2021 Update to PPP loans and Employee Retention Tax Credit

During the January 5th Small Business Update, U.S. Chamber of Commerce executive vice president and chief policy officer, Neil Bradley, discussed the recently-passed  $900 billion coronavirus stimulus bill in more detail. Below is a breakdown on what to expect from the Employee Retention Tax Credit (ERTC), second draw PPP loans, Economic Injury Disaster Loans (EIDLs), and new live-venue grants.

Do you qualify for the Employee Retention Tax Credit?

Back in March 2020, the CARES Act included the ERTC as an option to businesses looking for financial relief. However, companies had to choose between taking a PPP loan or the ERTC in the original bill. 

This stipulation has now been lifted in the new bill, allowing companies to take advantage of both ERTC and PPP. The ERTC has also been expanded for 2021 so that in the first and second quarter of 2021, employers that meet the eligibility can receive a tax credit for up to $14,000 per employee. 

Many businesses may now also qualify for smaller credits that were offered in 2020, which are worth a maximum of $5,000 per employee. 

“If I have one takeaway, it’s to pay attention to this tax credit,” Bradley said. “Small businesses had to choose between taking a PPP loan or getting the Employee Retention Tax Credit. A lot of people gravitated toward PPP because, frankly, it was a better deal. Congress has removed that prohibition about taking advantage of both. So now, if you took out a PPP loan in 2020, you can take advantage of the ERTC in 2021 and may be able to apply part of it looking backward for 2020. This is a more generous opportunity than what was originally in the CARES Act.”

Additionally, the Employee Retention Tax Credit is both refundable and advanceable for businesses who qualify. This means potentially having the ability to get the tax credit back early in the form of a check.

“The IRS sends you a check for the difference between what you would have paid in taxes and the eligible tax credit,” Bradley said. “Importantly, you can apply to receive an advance on this tax credit, which can help with cash-flow issues.”

Businesses should talk with their tax preparers and payroll companies immediately to see if they can take advantage of the expanded ERTC.

You might be interested: How to request forgiveness for PPP sole proprietor

When to expect new PPP, EIDL grant and live venue grant applications 

The new stimulus bill was signed into law on December 27, so now in the new year many businesses are now wondering when they can expect applications to be available. 

For PPP, businesses should be in touch with lenders so they can be ready to submit applications as soon as they are accepting them. For EIDL grants and live venue grants, companies should look for new portals on the Small Business Administration’s website.

The “second draw” PPP program is much more targeted

The new second draw PPP program is more targeted this time around. Businesses and nonprofits with fewer than 300 employees that have exhausted their first PPP loan and have seen a reduction in revenue of 25% in a single quarter of 2020 should be eligible.

“The second draw PPP is really an opportunity for the hardest-hit small businesses to get another loan that can also be forgiven,” Bradley said. “If your business is only off 5%, you don’t qualify for the second PPP even if you qualified for the first.”

For more about PPP and the changes in the coronavirus relief bill see the U.S. Chamber’s Updated Guide to Small Business COVID-19 Emergency Loans.