Companies that didn’t get requested PPP loan forgiveness can still claim the Employee Retention tax credit, according to the IRS.
Under the Taxpayer Certainty and Disaster Tax Relief Act of 2020, an eligible employer can claim the Employee Retention Credit even if the employer received a Small Business Interruption Loan under the PPP. The eligible employer can claim the ERC on any qualified wages that are not counted as payroll costs in obtaining PPP loan forgiveness. Any wages that could count toward eligibility for the ERC or PPP loan forgiveness can be applied to either of these two programs, but not both.
The release stated, “If you received a PPP loan and included wages paid in the 2nd and/or 3rd quarter of 2020 as payroll costs in support of an application to obtain forgiveness of the loan (rather than claiming ERC for those wages), and your request for forgiveness was denied, you can claim the ERC related to those qualified wages on your 4th quarter 2020 Form 941, Employer's Quarterly Federal Tax Return.”
For companies worried about timing, the IRS said in a statement, “We understand this might be difficult to implement so late in the timeframe to file your 4th quarter return. You do not have to use this limited 4th quarter procedure. You can instead choose the regular process of filing an adjusted return or claim for refund for the appropriate quarter to which the additional ERC relates using Form 941-X.”
Related: SBA Reopens Paycheck Protection Program; PPP and EIDL Forgiveness: What You Should Know.