• Wages that qualified for PPP loan forgiveness are ineligible for the ERC
  • A little-known new loophole to maximize benefits from both

The Consolidated Appropriations Act (CAA) passed in December confirmed new provisions on the Employee Retention Tax Credit (ERC)—a much overlooked and lucrative tax benefit for struggling employers. CAA expanded qualifications for the credit, opening up eligibility for more organizations. One clause that has remained the same from when the ERC was first established within the CARES Act: wages that were paid for and forgiven with a PPP loan are not eligible for the ERC.

Why? The IRS has steadfastly denied any sort of provision that would allow for a double benefit. IN this case, if an employer used their forgiven PPP loan monies to pay for a certain employee’s wage, they may not also receive a tax credit for that same wage through the ERC.

The good news is: there’s a slight loophole.

Small businesses that received a PPP loan and used the funds to support 2nd or 3rd quarter payroll costs but were denied forgiveness can apply the ERC towards those same wages covered by the loan monies, according to a statement from the IRS. It’s a small benefit, and hardly a double-dip, but applying the ERC wherever applicable could generate a substantial tax credit for businesses burdened with paying off their PPP loans.

Our advice is to apply for loan forgiveness sooner than later to find out where your business stands. The employer’s 4th quarter federal tax return, Form 941, is due February 1, 2021.

It’s not too late to report these expenses and start experiencing the benefits of the ERC, just call the experts at DSJCPA to find out more: 516-541-6549. Visit our COVID-19 Information Center for more updates and to meet our Coronavirus Response Team (CRT). 


Devin McQuillan
Associate, Creative Solutions

516-541-6549 | Email

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