Business owners who got their PPP loan forgiveness application denied can instead claim the Employee Retention Credit for 2020.
The Internal Revenue Service (IRS) published information on its website last week on how business owners who didn’t get their forgiveness can take advantage of the tax credit when they file Form 941 (employer’s quarterly federal tax return) for the fourth quarter. This change is thanks to a provision in the New Covid Package that allows employers to claim both PPP loans and ERC
The IRS stated that an eligible business owner can claim the ERC for any qualified wages that are not part of payroll costs in obtaining PPP loan forgiveness.
“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. You can also report on your 4th quarter Form 941 any ERC attributable to health expenses that are qualified wages that you didn’t include on your 2nd and/or 3rd quarter Form 941,” said the IRS.
Business owners who opt to utilize this limited fourth quarter procedure should:
- Add the ERC amount that is attributable to these second and/or third quarter qualified wages and health expenses on line 11c or line 13d (as relevant) of your original 4th quarter Form 941 (along with any other ERC for qualified wages paid in the fourth quarter).
- Add the amount of these qualified wages paid during the second and/or third quarter (not including health plan costs) on line 21 of your original fourth quarter Form 941 (along with any qualified wages paid in the fourth quarter)
- You also need to enter the same amount on Worksheet 1, Step 3, line 3a.
- Include the amount of these health plan costs from the second and/or third quarter online 22 of the fourth quarter Form 941 (along with any health costs for the fourth quarter)
- Then you should enter the same amount on Worksheet 1, Step 3, line 3b.
Due to limited timeframe, the procedure above might be difficult to implement. As such, the IRS provides an option that you can do 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.
On this matter, we expect the IRS to provide more clarification and guidance in the coming days to clarify the confusion. For instance, the Agency has not yet clear out how a business owner can opt out of ERC for otherwise qualified wages the business owners want to use for PPP forgiveness.
If you are interested to know more about ERC or PPP, you may book a non-commitment free consultation with us at https://calendly.com/levine-and-associates or send us an email at josh@levineandassoc.com.