Paycheck Protection Program and Employee Retention Credit Update

We want to keep everybody updated on the latest developments with the Paycheck Protection Program and Employee Retention Credit. We encourage every business to review the guidelines to determine if they qualify for either program. 

Paycheck Protection Program

Deductibility of PPP Expenses for State Income Taxes

• As previously communicated, expenses paid with forgiven PPP loans are deductible for Federal income taxes.
• As of this communication, Kentucky is not allowing these expenses to be deducted at the state level. However, Indiana is allowing deductibility.
  • There is a possibility Kentucky will change its stance on deductibility during the current Legislative Session.

Eligibility for First Time Borrowers

• In operation on February 15, 2020
• No more than 500 employees
• The loan amount is calculated at 2.5 times average monthly payroll costs, up to $10 million
  • Average monthly payroll costs can be based on calendar 2019, calendar 2020, or the 12 months prior to the loan application
• Applications are open through March 31, 2021

Eligibility for Second Draw Borrowers (Previously Received a PPP loan)

• In operation on February 15, 2020, and previously received a PPP loan
• No more than 300 employees
• 25% reduction in gross revenues between comparable quarters in 2019 and 2020
  • Only calendar quarters can be used for the reduction calculation
  • Businesses may also qualify if there is a 25% reduction in annual gross revenues
• The business has used or will use all first draw PPP funds
  • Forgiveness of the first draw loan does not have to be received
• The Loan amount is calculated at 2.5 times average monthly payroll costs, up to $2 million
  • Companies in the hospitality industry, such as hotels and restaurants, are eligible for loans up to 3.5 times the average monthly payroll
  • Average monthly payroll costs can be based on calendar 2019, calendar 2020, or the 12 months prior to the loan application.
• Applications are open through March 31, 2021

Increase in Previous First Draw Loan Received

• If your business has previously received a PPP loan, and subsequent changes in guidance would have resulted in an increased loan amount, you may be eligible to request an increase in your first draw PPP loan. Note that borrowers who have already received full forgiveness of their first PPP loan are not eligible for loan increases, but may be eligible for a second PPP loan.

Employee Retention Credit

• If your business was partially or fully suspended due to a government order, or if you had a substantial decline in gross receipts during 2020 or 2021, you may be eligible for the employee retention credit.
• Businesses that previously received PPP loans are now eligible to take the employee retention credit against their payroll taxes.
  • Note that payroll costs used for PPP forgiveness are not eligible for the Employee Retention Credit
• The employee retention credit has been extended to June 30, 2021, and is also retroactive to March 12, 2020.
  • If you are eligible for a retroactive credit, you can claim the credit by amending your previously filed Form 941.

2020 Credit Eligibility (Retroactive)

• Employers of any size, including tax-exempt organizations, but not government entities
• Wages paid in the calendar quarter in which:
  • Business operations are fully or partially suspended due to a government order as a result of COVID-19
    • Operations must not be able to be continued in a manner comparable to operations before COVID
    • Under this test, the credit is only available for the portion of time the business was suspended
  • OR
  • The business has > 50% decline in gross receipts in a calendar quarter in 2020 compared to the same quarter in 2019
    • The credit can be taken until gross receipts in a quarter in 2020 are > 80% of gross receipts in the comparable quarter in 2019
    • The decline in gross receipts does not have to be COVID related
• The credit amount is 50% of qualified wages paid between March 12, 2020, and December 31, 2020
  • Maximum wages are $10,000 per employee for the year
  • The maximum credit is $5,000 per employee for the year
• For employers with 100 or fewer full-time employees in 2019, all wages paid to employees are eligible, except for wages eligible for other tax credits
• For employers with more than 100 full-time employees in 2019, only wages paid to employees not performing services are eligible

2021 Credit Eligibility

• The credit is available through June 30, 2021
• Qualified wages per employee increased to $10,000 per quarter
• The credit amount is increased from 50% to 70%
• The maximum credit is $7,000 per employee per quarter
• The decline in gross receipts test is changed from 50% decline to 20% decline vs. 2019 gross receipts
  • Q4 of 2020 can be used to determine eligibility for Q1 of 2021
• All wages are eligible for employers with 500 or fewer employees
  • These employers may also request an advance of the credit
• Employers not in existence in 2019 can claim the credit by comparing their 2021 quarter to the comparable quarter in 2020

Please contact us if you need assistance determining eligibility for the Paycheck Protection Program or the Employee Retention Credit. We expect additional guidance will be issued, especially as it relates to the interaction between these programs. 

Please note that the above is general information and should not be relied upon as written tax advice. Consult your tax advisor to determine how the above information applies to your specific situation. The above information is accurate as of the date of publication but could change as a result of changes in applicable laws and regulations.