Denied PPP Forgiveness? Another Option Might Reduce Liability

After a year of tumultuous changes—pandemics, recessions, lockdowns, and the like, 2021 is upon us. But alongside the pandemic came the CARES Act and the associated Paycheck Protection Program, providing forgivable loans to businesses whose revenue was impacted by the lockdowns. The program, as you know, was tough to set up.

PPP Saved Businesses; Created Headaches

Nuanced rules made the process of applying for forgiveness unclear, and despite the best efforts of the Small Business Administration to explain how things work, many were left confused. Unfortunately, this confusion may have left some businesses on the outside looking in as it pertains to the forgiveness side of the loan.

If this applies to you—maybe you didn’t file the application properly, maybe you didn’t meet the percentage of expenses requirement, or maybe there was some other concern—you may be under the assumption that you have no options and you’ll be stuck paying back the loan. Luckily, you may have some relief.

Employee Retention Credit for Rejected Forgiveness

As reported by Accounting Today, you may be eligible for a tax credit in the event that you were denied forgiveness. Announced by the IRS in January, employers who didn’t get the requested forgiveness can claim the Employee Retention Credit on Form 941.

“Under section 206(c) of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, an employer that is eligible for the employee retention credit (ERC) can claim the ERC even if the employer has received a Small Business Interruption Loan under the Paycheck Protection Program (PPP). The eligible employer can claim the ERC on any qualified wages that are not counted as payroll costs in obtaining PPP loan forgiveness. Any wages that could count toward eligibility for the ERC or PPP loan forgiveness can be applied to either of these two programs, but not both.

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.”

Accounting Today adds that if a business was to use this procedure, it should dd the Employee Retention Credit amount that’s attributable to the second and/or third quarter qualified wages and health expenses on line 11c or line 13d (as relevant) of their original fourth quarter Form 941 (along with any other ERC for qualified wages paid in the fourth quarter).

Getting the Most out of the New Year: Join the Controllers Council

Changes over the course of the year will present even more questions. Whether it’s the forgiveness issues or the taxation fallout, it’s vital to have a place where you can keep up with all the latest guidance and discuss new approaches.

The Controllers Council was created for this exact reason. We launched as a place to share all the latest news and provide a place where you can discuss your approach with others in the community. Get to know more about our community here and learn about all the other benefits of joining today!