As the SBA has advised borrowers who don’t want to have to worry about being asked about whether their certification that their loan application was necessary was made in good faith to repay those loans by May 7 (recently extended to May 14), a question has arisen regarding the employee retention credit (ERC).

An employer who receives a PPP loan is not eligible to claim the employee retention credit per CARES Act §2301(g). If an employer decides to return its PPP loan under the SBA’s safe harbor repayment program, are they still ineligible for the ERC since they did have a PPP loan, even though they have now repaid it?

In now current Question 80 on the IRS’s page for “COVID-19-Related Employee Retention Credits: Interaction with Other Credit and Relief Provisions FAQs,”[1] the answer is that employers who return the funds by May 7 will be able to claim the ERC if otherwise eligible.  The question and answer read:

80. Is an employer that repays its Paycheck Protection Program (PPP) loan by May 7, 2020, eligible for the Employee Retention Credit? (updated May 4, 2020)

Yes. An employer that applied for a PPP loan, received payment, and repays the loan by May 7, 2020 (in accordance with the Limited Safe Harbor With Respect to Certification Concerning Need for PPP Loan Request in the Interim Final Rules issued by the Small Business Administration effective on April 28, 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 will be eligible for the credit if the employer is otherwise an Eligible Employer.  For more information, see Business Loan Program Temporary Changes; Paycheck Protection Program—Requirements—Promissory Notes, Authorizations, Affiliation, and Eligibility (PDF).

It seems likely (but not assured) that the IRS will update this guidance to take into account the extension that the SBA has offered, but for now the page still contains the May 7 due date, referring solely to the April 28, 2020 interim final rules published by the SBA.

[1] “COVID-19-Related Employee Retention Credits: Interaction with Other Credit and Relief Provisions FAQs,” Internal Revenue Service web page, May 6, 2020, https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-interaction-with-other-credit-and-relief-provisions-faqs (retrieved May 6, 2020)