SBA Updated PPP Loan Guidance Addresses the
Counting of Employees of Foreign and U.S. Affiliates
and the Employee Retention Credit

Marty McCarthy, CPA, CCIFP
Focused on You. Dedicated to Your Success.
May 7, 2020

There have been so many questions on Paycheck Protection Program (PPP) loans and loan forgiveness that the Small Business Administration (SBA) is updating it PPP FAQs almost daily.

Today we noted that the SBA added two questions. The first one addresses the counting of employees of foreign and U.S. affiliates . The SBA clarified that for purposes of the PPP’s 500 or fewer employee size standard, an applicant must count all of its employees and the employees of its U.S and foreign affiliates, absent a waiver of or an exception to the affiliation rules (13 C.F.R. 121.301(f)(6)) .  Business concerns seeking to qualify as a “small business concern” under section 3 of the Small Business Act (15 U.S.C. 632) on the basis of the employee-based size standard must do the same.

The second FAQ states that an employer that applied for a PPP loan, received payment, and repays the loan by the safe harbor deadline (May 14, 2020) will be treated as though the employer had not received a covered loan under the PPP for purposes of the Employee Retention Credit . Therefore, the employer may be eligible for the credit if the employer is otherwise an eligible employer for purposes of the credit.
 
As previously reported, the Employee Retention Credit is a refundable tax credit against certain employment taxes equal to 50 percent of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021. Eligible employers can get immediate access to the credit by reducing employment tax deposits they are otherwise required to make. Also, if the employer's employment tax deposits are not sufficient to cover the credit, the employer may get an advance payment from the IRS.

For each employee, wages (including certain health plan costs) up to $10,000 can be counted to determine the amount of the 50% credit. Because this credit can apply to wages already paid after March 12, 2020, many struggling employers can get access to this credit by reducing upcoming deposits or requesting an advance credit on Form 7200, Advance of Employer Credits Due To COVID-19 .

Employers, including tax-exempt organizations, are eligible for the credit if they operate a trade or business during calendar year 2020 and experience either the full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, or a significant decline in gross receipts. Rules apply so I encourage you to read about the Employee Retention Credit.

Beginning in the second quarter, most employers can claim the credit by reporting their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns Form 941.

Impact of Other Credit and Relief Provisions
An eligible employer's ability to claim the Employee Retention Credit is impacted by other credit and relief provisions as follows:
  • If an employer receives a PPP loan, then the employer is not eligible for the Employee Retention Credit.
  • Wages for this credit do not include wages for which the employer received a tax credit for paid sick and family leave under the Families First Coronavirus Response Act (FFCRA).
  • Wages counted for this credit cannot be counted for the credit for paid family and medical leave under section 45S of the Internal Revenue Code.
  • Employees are not counted for this credit if the employer is allowed a Work Opportunity Tax Credit under section 51 of the Internal Revenue Code for the employee.

We will continue to update you on new developments. Please visit our COVID-19 Resource Page for more alerts.

Feel free to contact any member of our team at (610) 828-1900 (PA) or (732) 341-3893 (NJ) with questions. Rich Higgins, CPA, managing principal – New Jersey office can be contacted at Richard.Higgins@MCC-CPAs.com . I can be reached at Marty.McCarthy@MCC-CPAs.com . As always, we are happy to help.

Stay safe,

Marty McCarthy, CPA, CCIFP
Managing Partner
McCarthy & Company

Sources: Small Business Administration and Internal Revenue Service

Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).