Change Country

Tax & Assurance Guidance

Maximize PPP, ERC, and R&D Benefits

Posted on October 19, 2021 by

Bryan Powrozek

Bryan Powrozek

Share This

For businesses and individuals adversely impacted by the COVID-19 pandemic, much needed financial relief was provided when the Consolidated Appropriations Act, 2021 (CAA) was passed last December.

Key provisions of the Act affecting businesses:

  • Paycheck Protection Program (PPP) – forgivable loan(s)
  • Employee Retention Credit (ERC) – refundable credits against payroll taxes

The CAA also addresses the interplay for businesses that intend to claim the ERC in addition to the Research and Development (R&D) tax credit.

What happens if I have a PPP loan and wish to claim the ERC?

The CAA states that PPP borrowers can now deduct qualified PPP business expenses, paid from forgiven PPP loans, for tax purposes. The legislation marks a diametric change from a prior Internal Revenue Service (IRS) position regarding deductibility. However, PPP borrowers wishing to also claim the ERC need to proceed with caution since wages used to qualify for forgiveness related to PPP loans do not qualify for ERC. Therefore, to get the most out of ERC, it is recommended that businesses maximize:

  • PPP forgiveness before applying for ERC (since it is forgivable) 1st
  • Non-payroll expenses claimed in the PPP loan forgiveness application 2nd

The ability to maximize the non-payroll expenses in the PPP loan forgiveness application allows lenders to preserve wages for the ERC calculation.

Can I claim the ERC and still get the R&D credit?

Qualifying businesses looking to claim both credits need to be careful as wages used to claim the ERC are excluded from the calculation for the R&D tax credit. Businesses looking to claim both credits should take a thorough look at their qualified wages to ensure that they are maximizing the value they receive for both.

Analyze before you Act!

Ultimately, the CAA provided a slew of changes designed to help those who were financially impacted by the pandemic. For those looking to obtain forgiveness for their PPP loan as well as claim ERC and R&D tax credits, it is crucial to understand the interplay between PPP forgiveness and these credits and spend the time to analyze the qualifying wages to maximize their eligible benefit.

Contact Us

If you have any questions about the interplay between PPP, ERC and R&D Tax Credits, please contact us. We look forward to helping you analyze your qualifying wages and maximize your benefit.

Share This

Bryan Powrozek

Senior Manager, Industrial Automation

As the leader of the firm's industrial automation group and host of The Sound of Automation podcast, Bryan helps owners free up cash flow and scale their businesses.

Related Insights

Is Immediate R&D Expensing on The Horizon?

For the first time since 1953, taxpayers are not allowed an immediate deduction for R&E expenses and instead must capitalize and amortize such expenses. On March 17, 2023 a stand-alone bipartisan bill was reintroduced which would allow immediate expensing of R&D. Learn what this means for taxpayers.

by Sarah Russell

Section 174 Capitalization is Here

To the surprise (and dismay) of taxpayers and practitioners, Congress has been unable to repeal or defer the requirement to capitalize and amortize research and experimental (R&E) expenses under Internal Revenue Code Section 174.

by Sarah Russell

Meals and Entertainment Rules for 2022 Versus 2023

Understanding meals and entertainment expense deductions can be confusing. See the chart below for a summary of the meals and entertainment rules for 2022 versus 2023.

by Clayton & McKervey

The Sound of Automation Podcast

Industrial automation businesses are the driving force behind Industry 4.0, and Clayton & McKervey is here to help.

Skip to content