The Employee Retention Credit (ERC) and Payroll Protection Program (PPP) are two key initiatives that have been implemented by the federal government in response to the COVID-19 pandemic. Both programs are designed to help businesses affected by the pandemic to keep their employees on the payroll and maintain their operations.
The ERC is a credit that is available to employers who have experienced a significant decline in gross receipts due to the pandemic, or who have been forced to fully or partially suspend their operations as a result of a governmental order. The credit is equal to 50% of qualified wages paid to employees, up to a maximum of $10,000 per employee. The credit is available for wages paid from March 13, 2020 through December 31, 2020.
The PPP is a loan program that is designed to provide financial assistance to small businesses that have been impacted by the pandemic. The loans are available to businesses with 500 or fewer employees, and can be used to cover payroll costs, rent, utilities, and other expenses. The loans are forgivable if the funds are used for eligible expenses, and the forgiveness amount is based on the amount of the loan and the percentage of the loan used for payroll costs.
In order to maximize the benefits of both the ERC and the PPP, it is important for businesses in New York to carefully plan their use of the programs. Here are some tips for maximizing the
Employee Retention Credit in conjunction with the Payroll Protection Program:
- Determine your eligibility for the programs: In order to qualify for the ERC, a business must have experienced a significant decline in gross receipts or must have been forced to fully or partially suspend operations as a result of a governmental order. To qualify for the PPP, a business must have 500 or fewer employees and must have been in operation on February 15, 2020.
- Calculate the amount of the credit: To determine the amount of the ERC, a business will need to calculate the total amount of qualified wages paid to employees during the applicable period. The credit is equal to 50% of qualified wages, up to a maximum of $10,000 per employee.
- Apply for the PPP first: If a business is eligible for both the ERC and the PPP, it is generally advisable to apply for the PPP first. This is because the PPP loans are forgivable, whereas the ERC is a credit that must be claimed on the business’s tax return. By applying for the PPP first, a business can potentially obtain forgiveness for a portion of the loan, which will reduce the amount of qualified wages that are subject to the ERC.
- Use the PPP funds for eligible expenses: In order to maximize the forgiveness of the PPP loan, it is important to use the funds for eligible expenses, such as payroll costs, rent, utilities, and other approved expenses. The forgiveness amount will be based on the percentage of the loan used for payroll costs, so it is important to prioritize these expenses.
- Keep good records: In order to claim the ERC and to potentially receive forgiveness of the PPP loan, it is important to keep good records of all qualified wages and eligible expenses. This includes maintaining documentation of the decline in gross receipts or the suspension of operations, as well as payroll records and receipts for eligible expenses.
By carefully planning their use of the Employee Retention Credit and Payroll Protection Program, businesses in New York can maximize the benefits of these initiatives and help to keep their employees on the payroll during these challenging times.
