In case you have not heard, the Employee Retention Credit (ERC), which was part of the CARES act legislation in March 2020, is back in play for 2020 for an expanded group of employers than the law originally allowed.
This past December, Congress passed the CAA legislation which made an interesting and potentially valuable revision to the ERC. Under previous law, any business that received the initial PPP loan was not eligible to claim an ERC for their employee wages for any period. However, CAA revised the law and now allows those that received PPP money to benefit from the ERC IF they are eligible.
You can visit our previous blog post on the ERC to learn about the eligibility requirements for 2020 here:
This blog is not about the eligibility for the ERC. In this blog, we are covering the planning opportunities you should be considering IF you are eligible for the ERC.
First, if you have not applied for forgiveness for round one of PPP loans, DON’T. Many practices were originally planning to use only the 24 weeks of wages paid to seek forgiveness for their PPP loan without reporting any other qualified expenses. In most cases, those wages would be MORE than enough to achieve full forgiveness. However, you cannot use the same wages for PPP loan forgiveness AND other stimulus reporting, like the ERC. Therefore, for those who have NOT applied for PPP loan forgiveness, it may make sense to reduce the amount of wages you use down to 60%, which is the minimum you need to achieve full forgiveness. Then, make sure you have enough of the other eligible expenses you can use for forgiveness to get up to the remaining 40%. This means you have potentially opened up more wages for the ERC.
Second, we suspect many practices will be eligible for the ERC in the first, second, and third quarters. If this is true for you, then again, when determining wages you would like to use for your PPP loan forgiveness you want to work backward beginning with wages paid in the fourth quarter, then the third quarter. This will help you gain more wages for the ERC benefit.
Third, in addition to wages, health insurance benefits an employer pays on behalf of the employees may also be eligible for the ERC. Once you determine the amount of eligible wages, go back and see if any of those employees received health benefits during the eligible wage period. The employer portion of health insurance benefits will count towards maximizing the ERC credit.
Lastly, you cannot use wages for ERC if you used them for any other federal, state, or local stimulus including the tax credit available under the FFCRA sick leave act which was also passed into law in March 2020.
You are rarely presented with planning opportunities AFTER the fact, this is one of those few situations where you can maximize your tax benefit AFTER the year has ended. Speak with your CPA about your opportunities, even if you have already applied for PPP loan forgiveness.
Author: Tim Lott
Tim Lott, CPA, CVA, has decades of experience working with dentists at all stages of their careers. He is a regular speaker at study clubs, societies, and dental schools. Tim is a frequent participant and a moderator of Dentaltown.com. You can reach Tim at email@example.com or any of the other dental partners/principals at (800)772-1065 or firstname.lastname@example.org
Co-Author: Stephanie Baker, CPA
Stephanie Baker is a Principal and Certified Public Accountant (CPA) at Naden/Lean LLC. She brings nearly a decade of private and public accounting experience and extensive knowledge on accounting functions, tax strategies, and internal control processes.