Employee Retention Credit – Better than PPP?

The Employee Retention Credit is a refundable tax credit up to 70% of $10,000 in wages per employee paid by an eligible employer whose business has been financially impacted by COVID-19

Effective January 1, 2021, employers are eligible if they operate a trade or business during January 1, 2021, through June 30, 2021, and experience either:

A full or partial suspension of the operation of their trade or business during this period because of governmental orders limiting commerce, travel or group meetings due to COVID-19, or

A decline in gross receipts in a calendar quarter in 2021 where the gross receipts of that calendar quarter are less than 80% of the gross receipts in the same calendar quarter in 2019.

Retroactive to the March 27, 2020, enactment of the CARES Act, the law now allows employers who received Paycheck Protection Program (PPP) loans to claim the ERC for qualified wages that are not treated as payroll costs in obtaining forgiveness of the PPP loan.

Qualified sick & family leave credits

Self-employed & stuck with kids in 2020 due to lack of child-care? Were you unable to conduct business because you were subject to quarantines, including self-quarantines as advised by a healthcare provider? Or were you unable to work/telework to care for family members for reasons related to the coronavirus? Then you may be able to refundable credits under the Families First Coronavirus Response Act – the key word is “self-employed.”

These credits may also be available to certain partners and others who received qualified sick or family leave wages. With regards to the Family Leave credit, according to the DOL, child-care provider include individuals paid to provide child care, like nannies, au pairs, and babysitters. It also includes individuals who provide child care at no cost and without a license on a regular basis, such as, grandparents, aunts, uncles, or neighbors. Day care facilities, preschools, before and after school care programs, schools, homes, summer camps, summer enrichment programs, and respite care programs also count.

Consolidated Appropriations Act 2021: PPP & EIDL funded expenses

  • The bill clarifies that Gross income does not include any amount that would otherwise arise from the forgiveness of a PPP loan, emergency EIDL grants and certain loans & repayment assistance, as provided by the Cares Act.
  • Deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven, as well as for business expenses paid with emergency EIDL grants and advances.
  • Tax basis and other attributes of the borrower’s assets will not be reduced as a result of those amounts being excluded from Gross income. Partner’s tax basis would be adjusted by the distributable share of the deductions attributed to forgiveness.
  • A similar treatment is also applicable to the Second Draws of PPP loans, effective for tax years ending after the date of enactment of the provision.
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