PPP Loan vs. Employee Retention Credit | Which Should You Choose?
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Should I Take Out a PPP Loan or Claim the Employee Retention Credit?

Updated 6/5/2020 to reflect the passage of the Paycheck Protection Program Flexibility Act.
Two of the most sought-after forms of coronavirus relief for employers are Paycheck Protection Program (PPP) loans and the Employee Retention Credit. Unfortunately, you can’t take advantage of both.

So, when it comes to a PPP loan vs. Employee Retention Credit, which should you choose?

Get the facts about both types of relief measures so you can make an informed decision and choose the one that best suits your small business. 

PPP loan vs. Employee Retention Credit 

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) established both the Paycheck Protection Program and Employee Retention Credit. 

Both relief measures encourage employers to keep employees on their payroll. They essentially provide employers with funds to cover payroll costs. One comes in the form of an SBA-guaranteed loan and the other in the form of a payroll tax credit

Compare your options below.

What are they?

Paycheck Protection Program: The PPP is a forgivable loan employers can apply for through an approved lender to help cover payroll costs (wages up to $100,000, employee benefits, and state and local taxes). Employers can also use some of the funds (40%) to cover interest on mortgages, rent, and utilities. 

Employee Retention Credit: The credit is a refundable payroll tax credit employers can claim on their federal employment tax return to cover employee wages and qualified health plan expenses associated with those wages. 

Am I eligible? 

Paycheck Protection Program: All small businesses with 500 or fewer employees and some businesses in certain industries with more than 500 employees can apply for a PPP loan. This includes self-employed individuals, independent contractors, sole proprietorships, nonprofits, veterans organizations, and tribal businesses. 

Employee Retention Credit: Employers of any size are eligible for the Employee Retention Credit if they meet the qualifications. But, self-employed individuals cannot claim the credit for their self-employment services or earnings. 

To qualify, you must have experienced either of the following in any calendar quarter in 2020:

  1. Fully or partially suspended operations due to COVID-19-related government orders
  2. Saw gross receipts drop below 50% of the comparable quarter amount in 2019

What is the timeframe? 

Paycheck Protection Program: Small businesses and sole proprietorships can apply between April 3, 2020 – June 30, 2020. Independent contractors and self-employed individuals can apply between April 10, 2020 – June 30, 2020. Please note that funds are limited, and loans are based on a first-come, first-served basis. 

Employee Retention Credit: Employers can claim this payroll tax credit on qualifying wages paid between March 13, 2020 – December 31, 2020. 

How much could I receive? 

Paycheck Protection Program: Employers can receive a maximum loan of up to $10 million. Loan amounts are based on the employer’s average payroll costs over the past eight weeks, plus an additional 25%. 

Employee Retention Credit: Employers can receive a maximum credit of $5,000 per employee. Credits are worth 50% of qualifying wages and associated qualified health plan expenses paid to employees (up to $10,000 in wages per employee). 

Again, employer size doesn’t matter when it comes to Employee Retention Credit eligibility. However, your average number of full-time equivalent employees in 2019 determines qualifying wages. 

If you averaged fewer than 100 FTEs, your tax credit is based on wages paid to all employees during the period of suspended operations or gross receipts decline. If you averaged more than 100 FTEs in 2019, the tax credit is based on wages paid to employees who did not work during the period of suspended operations or gross receipts decline. 

How do I apply? 

Paycheck Protection Program: To apply for a PPP loan, fill out the application form and apply with an approved lender. You’ll also need additional documents, such as copies of your business’s employment tax form(s) from 2019 as well as both 2019 and 2020 payroll ledgers. 

Employee Retention Credit: You can immediately reduce liabilities owed for a tax by retaining contributions rather than depositing them with the IRS. Then, record or claim the credit on your federal employment tax return (e.g., Forms 941, 944, or 943).

What are my repayment responsibilities? 

Paycheck Protection Program: PPP loans are 100% forgivable on the principal amount (plus accrued interest) if you use them for qualifying expenses and maintain your employee count and salary levels. If you use part of the loan for non-qualifying reasons, that portion is not forgivable. 

The PPP loan has a repayment plan of five years and a fixed interest rate of 1%. Payments are deferred for six months, but interest begins accruing immediately after taking out a loan.  

Employee Retention Credit: You do not have to repay the Employee Retention Credit. 

However, if you receive an advance of the credits (using Form 7200), you’ll need to account for that amount when filing your federal employment tax return. 

What kind of recordkeeping do I need to do? 

Paycheck Protection Program: Request loan forgiveness through your lender after the 24-week loan period. You’ll need documents showing the number of full-time equivalent employees you have and pay rates, as well as mortgage, lease, and utility payments. 

Employee Retention Credit: Keep documents showing how you calculated the credit amount. Also retain documents that show that you had to suspend operations or experienced a decrease in gross receipts. If you applied for an advance, keep a copy of Form 7200 in your records, too. 

Can I defer employer payroll tax payments if I receive a PPP loan?

Thanks to the Paycheck Protection Program Flexibility Act, you can receive a PPP loan and defer paying the employer portion of Social Security tax. This payroll tax deferment is not the same thing as claiming the Employee Retention Credit. Rather, this is a universal employer benefit under the CARES Act, according to the IRS.

Originally, employers who received a PPP loan could only defer the employer’s share of SS tax payments until their loan was forgiven. But through the PPP Flexibility Act, you can defer payments throughout all of 2020.

Be sure to pay deferred Social Security taxes by the following pay days, without penalties (per the IRS notice):

  1. December 31, 2021 (50%)
  2. December 31, 2022 (remaining amount)

So, which should I choose?

Ultimately, the decision is yours. Calculate how much you could receive with both relief options to determine which is better for your business. 


  • Your eligibility
  • How many employees you have
  • How much you are eligible for under both relief measures
  • What you need funds for 

If you received a PPP loan and were later told you must return it by the SBA, you may be eligible to claim the employee retention credit. You can claim the employee retention credit if you return your PPP loan by May 14

No double-dipping 

Although you can’t claim both the PPP loan and the Employee Retention Credit, you can claim either and the FFCRA paid leave credit. 

The paid leave tax credit was established under the Families First Coronavirus Response Act. It lets employers who are required to provide coronavirus paid leave receive a tax credit for the amount of the paid leave wages.

You can apply for the Paycheck Protection Program loan and claim the FFCRA paid leave credit. You can also claim both the Employee Retention Credit and the paid leave tax credit.

However, you cannot double-dip. 

If you choose to take the Employee Retention Credit and the paid leave credits, you can’t claim those credits on the same wages. Because you can only claim the paid leave credits on paid leave wages, you cannot claim the Employee Retention Credit on FFCRA paid leave wages.

And if you receive a Paycheck Protection Program loan and claim paid leave credits, the paid leave wages do not count as eligible “payroll costs” under the PPP’s loan forgiveness.  Because you claim the paid leave credit on FFCRA paid leave wages, do not count FFCRA paid leave wages as payroll costs when asking for PPP loan forgiveness.

coronavirus ppp vs. erc flowchart showing what credit/loan combination you can receive

This is not intended as legal advice; for more information, please click here.

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