The IRS has clarified that, 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 received a Small Business Interruption Loan under the Paycheck Protection Program (PPP). Accordingly, eligible employers can claim ERS on any qualified wages that are not counted as payroll costs in obtaining PPP loan forgiveness. However, any wages that could count toward eligibility for ERC or PPP loan forgiveness can be applied to wither of these programs, but not both.
Further, if an employer 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 the employer's request for forgiveness was denied, the employer could claim the ERC related to those qualified wages on its 4th quarter 2020 Form 941, Employer's Quarterly Federal Tax Return. Additionally, the employer could report on its 4th quarter Form 941 any ERC attributable to health expenses that are qualified wages that it did not include in its 2nd and/or 3rd quarter Form 941. Moreover, employers who chose the 4th quarter procedure must add the ERC attributable to these 2nd and/or 3rd quarter qualified wages and health expenses on line 11c or line 13d (as relevant) of their original 4th quarter Form 941 (along with any other ERC for qualified wages paid in the 4th quarter). Further, employers should:
- Include the amount of these qualified wages paid during the 2nd and/or 3rd quarter (excluding health plan expenses) on line 21 of your original 4th quarter Form 941 (along with any qualified wages paid in the 4th quarter).
- Enter the same amount on Worksheet 1, Step 3, line 3a.
- Include the amount of these health plan expenses from the 2nd and/or 3rd quarter on line 22 of the 4th quarter Form 941 (along with any health expenses for the 4th quarter)
- Enter the same amount on Worksheet 1, Step 3, line 3b.
Finally, the IRS recognized the difficulty implementing these procedures so late in the timeframe to file 4th quarter returns. Therefore, employers do not have use this limited 4th quarter procedures.
Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense. Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board. Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.
For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC
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Tel: (714) 463-4430 (Yorba Linda Office)