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IRS Issues Guidance on Interaction of Employee Retention Credit With PPP Loans

Ruth Singleton
Published Date:
Mar 2, 2021


The IRS has issued guidance on the employee retention credit under the CARES Act, in particular, how it interacts with the Paycheck Protection Program (PPP). According to Accounting Today, while both the credit and the PPP were included in the CARES Act, passed last March, they were originally viewed as separate programs. However, the relief package that Congress passed in December made it easier for employers to participate in both programs.

The guidance addresses the employee retention credit as it applies to employers that paid qualified wages after March 12, 2020, and before Jan. 1, 2021, and that experienced “either a full or partial suspension of operations by governmental order, or a significant decline in gross receipts.”

Accounting Today reported that the credit is equal to 50 percent of qualified wages paid, including qualified health plan expenses, for up to $10,000 per employee in 2020. The maximum credit available for each employee is $5,000 in 2020. Eligible employers that received a PPP loan may claim the employee retention credit, but the same wages can’t be counted both for seeking forgiveness of the PPP loan and calculating the employee retention credit. The IRS guidance explains when and how employers that received a PPP loan can claim the employee retention credit for 2020.

The last section of the guidance consists of 71 questions and answers covering the following topics related to the employee retention credit: eligible employers; aggregation rules; governmental orders; full or partial suspension of trade or business operations; significant decline in gross receipts; maximum amount of employer’s employee retention credit; qualified wages; allocable qualified health plan expenses; interaction with PPP loans; claiming the employee retention credit; special issues for employees: income and deduction; special issues for employers: income and deduction; special Issues for employers: use of third-party payers; and substantiation requirements.

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