IRS Update on PPP Loan Forgiveness and Employee Retention Credit

Published on May 8, 2020 by Cheryl Ganim in COVID-19, Tax Services

PPP Loan forgiveness guidance promised before May 14, 2020

IRS FAQ #79 clarifies the US Treasury May 6, 2020 FAQ, providing that employers that decide to repay their PPP loan by the May 14, 2020 deadline may claim the employee retention credit after repaying the PPP loan.

Employee Retention Credit (ERC)

Qualified health plan expenses for furloughed employees = Qualified Wages for the ERC.

The IRS reversed its previously announced position in today’s FAQ to now treat qualified health plan expenses paid during a furloughed period as qualified wages for purposes of the employee retention credit. Qualified health plan expenses are determined separately for each plan, e.g., group health plan and a health flexible spending arrangement. The amount of qualified health plan expenses may include contributions to an HRA (including an individual coverage HRA), or a health FSA, but does not include contributions to a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).

• Eligible employers that averaged 100 or fewer full-time employees in 2019 may treat health plan expenses allocable to the applicable covered periods as qualified wages, even if the employees are not working and the Eligible Employer does not pay the employees any wages for the time they are not working.
• An eligible employer that averaged more than 100 full-time employees in 2019 may treat its health plan expenses paid or incurred, after March 12, 2020, and before January 1, 2021, for employees who are not providing services during any period in a calendar quarter in which the employer’s business operations were fully or partially suspended due to a governmental order, or a calendar quarter in which the employer experiences a significant decline in gross receipts as qualified wages, subject to the maximum of $10,000 per employee for all calendar quarters for all qualified wages.
• An eligible employer who sponsors a fully-insured group health plan may use any reasonable method to determine and allocate the plan expenses, including:
  1. The COBRA applicable premium for the employee typically available from the insurer,
  2. One average premium rate for all employees, or;
  3. A substantially similar method that takes into account the average premium rate determined separately for employees with self-only and other than self-only coverage.

Additional Resources

Visit Barnes Dennig’s COVID-19 Resource Center for a comprehensive list of resources. Please contact our COVID-19 Advisory Team or any of our leadership team at Barnes Dennig to discuss.

Barnes Dennig COVID-19 Advisory Team

• Cheryl Ganim
• Andy Bertke
• Matt Rosen
• Ryan Lauer
• Nick Pennekamp

Given the size and complexity and scale of the government’s response to the pandemic and the fact that the legislation was passed quickly, more guidance is needed and being published almost daily. The information on this page is subject to change.

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