Understanding the Differences: PPP Loan Forgiveness and the ERTC

June 9, 2023
Dayes Law Firm

Although both get mentioned a lot when it comes to the COVID-19 pandemic and taxes, PPP loan forgiveness and the ERC tax credit are not the same. While they both benefit businesses impacted by the pandemic, they are different programs with complexities specific to each that you need to be aware of if you’re a business owner interested in utilizing both options. 

What is PPP Loan Forgiveness?

The Paycheck Protection Program, also known as PPP, has actually ended, but forgiveness for the loans granted as a result of the program is still available. 

The program was established by the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, and implemented by the Small Business Administration with support from the Department of the Treasury, according to the United States Department of the Treasury

“This program provides small businesses with funds to pay up to eight weeks of payroll costs including benefits,” and, “funds can also be used to pay interest on mortgages, rent, and utilities,” the Department of Treasury reports on its website

The program was meant to give small businesses the ability to maintain payroll, hire back employees who may have been laid off due to financial constraints and uncertainty during the height of the pandemic, and cover relevant overhead costs. According to a report penned by Jack Mueller and Mark M. Spiegel for the Federal Reserve Bank of San Francisco, the SBA guaranteed nearly $800 billion in PPP loans.

As long as the funds were utilized for appropriate uses, such as payroll and rent, PPP loans are completely forgivable. According to the SBA, “Borrowers can apply for forgiveness any time up to the maturity date of the loan.” The agency has more information on how and when business owners should apply for loan forgiveness on its website. 

What is the ERC Tax Credit?

The Employee Retention Credit, sometimes called the Employee Retention Tax Credit or ERC/ERTC, is a completely separate program. The ERC is a refundable credit that businesses can claim on qualified wages paid to employees. 

If your business experienced significant setbacks during the COVID-19 pandemic while continuing to employ W2 staff, then you may qualify for the credit. It is fully refundable, and you could be eligible to receive an ERC check if your business suffered losses and faced restrictions due to the pandemic

The ERC applies to 2020 and 2021 tax quarters, so you might believe it’s too late to claim the credit. That’s actually incorrect – you can still retroactively claim the credit, although time is running out to do so. 

For all quarters in 2020, the deadline to apply for the ERC is April 15, 2024. For all quarters in 2021, the deadline is April 15, 2025.

Who Can Apply for the ERC?

If you received a PPP loan and are now looking to apply for the ERC as well, the good news is it’s possible to do so. Initially, a business that received a PPP loan was not eligible for the ERC, but new legislation – the Consolidated Appropriations Act of 2021 – made it so businesses can apply for the ERC even if they obtained PPP funding and loan forgiveness.

As long as the payroll identified for the ERC was not paid out of PPP funds, your business can take advantage of both opportunities. Some of the details can get complicated, however, which is why some business owners turn to tax professionals like the ones at Dayes Law Firm for assistance. 

Whether or not your business received a PPP loan, you might be eligible to claim the ERC. The team at Dayes Law Firm can help you file the right amended quarterly payroll tax returns on your behalf so you can get the process of claiming the ERC started.

We want to make sure you see every dollar your business is entitled to. Please contact us to see how we can help you and your business with sorting out your PPP loan forgiveness and ERC needs today! Feel free to give us a call on 1-800-503-2000 or fill out the form on this page to see how the ERC team at Dayes Law Firm can assist you with all your tax credit needs.