More Information on PPP2 & Employee Retention Credits

Please note: This blog is current to the date of its publication, Thursday, Jan. 7. For additional updates or assistance navigating these uncertain times, please contact us or visit our SST COVID-19 resource page.

The most recent legislation allows potential Paycheck Protection Program (PPP) borrowers with no more than 300 employees and gross receipts in the first, second or third quarter of 2020 that were at least 25 percent less than during the same quarter of 2019 to apply for a second loan.

If the PPP2 loan application is filed after Dec. 31, 2020, then the fourth quarter comparison can be used for comparison with the 4th quarter of 2019. Special rules apply if the organization was not in business in those quarters. The eligible loan amount will be two and a half times a borrower’s average monthly salary (three and a half months for borrowers in the hospitality industry) in the year prior to the loan or the calendar year, up to $2 million. A chart that illustrates eligibility is as follows:

  2020 2019 % Decrease
QTR 1 $800,000 $1,000,000 20%
QTR 2 $740,000 $1,000,000 26%
QTR 3 $800,000 $1,000,000 20%
QTR 4 $800,000 $1,000,000 20%

From this example one can see that the second quarter drop of 26% fulfills the requirement noted above. A simple chart such as this allows a business owner to quickly determine if their business qualifies.

This new law provides special assistance to the ailing hospitality industry by allowing them to account for the 300 maximum allowed employees by geographic location. The program also helps certain IRS Section 501(c)(6) organizations, housing cooperatives, certain news organizations, and destination marketing organizations.


Borrowers were not eligible for employee retention credits (ERCs) in PPP Round One, 2020.

The new law now, however, allows PPP borrowers to claim these credits for eligible wages that were not used for loan forgiveness.

This is extremely beneficial to smaller employers having 100 or less FTEs. This can provide the employer with cash but will require amending quarterly payroll reports previously filed. For example, for a qualifying small business with 25 employees this could equate to $125,000 of ERC’s for 2020 and an additional $350,000 for 2021. The ERC is monetized through payroll tax withholdings. For the 2020 4th quarter, a client’s payroll tax liability could very well be eliminated altogether, with the remaining ERC benefit to be received via IRS refund check.

The original deadline to file for 2020 ERCs is Jan. 31, 2021 (original filing deadline for 2020 Q4 Forms 941). If you want to obtain this credit, you will need to have the computations and return completed by this date.


An employee retention credit is an annual payroll tax credit equal to 50 percent (in 2020) of up to $10,000 in wages and health benefits paid to certain employees of eligible employers who have experienced a significant decline in gross receipts during a calendar quarter compared the calendar quarter in 2019.

Eligible Employer: One who has had a full or partial suspension of operations due to a government order limiting commerce, travel or group meetings due to COVID-19.

Significant Decline: A decline in gross receipts during a calendar quarter in 2020 as compared to the same calendar quarter in 2019, assessed beginning in the first quarter of 2020 in which the gross receipts decrease as compared to the prior year by more than 50%, and ending with the earlier of Jan. 1, 2021, or the first calendar quarter following for which the gross receipts are greater than 80% of the gross receipts for the same calendar quarter in 2019.

Eligible Wages: For employers averaging 100 or fewer full-time employees in 2019 include all wages and health benefits paid up to the $10,000 limit. Eligible wages for employers with more than 100 full- time workers in 2019 are wages and health benefits paid to workers who are not providing services due to an economic hardship because of the partial or full suspension of operations or the decline in revenue.

The following chart illustrates how “significant decline” would be determined for 2020:

  2020 GR 2019 GR % Decrease
QTR 1 $490,000 $1,000,000 (51%) Yes, qualifies
QTR 2 $790,000 $1,000,000 (21%) Yes, qualifies
QTR 3 $900,000 $1,000,000 (10%) Yes, qualifies
QTR 4 $1,000,000 $1,000,000 NO, exceeded 80% of prior revenue (*) in 3rd quarter

(*) Because the revenue exceeded 80% of the prior year quarterly revenue in the third quarter, the decline is no longer considered “significant” and they are no longer eligible for the credit after the third quarter.


With the 2021 new legislation, employee retention credits became vastly more beneficial. For wages paid between Jan. 1, 2021, and June 30, 2021, the credit amount is now increased to 70%, and the wage limit is increased to $10,000 per quarter per employee. Additionally, the gross revenue requirements have changed significantly. The following chart simplifies the changes from 2020 to 2021:

  2020 2021
Gross receipts must decrease at least 50% for one quarter? Yes N/A
Gross receipts must decrease at least 20% for at least one quarter qualifies? No Yes
Partial shutdown for COVID order was in effect? Yes Yes
Rate of credit applicable 50% 70%
Maximum wages per employee allowed $10,000/year $10,000/quarter
Can elect NOT to take credit for some wages? Yes Yes
Can get PPP AND claim retention credit? Yes Yes
No double counting of wages allowed as between PPP and RC? Correct Correct

PPP-1 borrowers who previously repaid their loan may reapply under special guidance to be issued soon.


For 2021, the actual wage calculation for quarters one and two may be compared to 2019 in order to increase the certainty that the employer will get the credit:

  2021 Wages 2019 Wages % Decrease
QTR 1 $79,000 $100,000 21% – Qualified
QTR 2 $75,000 $100,000 25% – Qualified

In this example, the employer elects to hold back some employee wages in order to maximize their PPP forgiveness.

These latest changes may be financially significant and timely for you and your business. SST is ready to assist you in maximizing these financial benefits. Please contact Rachel Alexander or your Employee Retention Credit Team at SST for help, and visit our COVID-19 response page for timely updates regarding PPP legislation.

Special thanks to SST Senior Tax Manager Rachel Alexander for providing the content for this post.