The Employee Retention Credit (ERC) Tax Rebate – Better than a PPP Loan

Small businesses across the United States have been hit hard by the COVID-19 pandemic. To help alleviate the economic impact, Congress created the Paycheck Protection Program (PPP) and the Employee Retention Credit (ERC). Both programs aim to provide financial assistance to businesses, but there are key differences between the two. In this article, we will explore why the ERC tax credit is be a better option for businesses than a PPP loan.

While the PPP loan program has been helpful for many businesses, it has its limitations. The loan was only forgivable if certain requirements are met, such as maintaining employee count and salary levels. Additionally, the program expired on May 31, 2021. In contrast, the ERC tax credit has been extended to cover employees paid through December 31, 2021 with eligibility for applying still being open.

Moreover, the ERC tax credit is easier to obtain than a PPP loan. The ERC is a tax credit that is payable to the business via check from the IRS and does not need to be repaid. On the other hand, businesses must apply for a PPP loan through an SBA-approved lender and go through a loan forgiveness process to avoid repayment. In the next sections, we will dive deeper into the advantages of the ERC tax credit and how it’s a better program than PPP loans.

What is the ERC Tax Credit?

The Employee Retention Credit (ERC) is a refundable payroll tax credit that was created under the CARES Act in 2020. It is designed to encourage employers to maintain their workforce during the COVID-19 pandemic. The ERC allows eligible employers to claim a credit for a percentage of qualified wages paid to employees. The credit can be claimed against the employer’s share of Social Security taxes.

The ERC is different from the Paycheck Protection Program (PPP) loan in that it is a tax credit rather than a loan. The ERC is not a loan and does not need to be repaid and it can be claimed if you already took out a PPP loan.

The ERC was initially only available for wages paid between March 13, 2020, and December 31, 2020. However, the Consolidated Appropriations Act, 2021, extended the ERC through June 30, 2021. The American Rescue Plan Act of 2021 further extended the ERC through December 31, 2021. Eligible employers can claim the credit for qualified wages paid between January 1, 2021, and December 31, 2021.

What is a PPP Loan?

The Paycheck Protection Program (PPP) is a loan program created by the CARES Act in 2020 to help small businesses keep their employees on payroll during the COVID-19 pandemic. The PPP loan is administered by the Small Business Administration (SBA) and is designed to provide financial assistance to businesses that have been negatively impacted by the pandemic.

The PPP loan has a repayment plan of five years and a fixed interest rate of 1%. The loan can be used to cover payroll costs, rent, utilities, and other eligible expenses. The loan can be forgiven if the borrower uses at least 60% of the funds for payroll expenses and the remaining 40% for other eligible expenses. To be eligible for forgiveness, the borrower must maintain or restore employee levels and salaries.

The PPP loan application deadline was extended several times, and the program ended on May 31, 2021. However, some borrowers may still be eligible for loan forgiveness if they meet specific forgiveness requirements. The SBA is still accepting forgiveness applications for PPP loans, and borrowers should contact their lenders for more information.

Differences Between the ERC Tax Credit and PPP Loan

While both the Employee Retention Credit (ERC) tax credit and Paycheck Protection Program (PPP) loan were designed to help businesses during the COVID-19 pandemic, there are significant differences between the two programs.

Repayment

One of the most significant differences between the ERC tax credit and PPP loan is repayment. The PPP loan has a repayment plan of five years and a fixed interest rate of 1%, while the ERC tax credit does not need to be repaid.

Eligibility

Eligibility for the ERC tax credit is based on a decline in gross receipts or a full or partial suspension of business operations due to government orders. In contrast, the PPP loan is available to businesses with 500 or fewer employees that were in operation on February 15, 2020.

Use of Funds

The PPP loan is intended to cover payroll and other eligible expenses, while the ERC tax credit is a credit against employment taxes and can be used for a wider range of expenses, including health care costs, retirement plan contributions or general operating costs.

Application Deadline and Program End

The ERC tax credit was originally set to expire at the end of 2020, but it has been extended through the end of 2021. However, the application for the ERC tax credit is covered through the period ending December 31, 2021 which can be filed up to April 15, 2024 for 2020 and April 15, 2025 for the 2021 period. In contrast, the PPP loan application deadline was originally set for March 31, 2021, but was extended through May 31, 2021 and is no long available. 

You can apply for the ERC Tax Credit – visit www.ERCTaxCheck.com to qualify.

It is important to note that businesses cannot claim both the ERC tax credit and PPP loan for the same wages. However, businesses that received a PPP loan may still be eligible for the ERC tax credit for wages that were not covered by the PPP loan.

Benefits of the ERC Tax Credit

The Employee Retention Credit (ERC) is a tax credit that is available to businesses that continued to pay employees during the COVID-19 pandemic or had significant declines in gross receipts. Here are some benefits of the ERC tax credit:

  • The ERC tax credit is a refundable tax credit, which means that businesses can receive a refund even if they owe no taxes.
  • The ERC tax credit is available to businesses of all sizes, including tax-exempt organizations (non-profits and foundations).
  • The ERC tax credit is available for wages paid between March 13, 2020, and December 31, 2021.
  • The ERC tax credit is worth up to $5,000 per Employee in 2020 and up to $21,000 per Employee in 2021 for a total credit up to $26,000 per Employee for both years. 
  • The ERC tax credit can be claimed through filing certain forms with the IRS. We recommend working with ERC Tax Credit Specialists to assist you with the process, maximize the tax rebate, and make sure you file all the documents properly.

Limitations of the PPP Loan

While the PPP loan program has been instrumental in helping businesses weather the economic storm caused by the pandemic, it does have its limitations. Here are a few:

  • PPP loans are limited in scope and purpose. They are intended to cover payroll expenses, rent, utilities, and mortgage interest. If you need funds for other expenses, you’ll have to look elsewhere.
  • The loan forgiveness process can be complicated and time-consuming. You’ll need to provide documentation to prove that you used the funds for the intended purposes and that you maintained your payroll levels. If you don’t follow the rules, you may not be eligible for full forgiveness.
  • PPP loans are subject to a cap. The maximum loan amount is based on your average monthly payroll costs, up to a limit of $10 million. If you have a large payroll or need more funds, you may need to look for other sources of financing.
  • The PPP loan program has ended. The application deadline for PPP loans was May 31, 2021 and is no longer available.

On the other hand, the Employee Retention Credit (ERC) has fewer limitations and can provide more benefits to eligible businesses. Additionally, the ERC program is still ongoing, providing businesses with opportunities to apply for the credit.

The ERC program coverage period has been extended through December 31, 2022, meaning that eligible employers can claim the credit for qualified wages paid through the end of the year. However, it’s important to note that the credit is not available for wages paid after December 31, 2021, unless the employer is eligible for an exception.

Why the ERC Tax Credit is a Better Option

While both the PPP and ERC programs were designed to help business affected by Covid, there are a wide range of benefits a business can received with the Employee Retention Credit (ERC) as compared to a Paycheck Protection Program (PPP) loan and there are several factors to consider. Here are some key points to keep in mind:

  • The ERC is a tax credit that can be applied to employment taxes, while the PPP is a loan that can be forgiven if certain conditions are met.
  • The ERC is available to businesses that experienced a significant decline in gross receipts, experienced an interruption in their business or operations, or were shut down due to the COVID-19 pandemic, while the PPP is available to businesses that were impacted by the pandemic.
  • The ERC can be claimed for qualified wages paid between March 13, 2020, and December 31, 2021, while the PPP loan application deadline was May 31, 2021.
  • The ERC Tax Credit can be claimed for up to $26,000 per employee for 2020 and 2021, while the PPP loan amount was based on 2.5 times the average monthly payroll.

If you need immediate cash flow to cover payroll and other operating expenses, the ERC tax credit is the only way to go as PPP loans are no longer available. Another great benefit of the ERC program is that is a tax rebate and does not have to be repaid. 

What are the actual deadlines for filing an ERC claim?

There are only two deadlines: For all quarters in 2020, the deadline to apply for the ERC is April 15, 2024, and for all quarters in 2021, the deadline is April 15, 2025. If you are considering applying for the ERC, it is important to do so as soon as possible given the complexity of compiling all the information and filing. We recommend not waiting until the last minute. The application process can be complex, so it may be helpful to work with an ERC Eligibility Specialist to ensure that you are eligible and to guide you through the application process.

Conclusion

Another advantage of the ERC is that it can be used in conjunction with other relief programs, including PPP loans. This means that businesses can take advantage of both programs to maximize their financial support.

It is important to note that the ERC coverage period is for March 13, 2020 through December 31, 2021 and claims need to be filed before April 15, 2024. This means that business have more time to apply for the credit and take advantage of its benefits. However, it is also important to note that there are complexities in filing and providing the right documentation, so businesses should act quickly to take advantage of the program before it ends.

In conclusion, the ERC tax credit is a valuable resource for businesses looking to offset payroll taxes and maximize their financial support. With its flexible eligibility requirements and ability to be used in conjunction with other relief programs, the ERC is a great option for many businesses, even if they previously received a PPP loan. Businesses should act apply now to take advantage of the program before it ends.