IRS Announces PPP Loan Recipients May Qualify for Employee Retention Credit

The IRS recently announced on its website that eligible employers (generally, those with fewer than 500 employees) may disregard the caution contained on various employment tax returns, including the Form 941, regarding the Paycheck Protection Program (PPP) loans and eligibility for the employee retention credit.

As background, the CARES Act provided eligible employers an “employee retention credit” equal to 50% of qualified wages paid to employees through December 31, 2020.  The Consolidated Appropriations Act of 2021 significantly extended and increased the credit.  The credit is now available for up to 70% of qualified employee wages paid through June 30, 2021, and a broader group of employers are now eligible for the credit.  (For more information about the extensions of the credit, click here.)

Under the CARES Act, employers who received loan forgiveness under the PPP were ineligible for the employee retention credit, but the Consolidated Appropriations Act instructed the Secretary of Treasury to issue guidance that would permit PPP loan recipients to claim the credit.  In response, the IRS has stated that an eligible employer may claim the employee retention credit on any qualified wages that were not counted as payroll costs in obtaining PPP loan forgiveness.

This guidance significantly expands the availability of the credit to employers.  Businesses should evaluate their situation to ensure they are taking full advantage of this credit through June.