The Internal Revenue Service (IRS) has posted clarification on a simplified method to claim the Employee Retention Tax Credit for PPP borrowers.
According to the IRS, a new provision under the stimulus program (signed December 2020) will allow a business to claim an ERC for 2020 using a simplified method on their fourth quarter Form 941 for 2020 if they were denied their requested PPP forgiveness.
Aiming to amplify support of businesses’ employee retention efforts during the pandemic, Congress has recently expanded some previous options through the new stimulus program – including the addition of the ERC.
Here are some notables regarding claiming ERC:
- Prior to this new provision, employers were not allowed to receive a Small Business Interruption Loan under PPP and also get the tax credit.
- Businesses who have received PPP Forgiveness or who have not requested PPP Forgiveness yet must amend prior quarters to take advantage of the credit.
- A limited simplified procedure is available for PPP borrowers whose forgiveness application has been denied. These businesses can claim the Employee Retention Credit when they file the employer’s quarterly federal tax return for the fourth quarter.
- The claim can be made on any qualified wages that aren’t counted as payroll costs in obtaining PPP loan forgiveness.
- Specifically, the IRS states:
- Any wages that could count toward eligibility for the ERC or PPP loan forgiveness can be applied to either of these two programs, but not both.
- If you received a PPP loan and included wages paid in the second and/or third quarter of 2020 as payroll costs in support of an application to obtain forgiveness of the loan (rather than claiming ERC for those wages), and your request for forgiveness was denied, you can claim the ERC related to those qualified wages on your fourth quarter 2020 Form 941, Employer’s Quarterly Federal Tax Return.
- You can also report on your fourth quarter Form 941 any ERC attributable to health expenses that are qualified wages that you didn’t include on your 2nd and/or 3rd quarter Form 941.
- There is an option to forgo this fourth quarter procedure, and rather, choose to file an adjusted return or claim for refund in the appropriate quarter for the additional ERC.
We expect further guidance to be released – with more clarifications and information regarding this credit (opting out, for example) and other PPP guidelines under the new stimulus program.
Stay tuned for more SBA and IRS updates from KCoe advisors, or contact us to assess the impact of these guidelines and their applicability for your business.