Understanding The Classification Between PPP Loans and ERC



The Covid-19 pandemic has led to the closure of 34% of the small businesses in the United States in 2020. The US government issued the Coronavirus Aid, Relief, and Economic Security (CARES) act, as there were many business losses during the pandemic. In addition, the CARES Act established the Paycheck Protection Program (PPP) and the Employee Retention Credit (ERC). This blog provides an outline of the PPP and ERC. It further evaluates the distinguishing factors between the Paycheck Protection Program and the Employee Retention Credit. And provides a clear line of  difference between PPP and ERC.

Know The Paycheck Protection Program 

Established in March 2020, the small business administration (SBA) designed the Paycheck Protection Program. The PPP acts as an incentive for small businesses to keep their workers employed during the beginning of the coronavirus pandemic. With the help of this program, the businesses can take out a second loan and the first loan. 

You need the following qualifications to apply for the second loan:

  • You must have previously received the PPP loan.

  • Your organization must not comprise more than 300 employees.

  • You can prove at least a 25% reduction in gross receipts between 2019 and 2020.

You can use the PPP loans for various purposes, such as mortgage, rent, and lease payments. The loans can also be used for further utilities, operations expenditures, and property damage costs due to public disturbances, which are not covered by insurance. Furthermore, the worker protection expenditures had to be Covid-19 compliant. 

Know The Employee Retention Credit 

The Employee Retention Credit was established under the CARES Act in march 2020. The credit supports businesses affected by the coronavirus pandemic through a refundable tax credit initiative that attempts to keep their employees on the payroll. The employers can claim the credit immediately by reducing the taxes sent to the IRS through this. If somehow your credit exceeds the payroll taxes, it can allow the employers to request a refund. In addition, through ERC loans, employers can get immediate access to the credit by reducing employment tax deposits. 

You need the following qualifications to apply for the ERC:

  • A full or partial suspension of business/operation due to Covid-19 related actions. 

  • If your business has experienced a decline in gross receipts during the calendar quarter of 2020.

The Employee Retention Credit can be used for the qualified wages and the health insurance cost of the ERC and PPP in 2022. Although these programs are part of the Covid-19 relief fund, they entail several differences.

Understanding The Difference Between The ERC And The PPP

Both the ERC and the PPP are part of the Covid-19 relief measures; however, they differ significantly. Speaking of the Paycheck Protection Program, it is a form of forgivable loan. The payments are processed through banks and the Small Business Administration through this loan. Under this program, the employers do not have to pay the loans back unless an amount was taken back and not used.

The Employee Retention Credit is a form of aid and tax credit. The payments under this credit are processed through the IRS. One of the significant benefits of the ERC is that the employers do not have to pay back the credit. The purpose of the ERC is to encourage employers to keep employees on the payroll even if they are not working during the pandemic. 

What Is The Difference Between Eligibility Of The ERC And The PPP?

There are significant eligibility differences between the ERC and the PPP. These measures allow any business or employee to apply for aid. The eligibility criteria for the Paycheck Protection Program is that all small businesses with 300 employees or less can apply for this program. However, the business must show that it experienced a 25% decrease in any quarter’s gross receipts from 2019 to 2020. 

As far as the eligibility criteria of the ERC is concerned, it is eligible for all employers, except for the ones which are self-employed employees. For the eligibility criteria, your business must show that it has experienced a decrease in gross receipts by more than 20% in any quarter of 2020 compared to the same quarter in 2019. The criteria are further eligible for the wages paid after March 12, 2020, and before January 1, 2021.

What Are The Differences Between The Benefits Of The PPP and The ERC?

Each aid works towards employee upliftment by focusing on wage stability and keeping the employees on the payroll. From the PPP, your business can benefit $2 million, as the second draw PPP loan is 3.5x the average monthly from 2019 to 2020. On the other hand, for ERC, each employee, a $10,000 wage can be counted to determine the amount of the 50% credit of their qualified wages. This payment is often made in the form of an IRS cash payment, which may offset payroll tax payments in the future.

Want To Use Both The ERC And The PPP?

Yes, you can use both and coordinate ERC and  PPP for your business. These aids have different qualifications and use, and business owners can use both for their business benefits. According to the taxpayer certainty and tax relief act (2020), all the employers eligible for ERC can claim it even if they have already received a loan from the PPP.

Another is the consolidated appropriations act of 2021, which allows employers to take advantage of monetary aid. This act offers increased credit rates and an increased limit on individual employee qualified wages. According to CPA Due Diligence, the IRS will accept these for up to three years after the initial filing. Therefore, the availability to participate in the ERC program may continue until the end of 2024 because of the rising Covid cases.

How Does CPA Due Diligence Assist You In This Process? 

CPA Due Diligence is a flexible company that assists businesses with determining whether the employers can apply for and use ERC and PPP 2022 and assists with amending qualifying businesses. With our dedicated client support, we make the process easy and assist valued clients with questions, concerns, and all the payment-related matters to the ERC while offering tax consulting and filing options. 

Apply For The ERC Or The PPP Now

Now you must have a robust idea of the Employee Retention Credit and what a Paycheck Protection Program means. You can now apply for the ERC. Across the United States, the Covid-19 has devastated thousands of businesses. If you get hit by the Covid waves, the ERC is your chance to receive all the aid a business owner deserves. If you are willing to take advantage of such government programs, contact CPA Due Diligence for more information. 

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