Top 15 PPP2 and Employee Retention Credit FAQs

January 14, 2021

Navigating the new stimulus package. On December 27, the president signed into law the 900 billion stimulus package and the guidance has been released and we’re simplifying it for you. Below are our top 15 most frequently asked questions from our latest webinar Where’s the Money? Part 12 Finding the most in the stimulus package.

1. Does PPP loans get recorded as income?

PPP loans are not recorded as income for tax purposes, they are treated as tax exempt income.

2. Our PPP Funding Was Exhausted by The End of July 2020, Can We Apply for Employee Retention Credit for Wages Paid from August 2020 To December 2020? Can We Also Apply for PPP Round Two?

Yes, you can potentially qualify for both the ERC credit as well as the PPP round two funds, if the requirements are met under both programs. There is no exclusion anymore where business need to choose the PPP over the retention credit, both can be obtained if eligible. The ERC rules for 2020 were not changed, so the taxpayer would need to either be shutdown by governmental order or have a reduction of gross receipts of greater than 50% in a quarter of 2020 compared to 2019. Additionally, the employee threshold remains at 100 for 2020.

3. Is the 300 employee count based on current employment levels or pre-pandemic levels?

The 300 employee count is determined at the time of the loan application.

4. What relevant period is used when calculating eligible payroll costs under the PPP round two? 

PPP round two is either calendar year 2020, the twelve-month period prior to when the loan is made or calendar year 2019. The borrower has the option to elect either timeframe when applying for the loan.

5.  If you previously applied for forgiveness and received an EIDL advance, will the advance be forgiven now?

The EIDL change is only eligible to borrowers who have not yet applied for loan forgiveness.

6. Does affiliation rules affect an applicant’s eligibility for PPP round two?

The eligibility for PPP round two is governed by the same affiliation rules (and waivers) as the PPP round one, except for any business entity that is assigned a NAICS code beginning with 72 for the employee headcount is then looked at on a per location basis.

7. Are there any requirements to maintain a flat headcount for the PPP round two?

The headcount reduction and wage reduction components of PPP 1 were unchanged for the PPP 2.

8. If you previously received first round of PPP, can you apply for PPP round two?

Yes, main eligibility criteria include having previously received PPP round one, as well as other requirements. (300 employees and reduction in gross receipts of at least 25% in any quarter 2020 vs 2019, as defined). However, if you did not receive PPP 1, you are still eligible to apply for the PPP under the PPP 1 loan amount considerations.

9. What is the revenue reduction requirement to qualify for PPP round two?

The Economic Aid Act provided that to be eligible for PPP round two, the borrower must have experienced a revenue reduction of at least 25% in 2020 relative to 2019. This can be met by either a quarterly reduction in gross receipts from one quarter in 2020 vs 2019 or have an option to use the annual gross receipts for a reduction of at least 25%.

10. When applying for round two of PPP and determining gross receipts decrease of at least 25%, are the receipts on a cash basis, or accrual basis? 

Gross receipts include all revenue in any form received or accrued. The method of calculating applicable gross receipts need to be in accordance with the entity’s accounting method reporting on the tax return.

11. Are you able to qualify for PPP round 2 and apply, if the first PPP has not been forgiven yet, or even a forgiveness application has been submitted?

In order to get obtain PPP round two, the entity must have gotten PPP round one and have used or will use the full amount of the first draw PPP loan on or before the expected date on which the second draw PPP loan is disbursed. There also must be 300 or fewer employees and experienced at least a 25% revenue reduction in 2020 relative to 2019, as defined.

12. What are the terms for the PPP round two loan?

Second draw PPP loans will be subject to the similar terms to PPP round one. PPP round two loans will be fully guaranteed by the government without need of personal guarantees. Interest rate at 100 basis points or one percent on a non-compounding basis with maturity of 5 years.

13. What is the definition of gross receipts?

Gross receipts include all revenue includes from sales of products, services, interest dividends, rents, royalties, fees or commissions, reduced by returns and allowances. Gross receipts exclude net capital gains, or losses, taxes collected for and remitted to taxing authorities as well as sales to affiliates.

14. For the retention credit–is it still only for employees you pay but who are not providing services (i.e. are not working but you are still paying them)?

Yes, for employers with more than 500 employees. If under 500 employees, all wages are now eligible, assuming the other criteria is met.

15. How long does the lender have to disburse PPP round two funds?

Lenders must make disbursements of the loan within ten calendar days of the loan approval.

 

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Disclaimer of Liability

The information provided here is for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation.

Mazars USA LLP is an independent member firm of Mazars Group.


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