Employee Retention Credit & Paycheck Protection Program Loans

Getting Ahead of the March 31st Deadline for Each

By Alan R. Sasserath, CPA, MS

A number of our friends and clients were/are eligible for Paycheck Protection Program (“PPP”) second draw loans AND the expanded Employee Retention Credit (“ERC”). March 31, 2021 is a critical day for each program.

With regard to the ERC, March 31st marks the end of the first quarter of 2021 that a taxpayer could be eligible for the 2021 expanded ERC. The general requirements (very high-level) to be eligible for this credit are: (1) that the taxpayer have a greater than 20% decline in gross receipts for the first quarter of 2021 when compared with the first quarter of 2019 and (2) have less than 500 employees. Even if a taxpayer applied for and received a second draw PPP loan, they can use wages paid during the first quarter of 2021 that will not or cannot be used for PPP loan forgiveness towards the ERC. The ERC is significant in that it could be worth up to $7,000 per employee per quarter.

If a taxpayer believes they will qualify for the ERC in Q1 2021, we are advising clients to contact their payroll company before their last payroll in March so they can claim the credit with the filing of the quarterly payroll tax return. Some payroll companies have sent information out regarding the ERC. Our concern is that if the payroll company is not notified ahead of time and they file the payroll tax return in the ordinary course of business (sometimes shortly after the last payroll of the quarter), then the taxpayer will be forced to claim the ERC on an amended payroll tax return. If the IRS gets flooded with such amended payroll tax returns, we don’t know what the processing time on those amended returns could be. That is why we think it is critical to get ahead of this now.

Current processing times for amended personal income tax returns are unusually long. We have clients that filed amended income tax returns in May of 2020 that are yet to be processed. The amended payroll tax returns will go to a different unit at the IRS, but again, who knows what they are prepared for and what kind of volume they will have to process.

With regard to the PPP, March 31st is the deadline for applying for second draw PPP loans. While the SBA provides PPP guidelines, each lender has their own rules regarding the application process. If you haven’t applied for the second draw PPP loan or have been holding off for one reason or another, do not miss this deadline! It is important to contact your lender now and find out the requirements for applying if you have not already done so.

As always, we are available to help. Don’t hesitate to contact us at 631-368-3110.