Getting your Paycheck Protection Program (PPP) Loan forgiven and Claiming the Employee Retention Credit

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By Kislay Banka and Juhi Khandelwal

Originally introduced in March 2020, both the Paycheck Protection Program (PPP) and the Employee Retention Credit (ERC) have expanded to serve a larger proportion of United States businesses during the COVID-19 pandemic. Luckily, it is possible for employers to get their PPP loans forgiven and still claim the ERC on their 2020 taxes. Together, these two measures provide significant financial relief to American businesses.

What are the PPP and the ERC?

With the passing of the Consolidated Appropriations Act, 2020, many employers are now eligible for both PPP loans and the ERC.

PPP Loans and Eligibility Rules

PPP loans are funds provided by the Small Business Administration (SBA) that allow small businesses to cover payroll and other eligible costs. Under the CAA, certain businesses who already took out a PPP loan are eligible for a second draw PPP loan through March 31, 2021.

PPP loans are 100% forgivable on the principal loan amount and accrued interest if employers:

  • Spend at least 60% of their loan proceeds on qualifying payroll costs, and no more than 40% of loan proceeds on qualifying non-payroll costs.
  • Spend the entire amount of the loan during the loan’s eight- to 24-week covered period.
  • Maintain their employee headcount at pre-pandemic levels.
  • Pay employees at least 75% of their 2019 salary (for employees earning $100,000 or less in 2019).

The amount of the loan eligible for forgiveness is reduced when a company fails to meet the requirements above. Any loan amount that is not forgiven will need to be repaid, along with a 1% fixed annual interest rate charge on the unforgiven loan amount.

All small businesses with 500 or fewer employees, and some businesses in certain industries with more than 500 employees, can apply for a PPP loan. This includes self-employed individuals, independent contractors, sole proprietorships, nonprofits, veterans’ organizations, and tribal businesses. 

The ERC’s Eligibility Rules

The ERC is a refundable payroll tax credit that employers can claim on their federal employment tax return to cover employee wages and qualified health plan expenses paid between March 12, 2020 and July 1, 2021. It is also available to companies with 500 or fewer employees.

Because it is a refundable tax credit, the ERC reduces the total amount of taxes owed by a company, dollar-for-dollar. If the credit exceeds the total payroll taxes owed, then the business will receive the difference as a refund.

Businesses can qualify for the ERC if they experienced either of the following in any calendar quarter in 2020:

  1. Fully or partially suspended operations due to COVID-19-related government orders.
  2. A drop in gross receipts:
    • 2021 tax year: 20% gross receipts drop between corresponding quarters of 2019 and 2020.
    • 2020 tax year: 50% fall in gross receipts between corresponding quarters of 2019 and 2020.

The amount of credit available for the ERC varies based on the tax year.

  • 2020:
    • Up to 50% of qualified wages and health benefits.
    • Maximum of $10,000 per employee.
  • 2021:
    • Up to 50% of qualified wages and health benefits.
    • Maximum of $7,000 per employee per quarter, or $14,000 per year.

Companies do not have to repay the ERC. However, businesses that receive an advance of the credit using Form 7200 will need to account for that amount when filing their federal employment tax return.

PPP Loan Forgiveness and ERC Eligibility

Businesses can obtain full PPP loan forgiveness and still claim the ERC retroactive to March 13, 2020. However, employers cannot not use the same wages for both PPP loan forgiveness and for the ERC.

Most eligible employers will have enough wages to support full PPP loan forgiveness and the ERC. Businesses should carefully ensure that they are not using the same wages for both. Businesses may want to follow these steps with their trusted accountant:

  • Maximize the 40% of non-payroll expenses allowed for PPP loan forgiveness.
  • Determine the wages that can be applied to the ERC by quarter.
  • Apply the remaining wages that were not used by ERC during the PPP loan’s covered period for PPP loan forgiveness.

Businesses whose requests for PPP loan forgiveness were denied for wages paid in the second and third quarters of 2020 can claim the ERC related to those qualified wages on their fourth quarter 2020 Form 941, Employer’s Quarterly Federal Tax Return.


Many businesses are eligible for the ERC and PPP loan forgiveness. Contact your trusted Chugh CPAs, LLP professional to maximize your PPP loan forgiveness, claim the ERC, apply for a second-draw PPP loan, and more.