The COVID-19 pandemic has had a significant impact on businesses across the country, leading many to look for financial assistance to stay afloat. Two key programs that have been put in place to help businesses during this difficult time are the employee retention credit (ERC) and the Paycheck Protection Program (PPP). These programs offer different forms of financial relief to businesses, and understanding the differences between them is important for businesses to obtain the maximum benefit.
The employee retention credit is a refundable tax credit for businesses that retain their employees during the pandemic. This credit is equal to 50% of qualified wages paid to employees, up to a maximum of $10,000 per employee for all quarters combined in 2020. The maximum credit per employee for 2021 is $7,000 per quarter. To be eligible for the credit in 2021, the employer must have had a decline in gross receipts in a calendar quarter when compared to the same quarter in 2019, or be a business that was partially or fully suspended due to a government order related to COVID-19.
On the other hand, the Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. The loan amount is based on the business’s average monthly payroll costs and can cover expenses such as payroll, rent, utilities, and mortgage interest. If the funds are used for these expenses, the loan can be forgiven, essentially turning it into a grant.
One of the key differences between these two programs is the way the funds are distributed. The ERC is a tax credit that businesses can claim on their payroll tax returns, while the PPP is a loan that is obtained through an approved lender. Additionally, businesses can take advantage of both programs, but the funds cannot be used for the same expenses. For example, the ERC cannot be used for wages that are also covered by a PPP loan.
Businesses must carefully consider which program is the best fit for their needs. The ERC may be more beneficial for businesses with a significant decline in gross receipts and is especially valuable for businesses that do not qualify for or have already exhausted their PPP funds. On the other hand, the PPP may be more advantageous for businesses looking for a larger amount of funding to cover a broader range of expenses.
It’s important for businesses to carefully review the eligibility criteria and requirements for both programs to determine which one will provide the most financial relief. Seeking professional advice from a tax professional or financial advisor may also be beneficial to ensure that businesses are maximizing the benefits of these programs.
In conclusion, the employee retention credit and the Paycheck Protection Program are two valuable resources available to businesses as they navigate the challenges posed by the COVID-19 pandemic. By understanding the differences between these programs and carefully evaluating their eligibility and requirements, businesses can make informed decisions to obtain the financial relief they need to survive and thrive during this challenging time.