ERTC vs. PPP: Understanding the Differences

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In response to the economic challenges posed by the COVID-19 pandemic, the government introduced various relief programs to support businesses. Two key programs that gained significant attention are the Employee Retention Tax Credit (ERTC) and the Paycheck Protection Program (PPP). While both programs aim to provide financial assistance to businesses, they have distinct differences. This article aims to elucidate the disparities between ERTC and PPP, helping businesses understand the unique aspects of each program.

What is ERTC?

The Employee Retention Tax Credit (ERTC) is a federal tax credit introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. It aims to incentivize businesses to retain their employees during challenging times by providing a refundable tax credit for qualified wages paid to employees.

What is PPP?

The Paycheck Protection Program (PPP) is a loan program established by the Small Business Administration (SBA) to provide businesses with funds to cover payroll and certain non-payroll expenses. The loans can be partially or fully forgiven if specific criteria are met, making them essentially grants.

Eligibility Criteria

The eligibility criteria for ERTC and PPP differ significantly:

  • ERTC: Businesses that experienced a significant decline in gross receipts or were fully or partially suspended due to government orders related to COVID-19 are eligible for ERTC Florida and other states.
  • PPP: Small businesses, nonprofits, self-employed individuals, and independent contractors that were in operation before February 15, 2020, and meet certain employee retention criteria are eligible for PPP.

Purpose and Usage

The purposes and usage of ERTC and PPP also differ:

  • ERTC: ERTC is primarily aimed at providing financial assistance to businesses to retain and pay their employees during challenging times. The tax credit can be used to offset employment taxes or be claimed as a refund.
  • PPP: PPP aims to support businesses by providing loans that can be used to cover payroll costs, rent, mortgage interest, and utilities. The loans can be fully or partially forgiven if used for eligible expenses.

Loan Forgiveness

The loan forgiveness aspect is one of the key distinctions between ERTC and PPP:

  • ERTC: ERTC does not involve loans and is a refundable tax credit. The credit amount can be claimed directly against employment taxes owed or refunded if it exceeds the tax liability.
  • PPP: PPP loans can be forgiven if certain conditions are met. To achieve full loan forgiveness, businesses must primarily use the loan proceeds for eligible payroll costs and meet employee retention requirements.

Tax Treatment

The tax treatment of ERTC and PPP differs as well:

  • ERTC: ERTC is a tax credit that directly reduces a business’s tax liability. It is treated as a general business credit and can be carried forward or back to other tax years if not fully utilized.
  • PPP: PPP loan forgiveness is not taxable income. Additionally, the expenses paid with the forgiven loan proceeds are tax-deductible, allowing businesses to benefit from both the loan forgiveness and deductibility of expenses.

Interaction and Coordination

Businesses may wonder if they can utilize both ERTC and PPP simultaneously:

  • ERTC and PPP: Initially, businesses were not allowed to claim both ERTC and PPP for the same wages. However, recent legislation has allowed eligible businesses to retroactively claim ERTC for periods in which they received PPP funds, but not for the same wages.


Understanding the differences between the Employee Retention Tax Credit (ERTC) and the Paycheck Protection Program (PPP) is crucial for businesses seeking financial assistance. While ERTC  offers a tax credit for retaining employees, PPP provides forgivable loans for eligible expenses. By comprehending the distinct eligibility criteria, purposes, loan forgiveness, tax treatment, and interaction between the programs, businesses can make informed decisions regarding the most suitable program for their specific needs.

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