ERC & PPP: The Truth About "Double Dipping" (And Your Audit Risk)
With the final ERC filing deadlines now behind us, the focus for many business owners has shifted from claiming the credit to defending it. If your business took a Paycheck Protection Program (PPP) loan and claimed the Employee Retention Credit (ERC), you likely navigated complex eligibility rules.
One of the most common questions we still field is: "Was I allowed to take both?"
The short answer is YES. The long answer, however, involves a strict IRS rule against "double dipping" that is currently a primary focus of IRS audits.
Here is the technical breakdown of how these two programs interact and what you need to have in your audit file today.
- The Myth: "You Can’t Take Both" Early in the pandemic, the CARES Act prohibited businesses from claiming ERC if they took a PPP loan. However, the Consolidated Appropriations Act retroactively changed this rule. You were allowed to utilize both programs, but with one major caveat: You could not use the same dollar of wages for both.
Think of it as an ordering rule:
First: Wages are used to justify your PPP Loan Forgiveness.
Second: Any remaining qualified wages could be used to generate the ERC.
- The Trap: The "Deemed Election" (IRS Notice 2021-20) This is where many businesses inadvertently triggered an overclaim.
When you applied for PPP forgiveness, you submitted SBA Form 3508. On that form, you listed "Payroll Costs" to justify why your loan should be forgiven.
The IRS Rule: Any wages you reported on that form to meet the forgiveness threshold are considered "elected" for PPP. They are off-limits for ERC.
The Problem: Many businesses, trying to be safe, reported 100% of their payroll costs on the PPP application, even if they only needed 60% of the loan amount to be payroll.
Example:
PPP Loan: $100,000
Payroll Reported for Forgiveness: $100,000 (even though you also had rent/utilities).
Result: The IRS deems that you used $100,000 of wages for PPP. You cannot claim ERC on that $100,000.
The Missed Opportunity: If you had reported only $60,000 in payroll and $40,000 in rent, you would have "saved" $40,000 in wages to claim for ERC. You cannot retroactively change this allocation now.
- Audit Defense: What Must Be In Your File The statute of limitations for ERC audits has been extended to 6 years for certain claims. If the IRS selects your file for review, they will look specifically for the intersection of PPP and ERC.
To protect your business, ensure you have the following saved immediately:
SBA Form 3508: The exact forgiveness application you submitted to your bank.
PPP Forgiveness Letter: The official letter confirming the date and amount of forgiveness.
ERC Worksheets: A clear, quarter-by-quarter spreadsheet showing exactly which employees and wages were allocated to PPP and which were allocated to ERC.
Government Orders (if applicable): If your ERC claim relied on the "Suspension of Operations" test, you must have copies of the specific city, county, or state orders that forced your modification—not just general CDC guidelines.
- A Note on the "One, Big, Beautiful Bill Act" As of July 2025, new legislation has codified strict bars on late claims. If you have a pending claim that was filed after January 31, 2024, for the late quarters of 2021, be aware that these are subject to automatic disallowance under the new retrospective rules.
The Bottom Line Taking both PPP and ERC was a legal and smart financial strategy, provided the math was done correctly. "Double dipping" isn't about eligibility—it's about allocation.
Concerns about your past filings? If you used a third-party "ERC Mill" to file your credit and are unsure if they correctly accounted for your PPP loan, we can review your transcripts and filings to assess your audit risk. Contact our office today for a compliance check-up.
Next Step: Would you like me to generate a checklist of the specific documents (e.g., "SBA Form 3508," "Quarterly P&Ls") that you can send to your clients to help them self-audit their files before the IRS does?