The Employee Retention Credit (ERC) and the Paycheck Protection Program (PPP) are two different programs that were introduced by the U.S. government in response to the COVID-19 pandemic. While they both aim to provide financial relief to businesses, they have different purposes and eligibility criteria. Here’s a comparison between the two:
1. Purpose:
– ERC: The ERC is designed to encourage businesses to retain their employees during the pandemic by providing a refundable tax credit.
– PPP: The PPP is intended to help small businesses keep their employees on payroll by providing forgivable loans to cover payroll and certain other expenses.
2. Eligibility:
– ERC: Eligibility for the ERC is based on a decline in gross receipts or a full or partial suspension of operations due to government orders. Businesses of all sizes, including tax-exempt organizations, can qualify.
– PPP: The PPP primarily targets small businesses with fewer than 500 employees (or other specific industry-based employee limits). Certain nonprofit organizations, self-employed individuals, and independent contractors are also eligible.
3. Funding:
– ERC: The ERC is a tax credit that can be claimed on quarterly payroll tax returns (Form 941). The credit amount is refundable and can be used to offset payroll taxes owed by the employer.
– PPP: The PPP provides loans that are administered by participating lenders and guaranteed by the Small Business Administration (SBA). If certain criteria are met, the loan can be fully forgiven, effectively turning it into a grant.
4. Usage of funds:
– ERC: The ERC does not provide direct funds to businesses. Instead, it offers a tax credit that can be used to offset employment taxes.
– PPP: The PPP loans can be used for payroll costs (including benefits), rent/mortgage payments, utilities, and certain other eligible expenses. A certain portion of the loan must be allocated to payroll costs to qualify for forgiveness.
5. Loan forgiveness:
– ERC: The ERC does not require loan forgiveness since it is a tax credit. However, businesses that claim the ERC cannot claim wages paid with forgiven PPP loan proceeds as eligible wages for the ERC.
– PPP: PPP loans can be fully forgiven if the funds are used for eligible expenses, primarily payroll costs, during a specified covered period. The borrower needs to apply for loan forgiveness and meet certain criteria to have the loan amount forgiven.
It’s worth noting that the ERC and PPP have undergone several updates and changes since their initial introduction, so it’s important to consult the most recent guidelines and regulations to determine eligibility and program specifics.
ERC Tax Financial provide ERC tax credit services for small businesses throughout the United States. Contact us to see if you qualify for the ERC tax credit grant.
