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PPP and the ERC – New Provisions and Increased Eligibility Could Benefit Some PPP Borrowers


Update as of 3/29/21 – As part of the American Rescue Plan (see blast here), the Employee Retention Credit (ERC) for 2021 was extended through December 31, 2021.  If you believe your business had a significant decline in gross receipts as defined below or was shut down during 2020 or 2021, contact your BP professional.

Berntson Porter is pleased to share this comprehensive report regarding the new stimulus bill. Please note that Employee Retention Credit (ERC) and Payroll Protection Program (PPP) regulations are complex, and in certain cases, official guidance is still pending. The aim of this report is to provide a high-level overview of these programs.

Our report details the Consolidated Appropriations Act, 2021 (“the Act”), aka the New Stimulus bill was signed into law by the President on December 27, 2020. This bill is over 5,500 pages, and enhances certain tax provisions of the CARES Act, as well as creating additional provisions which may be beneficial to taxpayers and business owners. This BP Blast will cover the following three programs, and potential coordination between them, subject to pending IRS and SBA guidance.

  • Employee Retention Credit – (“ERC”). The ERC was contained within the CARES Act, but this benefit was NOT available to taxpayers who took a PPP loan. The new Act allows PPP 1.0 borrowers to retroactively be eligible for the ERC credit for 2020. There are also changes to the ERC credit for 2021.
  • PPP 1.0 – The original Paycheck Protection Program many of us are familiar with. Any borrower under this program has now reached the end of their 8 or 24 week covered period, and has already applied for or is contemplating completion of their loan forgiveness application.
  • PPP 2.0 – A new round of funding from the Act, available to both first-time borrowers who did not take a loan under 1.0, as well as certain borrowers who qualify for a new draw.

2020 ERC

The ERC didn’t receive as much attention in 2020, as PPP 1.0 borrowers did not originally qualify for the ERC. For the 2020 version of the ERC, a business is eligible for a refundable payroll tax credit for up to an annual maximum of $5,000 per employee for qualified wages (50% credit rate based on a maximum of $10,000 of annual wages and certain healthcare costs) paid during a qualifying quarter between March 12, 2020 and December 31, 2020.

A business will have a qualifying quarter for purposes of the 2020 ERC if either of the following is true –

  • The business was either fully or partially suspended by government orders (a mandate to close or limit commerce, travel, group meetings), and not just guidance or a suggestion to close or alter operations.


  • A substantial drop (at least 50%) in gross receipts for a quarter in 2020 compared to that same quarter in 2019. For this test, a qualified quarter is deemed to end by January 1, 2021, or the first calendar quarter after the quarter in which gross receipts are greater than 80% of gross receipts compared to that same quarter in 2019 (whichever occurs first).

If your business qualifies based on the above criteria, the next step is to determine how many average monthly FTEs (full-time employees) the company had in 2019. A business with less than 100 monthly average FTEs for 2019 can have all wages for services qualify for the credit. A business with more than 100 monthly average FTE’s for 2019 will only have wages qualify if an employee was paid NOT to provide services (meaning the business was paying employees NOT to work).

Further guidance is expected from the IRS in the near future on how to use Form 941, Employer’s Quarterly Federal Tax Return, to retroactively claim the ERC. More details can be found at the IRS FAQ page.

Be Warned: For borrowers with a PPP loan, a company is not able to use the same eligible payroll dollars for calculating both PPP loan forgiveness and the 2020 ERC credit. Again, further guidance is coming on how to calculate credits for borrowers who now qualify for the ERC as a result of the Act, and the interplay with PPP loan forgiveness. Also of note, eligible employers claiming the ERC will also not be able to take an income tax deduction for the amount of the ERC claimed.

2021 ERC

The 2021 ERC modifies the qualifications a business needs to meet to be eligible to claim the credit, basically providing expanded eligibility. Additionally, the 2021 credit is more generous in the amount of refundable payroll tax credits available to qualified businesses and is available until June 30, 2021.

The most substantial change for qualification is the modification of the gross receipts test. For 2021, a business will have an eligible quarter if gross receipts are less than 80% of the same quarter in 2019. Note that 2019 is being used as the comparative year, instead of 2020.

A company will still have to look at the average monthly FTEs for 2019. The difference with the 2021 ERC is that a business with less than 500 monthly average FTEs for 2019 can have all wages for services qualify for the credit. A business with more than 500 monthly average FTEs for 2019 will only have wages qualify if an employee was paid NOT to provide services. This is a substantial increase from the 100 average monthly FTE limit for the 2020 ERC credit.

If a business qualifies in 2021, the ERC amount has been increased to 70% of qualified wages, capped at $10,000 per quarter, for a total credit of $7,000 per employee. If a business qualifies during both Q1 and Q2 of 2021, a maximum of $14,000 per employee would be the resulting credit. This is a substantial increase from the 2020 maximum of $5,000 for the entire year.

Again, the provision to not “double dip” on ERC wages and PPP covered wages remains. Thus, if a business plans to take a loan under PPP 2.0, an analysis is needed to optimize timing of the PPP loan in conjunction with the ERC wages, in order to maximize benefits under both scenarios.

2020 vs. 2021 ERC

As noted above, there are substantial differences between the 2020 and the 2021 ERC. Click here for an ERC comparison for the two years.

PPP 1.0

By now, a borrower is at the end of their covered period. By law, the last day of any borrower’s covered period would be 12/31/20, even if they hadn’t fully exhausted a 24-week covered period. In our experience, substantially all borrowers reached a 24 full weeks based on their funding date.

A borrower has 10 months after the end of their 8 or 24 week covered period in which to submit the loan forgiveness application. This gives most borrowers until sometime in the middle of 2021 before the forgiveness application will need to be filed. With the recent changes in the potential eligibility of borrowers for the 2020 ERC, we now recommend that borrowers fully analyze their payroll costs for both ERC and PPP purposes. For most businesses, there is no need to rush the loan forgiveness application process.

Additionally, it is expected that there will be new loan forgiveness applications released to incorporate some of the changes within the Act. As a reminder, some of the enhancements include additional eligible non-payroll costs, and a streamlined application for borrowers with loans of less than $150,000.

Many businesses have already filed their loan forgiveness applications with their lenders, and some have even been fully forgiven by the SBA. To borrowers who have applications with lenders that have not yet been sent to the SBA, consider contacting the lender to see if they will allow changes to the forgiveness application, should your business be eligible for the 2020 ERC. If the application has been sent to the SBA, or if the SBA has already fully forgiven the loan, a borrower is likely locked into the inputs that were used on the loan forgiveness application. We understand that these recent developments with the ERC potentially would have caused a company to use additional non-payroll costs in their application in order to potentially have ERC eligible wages. The unfortunate nature of PPP 1.0 is that the rules are constantly changing from Congress, the IRS and the SBA, which has led to confusion amongst borrowers. It is possible that there will be further guidance from either the IRS or SBA on the future ability to amend.

PPP 2.0

The rollout for PPP 2.0 is forthcoming and expected to be smoother than PPP 1.0, as lenders already have systems in place to assist borrowers. Further guidance from the SBA is expected later this week on the specific qualifications for borrowers. A high level overview is available in this previous BP Blast.


The expansion of the 2020 ERC to PPP borrowers, and the new 2021 ERC is an extremely new development, and it is filled with both complexity and new questions. As previously noted, guidance from the SBA and IRS is expected to be forthcoming in the next month.

We will continue to provide updates as additional information is released. At present, we are available to assist with the loan forgiveness application process – for additional information and to have one of our team members contact you, please fill out the intake form linked here. With the recent passage of the new bill, we are currently encouraging businesses to exercise caution and not rush the forgiveness application process. However, the intake form will let us know you are looking for help in the forgiveness application process.

For more information or assistance, please contact your Berntson Porter representative at 425-454-7990. We are here to help!

Berntson Porter is here to help businesses navigate these challenging times. Visit our Resource Center for up-to-date information about COVID-19 legislation that impacts you and your business.


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