PPP Loan and Other Coronavirus Tax Benefits
An employer applying for a PPP loan should be aware of how a PPP loan will affect the employer’s ability to take advantage of three coronavirus-related tax benefits: the Payroll Tax Deferral, the Retention Credit and Families First Coronavirus Response Act (FFCRA) Credits.
Under the Coronavirus Aid, Relief and Economic Security Act (CARES Act), employers may defer paying the employer portion of Social Security payroll taxes through December 31, 2020 (Payroll Tax Deferral). Fifty percent of the deferred taxes will be due by December 31, 2021, and the other 50% will be due December 31, 2022.
An employer who has obtained a PPP loan may take advantage of the Payroll Tax Deferral up until its lender forgives the PPP loan, after which point the employer may no longer defer its payment of the employer’s share of Social Security taxes. Taxes deferred prior to PPP loan forgiveness continue to be deferred.
The CARES Act also provides a refundable payroll tax credit for 50% of wages paid (capped at the first $10,000 of wages paid, for a maximum credit of $5,000 per employee) to certain employees by employers affected by coronavirus, including nonprofits (Retention Credit). The number of the employer’s average full-time employees in 2019 determines whether all employees’ wages qualify for the Retention Credit or only those furloughed or faced with reduced hours.
An employer receiving the Retention Credit, however, may not obtain a PPP loan.
Employers may receive tax credits with respect to paid sick leave and paid family and medical leave required under FFCRA Credits. An employer may receive a PPP loan and FFRCA Credits, but an employer receiving FFCRA Credits for qualified leave wages cannot treat those wages as eligible “payroll costs” for purposes of receiving forgiveness of a PPP loan.
Click here to learn more about the tax implications of the FFCRA, the CARES Act and the PPP loan program.
Practice Pointer: Recent federal relief programs offer critical aid to employers affected by coronavirus. Businesses should be aware that these programs, including PPP loans and FFCRA Credits, have unique tax implications that may affect whether and how businesses may be able to utilize these programs.
Please contact Douglas Turner Coats with any questions concerning these topics.