For the past several months, we have advised many clients to patiently wait on applying for PPP forgiveness. There were a number of uncertainties, including taxability of forgiven amounts and potential future legislation.
Good news – The recently passed Consolidated Appropriations Act, 2021 made two major changes related to PPP forgiveness. The first is to clarify the intent of Congress that PPP proceeds are not taxable in any way. The second was to make significant changes to the Employee Retention Credits (ERC) established under the CARES Act. If your business was fully or partially shut down or experienced a severe (50%) decline in revenue in 2020, you may now have an opportunity to claim an ERC for certain wages paid in 2020, even if you received a PPP loan. See our January 13 post for additional details.
Not So Good News – There is interplay between the ERC and PPP loan forgiveness. The same wages cannot be used for ERC and PPP forgiveness. The ordering rule is that wages are first applied to the ERC then PPP forgiveness. Currently, we are waiting on the SBA and Treasury for guidance on a number of issues related to this change, including what to do if a business has previously filed for forgiveness but is now eligible for ERC in 2020. What if you need to shift some of the PPP wages to be ERC wages instead? Will there be new forms? Or amended forgiveness applications? Will there be options to applying for ERC for the 1st, 2nd, 3rd, and 4th quarter of 2020, if all 941s have already been filed?
Our Recommendation – If you have not filed for PPP forgiveness, wait and first determine if you may qualify for ERC in 2020. If so, coordinate the use of the wages between the ERC and the PPP loan forgiveness.
If you need help, give us a call.