERC. Once completed and submitted to the IRS by mail, you will receive a refund check by mail in about four to 12 months.

If you don’t want to tackle this task yourself, you can reach out to your accountant or tax professional. Additionally, you can use an ERC refund service that will do the hard work for you in exchange for a fee.

Several ERC service providers also offer help with qualifying for the research and development tax credit. Learn how to claim the R&D credit as well to make the most of your tax return.

The Bottom Line On Applying For ERC If You Used PPP

Even if your business received a PPP loan, you may still qualify for the ERC. Make sure you fully understand the rules of “double-dipping” and have documentation available to accurately calculate your ERC. And don’t be afraid to reach out to an ERC funding professional if you find all of the rules and tax forms to be too overwhelming. Check out our list of the top ERC specialists that can help you claim your ERC tax credit.

While filing for the ERC retroactively can put money back into your pocket, the process can be quite lengthy. If you need extra funding in the meantime, there are other options available. Start with our top picks for the best small business loans. Or, if you want a more flexible option, check out the top small business lines of credit, with some lenders offering access to funds as quickly as the same business day.

Regardless of which option you choose, make sure to carefully evaluate your funding options and review all rates and terms before committing to a lender. Good luck!

FAQs About Applying For ERC If You Used PPP