IRS Issues Expanded FAQ Guidance on Employee Retention Credit
The Internal Revenue Service (“IRS”) has expanded its FAQ guidance on the Employee Retention Credit (“ERC”), which has been discussed in greater detail in a prior post. Enacted as part of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the ERC provides a refundable tax credit to eligible employers for certain employment taxes equal to 50 percent of up to $10,000 in qualified wages paid per employee, effective March 12, 2020, through December 31, 2020. However, employers that received loans under the Paycheck Protection Program (“PPP”) are not eligible for the ERC.
The ERC FAQ was originally posted in late March, and the IRS has since continued to update it. The FAQ now has nearly 100 questions posed and answered on major-issue areas such as:
- Determining Which Employers are Eligible to Claim the Employee Retention Credit;
- Determining Which Entities are Considered a Single Employer Under the Aggregation Rules;
- Determining When an Employer’s Trade or Business Operations are Considered to be Fully or Partially Suspended Due to a Governmental Order;
- Determining Qualified Wages;
- Determining the Amount of Allocable Qualified Health Plan Expenses;
- How to Claim the Employee Retention Credit; and
- Interaction with Other Credits and Relief Provisions.
A more recent update relates to the eligibility of an employer who repays its PPP loan in accordance with the Small Business Administration (“SBA”) requirement that a business recertify in good-faith that the PPP loan was “necessary to support ongoing business operations” (previously discussed here, here, and here). Released May 8, 2020, the IRS FAQ 79 states that an employer that applied for the PPP loan, received payment, and “repays the loan by May 14, 2020 . . . will be treated as though the employer had not received a covered loan under the PPP for purposes of the Employee Retention Credit.” Therefore, the employer will be eligible for the credit if the employer is otherwise an eligible employer.
The original deadline for PPP loan repayment was May 7, 2020, but was extended to May 14, 2020, with FAQ 43 of the SBA’s PPP FAQs. The SBA then further extended the repayment deadline to Monday, May 18, 2020, in SBA FAQ 47, following its release of guidance which relieved borrowers with loans of less than $2 million from the “necessity” recertification. While the IRS ERC FAQ has not been updated to reflect the new May 18 deadline, we can only assume that those employers who do make repayment by this time would qualify for the ERC all the same. We note, however, that implicit in IRS FAQ 79 is that employers who do not voluntarily make timely repayment may not claim the ERC. In other words, any employer who is ultimately forced by the SBA to repay the loan would not be allowed to take the ERC.
While the PPP loan was at the top of most employers’ COVID-relief wish lists, and for obvious reasons, the ERC may be the next best option for those who erred on the side of repayment. We are happy to answer any questions employers that opted for repayment may have.