PPP and Employee Retention Credit Update

PPP and Employee Retention Credit Update

Paycheck Protection Program & Employee Retention Credit

An Update from BDO USA, LLP

January 15, 2021

The Consolidated Appropriations Act of 2021 (Act), signed into law on December 27, 2020, contains significant enhancements and improvements to the Employee Retention Credit (ERC). Here are a few items we are seeing our clients taking immediate advantage of:

  • Revisit the Employee Retention Credit: Companies that received PPP Loans were originally ineligible for the employee retention credits, but the Appropriations Act revised that requirement, allowing companies to revisit their qualifications in 2020 and amend 941’s to claim the credits, even if they received a forgivable PPP Loan. Commencing January 1, 2021, companies will only have to experience a decline in gross receipts of 20% (instead of 50% as required in 2020) for the 2021 quarter when compared to the same quarter in 2019. We would recommend that any company that received a PPP loan review their 2020 operations to see if they qualify for a refund of the employee retention credits
  • Tax Deductibility of expenses paid with PPP Loans: The Appropriations Act finally legislated that expense paid using forgiven PPP funds are fully tax deductible, as many organizations had been pushing for all along. The deductibility applies to both the 1st and 2nd round of loans if a 2nd loan is taken.
  • PPP Loans – Round 2: A second round of PPP funding is available to companies regardless of whether they received a loan the first time around. A summary of the differences between the first and second round is as follows:
PPP loan med
  First Round:    2020 Second Round:  2021
Maximum Amount That can be Borrowed: 2.5 X avg monthly salary, up to $10mm 2.5 X avg monthly salary, up to $2mm
Employee Counts to be a “Small Business” Eligible for the PPP 500 or fewer 300 or fewer
Can businesses that received a PPP loan in 2020 apply for a 2nd PPP loan? No Yes
Required to Demonstrate Decline in Gross Receipts to be Eligible? No Yes.  Must have a 25% loss in gross receipts for any quarter of 2020 when compared to the same quarter in 2019
Covered Period 8 or 24* 8 or 24
Eligible Expenses Payroll costs, rent, covered mortgage, utilities Same + 4 new categories – see above
Are PPP expenses deductible? Yes! Yes!
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BDO USA, LLP is the U.S. member firm of BDO International Ltd., one of the world’s largest accounting and advisory organizations serving the middle market, with more than 1,600 offices in 167 countries. BDO carries out its business mission of “providing trusted solutions in an ever-changing world” through its unique solutions and expertise in the areas of assurance, tax, advisory, and digital technology to a wide range of publicly traded and privately held companies.

 

 

Contacts

Brendan Sullivan
David Swatosh
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Brendan Sullivan

Tax Managing Director

bsullivan@bdo.com
Direct:  248-244-6565
Mobile:  248-563-3629
www.bdo.com

David Swatosh

Managing Director, R&D Tax Services

dswatosh@bdo.com
Direct:   248-688-3361
Mobile:   734-634-8707
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Amy Whipple

BDS Director, Business Development

awhipple@bdo.com
Direct:  248-688-2100
Mobile:   586-254-1560
www.bdo.com