On December 27th, President Trump signed the $900 Billion Stimulus Package into law that included a provision allowing practices to claim the Employee Retention Tax Credit (ERTC) even if that practice had received a PPP Loan.  What does that mean for you and your practice?

To be eligible for the ERTC, you either needed to be required to temporarily close your practice due to a government order or have your collections for Q2 of 2020 be at least 50% lower than your collections for the same quarter of 2019. Once the Stimulus Package was signed into law, we started looking to see if our clients would qualify for the ERTC, and we confirmed that most practices saw their revenue fall by between 70% and 80% during Q2 of 2020 as compared to Q2 of 2019.

We then looked to see how long our clients would be eligible for this valuable payroll tax credit of 50% of the first $10k paid to each employee.  Unless a client saw their 2020 Q3 revenue dip by more than 20% as compared to 2019 Q3 revenue, only those wages paid between 4/1/20 and 9/30/20 would qualify for the credit – and only if those wages were not counted towards the PPP Loan forgiveness calculation or were not reimbursed through FFCRA.

Here is where things get tricky:

  • Practices that received the PPP Loan had a 24-week Covered Period to spend those funds to qualify for full forgiveness.
  • Most practices got their PPP Loan in April or May, meaning the 24-week Covered Period went through to October or November.
  • Up to 40% of the PPP loan could be spent on rent and utilities to qualify for forgiveness.
  • The remainder needed to be spent on Payroll Costs that includes not only wages but also retirement contributions, health insurance, and certain payroll taxes.

That means that the PPP Covered Period overlaps with the ERTC period. To maximize the combined subsidy you might receive, start by not rushing to submit the PPP Loan forgiveness paperwork.  The PPP and ERTC rules are still fluid, and the new rules haven’t even been written yet. Plus, you have 10 months from the end of the Covered Period to file with your lender for forgiveness.

Next, figure out all the non-wage expenses to include when applying for your PPP Loan forgiveness to help maximize the 4/1/20-9/30/20 wages eligible for this valuable payroll tax credit. The goal is to have at least $10k of wages per eligible employee during the 6-month ERTC period available for the credit.

Lastly, remember that if your practice revenue dipped by more than 25% for any calendar quarter in 2020 as compared to the same quarter from 2019, you should be eligible to apply for PPP Round 2. Based on what we’ve seen from our clients, most practices forced to temporarily close last spring should be eligible. Please contact your PPP lender for more info about PPP2.

More info about the ERTC is available at: https://schwartzaccountants.com/2021/01/employee-retention-tax-credit-ertc-updates/

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