The COVID-19 pandemic has had a huge impact on businesses across the globe, forcing many to shut their doors and causing widespread economic uncertainty. To help mitigate the financial burden on businesses, the government has introduced various stimulus measures, including the employee retention credit (ERC) and the Paycheck Protection Program (PPP). However, navigating the world of COVID-19 stimulus can be complex and confusing, so it’s important for businesses to understand how these programs work and determine which one is the best fit for their specific needs.
The employee retention credit was introduced as part of the CARES Act in March 2020, and it was designed to encourage businesses to keep employees on their payroll during the pandemic. The ERC is a fully refundable tax credit for employers who continue to pay wages to their employees, even if their business has been fully or partially suspended due to government orders or has experienced a significant reduction in gross receipts.
The ERC originally provided a tax credit of up to 50% of qualified wages per employee, up to $10,000 per employee for 2020. However, with the passage of the Consolidated Appropriations Act in December 2020 and the American Rescue Plan Act in March 2021, the ERC was expanded and extended through the end of 2021. The maximum credit has been increased to 70% of qualified wages, and the limit on per-employee wages has been increased to $10,000 per quarter.
On the other hand, the Paycheck Protection Program is a loan program that was designed to provide a direct incentive for small businesses to keep their workers on the payroll. The PPP offers loans to cover payroll costs, rent, utilities, and mortgage interest, and the loans may be forgiven if the funds are used for eligible expenses and certain conditions are met.
The PPP has undergone several rounds of funding and changes since its inception, including the addition of a new “second draw” loan for businesses that have already received a PPP loan and the expansion of eligible expenses to include additional costs such as supplier costs and worker protection expenditures.
So, how do businesses decide which program is the right choice for them? It ultimately depends on their specific circumstances and needs. For businesses that have experienced a significant reduction in gross receipts or have been forced to shut down due to government orders, the ERC may be more beneficial, as it provides a direct tax credit for keeping employees on the payroll. On the other hand, for businesses that need more immediate cash flow assistance to cover expenses like rent and utilities, the PPP may be a better option, especially with the potential for loan forgiveness.
Many businesses may also be eligible for both the ERC and PPP, so it’s important to carefully consider the requirements and benefits of each program to determine the best course of action. Additionally, businesses should consult with their tax and financial advisors to ensure they are taking full advantage of the available stimulus programs and meeting all the necessary requirements.
Navigating the world of COVID-19 stimulus can be challenging, but understanding the details of programs like the employee retention credit and the Paycheck Protection Program can help businesses make informed decisions that will best support their employees and ensure their financial stability during this challenging time.