PracticeCFO Comments on the ERC Credit and PPP2
Dear Clients & Friends of PracticeCFO,
We wanted to quickly address two follow-up comments with the recent Consolidations Appropriates Act:
- The Employee Retention Credit (ERC): This credit is quite interesting to us. In our first calculations, it can be significant. It requires no certification (like PPP2), is now eligible even if you received PPP1, and can be applied for retroactively. If your office was “partially or fully suspended due to COVID-19 orders from an appropriate governmental authority”, then you are eligible for the quarter in which you were suspended AND the following quarter automatically. For most of you, that would be 2020 Q2 and Q3. The credit is equal to 50% of your employees wages during those two quarters with a max of $10,000 in wages per employee. (So the credit would be up to $5,000 total per employee). Keep in mind that any PPP applied toward wages disqualify those same wages from the ERC credit (i.e. no double dipping). But in our analysis of most practices, the PPP allocated to wages was used up within the first two months after receiving it. Considering that for most dental practice owners, the ERC uses eligible wages for six months of pay, most of you would still have plenty of ERC eligible wages, likely up to the full $10,000 per full-time staff member.
Here's the problem. This is a payroll tax credit. Therefore, your payroll company will need to file for this credit on a 941. The IRS has not provided guidance on how the payroll provider (i.e. MyPay Solutions) is to process this credit since the 941 payroll tax returns have already been filed for 2020 Q2 and Q3 (See screenshot below from the IRS webpage). So at this time, MyPay Solutions, along with all payroll companies we suspect, aren't clear on the process of applying retroactively to get this credit. We recommend to wait a bit until the IRS provides the guidance we all need to figure this thing out. Once that guidance is provided, we’ll let you know and may assist you with the application process together with MyPay Solutions. Based on our understanding of the law, we have until July 1, 2021 to apply when the credit expires.
From the IRS webpage on the ERC:
- PPP2: Seems we hit a hot button with our prior global email. In the original legislation, there was no mention of the certification that the loan is required to sustain your operations given the economic uncertainty. Then, a few days later when the SBA released the application, to our surprise it did in fact include the certification. Our intent with our last email was to state our opinion based on our reading of the law and that SBA application, as well as our insight into the financial condition of the dental industry collectively. Consequently, we didn’t feel it was appropriate for PracticeCFO to proactively offer to advise on these applications, especially considering the higher likelihood of an audit of PPP2 over PPP1. However, and it’s a big however, we support each practice in determining if they need PPP2 funds to sustain their practice operations. You know your own practice better than anyone. If you have questions, or ultimately need assistance, please reach out. We don’t know how fast the PPP2 funds will dry up, but with the new administration talking about more stimulus already, and their ability to execute on it now, it appears the reservoir of stimulus may never run dry.