We wanted to update you about the New Payroll Protection Program as well as some updates to the employee retention credits passed as part of the Cares Act and updated with the Consolidation Appropriations Act. If you have questions about any of this, please feel free to reach out to me at any point. More than anything else, we wanted to make sure you were aware of the important updates to these programs.
Employer Retention Credit – 2020
There is an Employer Retention Credit (ERC) available to employers that experience a 50% or greater decline in any 2020 gross quarterly revenue as compared to the same quarter of 2019 (calendar basis, not fiscal). Previously this was not available to Organization’s that received PPP loans, as employers were required to apply for either the PPP loan, or retention credits, and in most cases the PPP loan was the better option. The Consolidation Appropriations Act of 2021 changes this. If you received the PPP loan, you may also now be eligible for the employer retention credit. The employer retention credit is available to employers that experience a 50% or greater decline in any 2020 gross quarterly revenue compared to the same quarter of 2019. If the Organization was fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings due to COVID-19, you do not need to have the 50% or greater decline in revenue. HOWEVER, the main exception to this is if an employer’s workplace is closed by governmental order, but the employer is able to continue comparable operations by requiring its employees to telework, the employer’s operations are not considered to have been fully or partially suspended as a consequence of the governmental order, and the 50% reduction in revenue would still apply. If you qualify for the ERC, the maximum amount of the payroll tax credit is equal to 50% of an employees’ wages for the quarter, up to a max of $5,000 per employee, per year. If you received PPP loan proceeds, you can still be eligible for the ERC; however, you cannot use the same pool of payroll expenses. So you if requested PPP loan forgiveness over a 24 week period, it is likely your payroll costs exceeded your PPP loan forgiveness amount and you could still be eligible for the ERC.
PPP Round Two
PPP(2) can be used to help fund payroll costs, including benefits. Funds can also be used to pay for mortgage, interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020 and certain supplier costs and expenses for operations. Eligibility for PPP(2) is based on three factors 1) you previously received a first draw PPP loan and will or have used the full amount for authorized uses 2) have no more than 300 employees and 3) can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 vs. 2020. You can apply for PPP(2) between 1/13/21 and 3/31/21. The maximum amount of the loan is equal to 2.5x the average monthly for calendar year 2019 or 2020 payroll costs up to $2,000,000. You should use whatever calendar year payroll is greater in computing the loan. This is increased for the food service industry (for employers with NAIC codes beginning with 72). In most cases, you will be asked to provide support to demonstrate your reduction in gross income during both the application process and the loan forgiveness process.
Employer Retention Credit – 2021
The employer retention credit is also effective from 1/1/21-6/30/21 with a few modifications. The 2021 employer retention credit is available to employers that experience a 20% or greater decline in any 2021 gross quarterly revenue as compared to the same quarter of 2019. The amount of the credit is increased from 50% to 70% of qualified wages and the amount of the employee’s wages qualifying for credit is increased from $10,000 for the year to $10,000 for each quarter. This would equate to a maximum of $7,000 per quarter per employee.
If you need further information of any of these programs or want to discuss if you qualify, please reach out!