Strategies to maximize PPP2 and Employee Retention Credit
The new stimulus bill includes a fresh round of PPP, but the MOST important part of the bill is allowing businesses to take both the new PPP2 and Employee Retention Credit, so how do you maximize the benefit of the two?
Below, we’re breaking down some of the key parts of both benefits, including threshold/eligibility, amount of credit/loan, start and end dates, maximum benefit amount, and more.
| ERC (2020) | ERC (2021) | PPP2 | |
|---|---|---|---|
| Threshold/Eligibility | 1. 50% Reduction in Quarterly Sales for any quarter in 2020 vs. 2019, or 2. Shut down by government order | 1. 20% Reduction in Q1 2021 and/or Q2 2021 sales vs. same quarter in 2019, or 2. Option to use the quarter immediately preceding calendar quarter and comparing to corresponding 2019 quarter | Demonstrate at least a 25% reduction in gross receipts in any quarter of 2020 relative to the same quarter in 2019 |
| Amount of Credit/Loan | 50% of Quarterly Wages up to $10k per year, so maxes out at $5K Refundable Credit per employee for 2020 | 70% of Quarterly Wages up to $10K for Q1 2021 and Q2 2021, so maxes out at $14K Refundable Credit per employee for 2021 | 2.5 times the monthly trailing 12 month payroll up to $2M. 3.5 times if in the hospitality industry. |
| What are “Wages”? | Salary + Employer-paid Health Insurance | Salary + Employer paid Health Insurance | Salary + Group Health Insurance + Certain Payroll Taxes |
| What are the start and end dates? | Wages from 1st Quarter of Threshold qualification to end of Quarter when 2020 Quarterly Sales are 80% of corresponding 2019 Quarter | Wages from 1st Quarter of Threshold qualification to end of Quarter when 2020 Quarterly Sales are 80% of corresponding 2019 Quarter | Unknown |
| What happens if I incorporated in 2019 or 2020? | Compare the 2019 quarter you incorporate in to the corresponding 2020 Quarter. Estimate full quarter 2019 sales if did not incorporate on first day of quarter. | If incorporated in 2020, compare Q1 of 2021 to Q1 of 2020 and/or Q2 of 2021 to Q2 of 2020. | Need additional guidance if not incorporated in 2019 |
| Maximum Amount | $5K per employee for 2020 | $14K per employee for 2021 | $2M |
| Comments | Language in new bill is conflicting on process of claiming retroactive credit and does computation include wages and health insurance or just health insurance costs | Cannot use wages for both ERC and R&D Credit. | Forgiveness now can be payroll (not less than 60% of total forgiveness); SW for cloud computing, HR, accounting, etc.; essential suppliers; property damages. |
The Treasury and SBA will be releasing additional guidance and application process information for both PPP2 and Employee Retention Credit this week. As always, we will keep you updated as this becomes available.
It’s important to note, when companies are able to apply for both, there will probably be a mad rush. PPP1 was $521B, and PPP2 is only $284B. Also, if you plan to apply for the new PPP and/or the Employee Retention Credit, you should be dusting off your 2019 and 2020 quarterly financial statements. They will be needed to determine if you are eligible.