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Employee Retention Credit or Paycheck Protection Program?

You must decide before May 14th, 2020

The Coronavirus Aid, Relief, and Economic Security (CARES) Act created a new employee retention credit to assist employers affected by the COVID-19 pandemic. The credit is available to eligible employers and is equal to 50% of qualified wages paid to each eligible employee between March 12, 2020 and December 31st, 2020. There is a cap of $10,000 in wages, meaning the maximum credit per employee is $5,000.

The Paycheck Protection Program (PPP) loans impact the ability of businesses to claim other incentives under the CARES Act such as the employee retention credit described above. However, since there is a safe harbor through May 14th for returning PPP loans, the IRS has issued guidance explaining the interaction of PPP loans and the retention credit. Employers that return a PPP loan by May 14th will be treated as if they hadn’t received the loan at all, making the employer elegible for the employee retention credit. Employers must decide which program is more beneficial and take action by May 14th.

The IRS has published substantial updates to its list of FAQs but it is unclear whether the it will undertake a more formal guidance project for the retention credit such as issuing regulations.

Specific details regarding the employee retention credit will be discussed in another article.

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