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The Consolidated Appropriations Act, signed into law by the President on Dec. 27, 2020, allows employers with a Paycheck Protection Program (PPP) loan to also claim the Employee Retention Credit (ERC). Additionally, in the case of taxpayers who had not already received the PPP forgiveness decision by Dec. 27, 2020, it expands the types of expenses for which taxpayers may receive forgiveness.

These changes were made retroactively effective as if they originally existed when the programs were established. In light of this, taxpayers will now be able to claim the ERC for 2020.

The primary limitation on the ability to claim both benefits is that a taxpayer may not receive PPP forgiveness with respect to "qualified wages taken into account" in claiming the ERC. As a result, taxpayers with a PPP loan will want to carefully evaluate and select the expenses and individual wage payments used to apply for PPP forgiveness. In some situations, failure to do so might result in permanently forgone tax credits.

It is highly recommended that any taxpayer with a PPP loan who has applied for, but not yet received, loan forgiveness contact their bank immediately to discuss the status of their forgiveness application and the potential to submit a revised application after consulting with their tax advisor.

In instances where the bank is still processing the application and has not yet submitted it to the Small Business Administration (SBA), the bank may, upon your request, be able to delay and allow for revisions directly. In other instances, additional guidance from the SBA may be needed.

Related Webinar: Employee Retention Credit Enhancements & Interplay with PPP Loans

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