​IRS OKs Tax Credit for Unforgiven PPP Loans

If your business didn’t receive forgiveness for your Paycheck Protection Program loan, you now have the option to claim a tax credit instead.

The IRS on its website posted information about how businesses can claim the Employee Retention Credit for 2020 on form 941 for the fourth quarter.

Specifically, the agency said, “… an employer that is eligible for the employee retention credit (ERC) can claim the ERC even if the employer has received a Small Business Interruption Loan under the Paycheck Protection Program (PPP).” Previously, you couldn’t claim the tax credit and get a PPP loan.

The IRS further clarified, saying, “Any wages that could count toward eligibility for the ERC or PPP loan forgiveness can be applied to either of these two programs, but not both.

“If you received a PPP loan and included wages paid in the 2nd and/or 3rd quarter of 2020 as payroll costs in support of an application to obtain forgiveness of the loan (rather than claiming ERC for those wages), and your request for forgiveness was denied, you can claim the ERC related to those qualified wages on your 4th quarter 2020 Form 941, Employer’s Quarterly Federal Tax Return.

“You can also report on your 4th quarter Form 941 any ERC attributable to health expenses that are qualified wages that you didn’t include on your 2nd and/or 3rd quarter Form 941.”

The IRS did acknowledge that “this might be difficult to implement so late in the timeframe to file your 4th quarter return. You do not have to use this limited 4th quarter procedure. You can instead choose the regular process of filing an adjusted return or claim for refund for the appropriate quarter to which the additional ERC relates using Form 941-X.”

Despite the IRS’s recent guidance, some questions remain. For instance, there aren’t any details about how to opt out of the ERC for otherwise qualified wages if you want to use those wages toward PPP forgiveness.

As the IRS releases more details, we’ll make sure to keep you updated.

Also, it’s important to find out if your state is planning to tax your PPP loan. Many states have made firm decisions, while others may change their stance.

If you need help with your ERC or PPP loan, please reach out to us.

This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.