Employee Retention Tax Credit vs. PPP

The Employee Retention Tax Credit (ERTC) and Paycheck Protection Program (PPP) are two important programs for businesses impacted by the COVID-19 pandemic. Both programs are part of the COVID-19 CARES Stimulus Act. While both programs aim to support businesses and retain employees, there are some key differences between them.

Employee Retention Tax Credit:

The ERTC is a tax credit available to eligible employers who have experienced one of three events; (i) a significant decline in gross receipts due to the COVID-19 pandemic, or (ii) experienced operating restrictions on their business due and government shutdown, and (iii) started a new business after February 15, 2020.

The credit is equal to 50% of the qualified wages paid to employees, up to a maximum credit of $5,000 per employee for 2020. In 2021,the credit is equal to 70% of the qualified wages paid to employees, up to a maximum credit of $7,000 per employee per quarter. The maximum ERTC refund a business can receive is $26,000 per W-2 Employee. The Employee Retention Tax Credit refund is only available for W-2 Employees, any 1099 contractors are excluded. 

Paycheck Protection Program:

The PPP was a loan program designed to provide economic relief to small businesses impacted by the COVID-19 pandemic. The program provided loans to eligible small businesses to cover certain expenses, including payroll costs, rent, utilities, and mortgage interest. The loan was forgivable if the recipient used the loan proceeds for the eligible expenses and meet certain other requirements.

Differences:

Purpose: The ERTC is a tax credit designed to provide financial support to businesses, while the PPP is a loan program designed to support small businesses.

Eligibility: The ERTC is available to employers who have experienced a decline in gross receipts due to the COVID-19 pandemic, while the PPP is available to eligible small businesses.

Amount: The ERTC provides a refund up to a total of $26,000 per W-2 employee. While the PPP provided loans up to two and a half months of payroll. 

Repayment: The ERTC is not required to be repaid and can be spent in any way the business would like, while the PPP loan may need to be repaid if the recipient does not use the loan proceeds for eligible expenses and meet certain other requirements.

Usage: The ERTC can only be used in any way the business likes, while the PPP loan can be used to cover a variety of eligible expenses.