Employee Retention Credit
Small business owners, LLCs, S-Corps, and w2 employees are eligible for the Employee Retention Credit (ERC). This credit, like the $1,200 stimulus payment that American taxpayers received, is intended to assist small businesses during these difficult times.
The ERC is a tax credit that does not require repayment, not a loan. When it was first established, businesses could only claim one of the PPP or the ERC in the first stimulus, not both. That restriction has been modified, and firms can now apply for both types of support, giving much-needed relief and assistance. Click below to get started on your process and receive assistance from our team of experts.
Section 2301 of the CARES Act allows a credit against application employment taxes concerning each calendar quarter for qualifying employers carrying a business during the 2020 calendar year.
- Due to government restrictions on commerce, travel, or group gatherings as a result of COVID-19, operations were totally or partially suspended.
- Total accruals for the employer were down significantly.
Defining a “Significant Decline”
- Employers who did not exist in 2019 can use the corresponding 2020 quarter
- In 2020 – Gross receipts have seen a 50% decline when comparing each 2020 calendar quarter to the same quarter in 2019 (the significant decline ends when the calendar quarter gross receipts are at least 80% of the same quarter in the previous year)
- In 2021– Gross receipts have seen a 20% decline when comparing each 2021 quarter to corresponding 2019 quarter or can compare to preceding quarter (i.e. Q1 ‘21 vs Q4 ‘20)
- Tax-exempt entities (501(c)) should examine section 6033 of the Code to determine the definition of a significant decline in gross receipts.
ERC Credits are not taxable for Qualified Wages:
- 2021 Qualified Wages – Wages paid after December 31, 2020 (Section 207) and before July 1, 2021
- 2020 Qualified Wages – Wages paid after March 12, 2020 and before January 1, 2021
- “Qualified Wages” include any wages paid by an employer (with fewer than 100 employees in 2019) who maintains group health plan including health costs paid by employee and employer provided costs are pre-tax, sick leave and family leave under sections 7001 and 7003 of the FFCRA.
- This excludes wages paid to the business owner and their related parties, as well as any wages disclosed and approved for under the Paycheck Protection Program Forgiveness.
Maximum ERC Tax Credits:
- 2020 Credits – 50% up to $10,000 per employee per year = $5,000 per employee per year
- 2021 Credits – 70% up to $10,000 of qualified wages per employee per Quarter = Maximum of $28,000 per employee per year
- If credits are in excess of applicable employment taxes, the excess will be treated as overpayment and refunded to the employer
How to Claim:
- Form 941 due 30 days after Q end – need to file amended form thereafter
- Form 7200 – file in anticipation of receiving credits under the ERC
2020 Filing – Deadline has passed and any related forms will not be processed. However, an Eligible Employer can file form 941-X (mailed to IRS) Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund
How will I know whether I’m eligible?
To qualify for the ERC, the IRS will seek for your company to meet one of two crucial criteria:
- A drop in revenue over the course of a quarter. To claim the credit retroactively for 2020, you must show a reduction of 50% or more in any given quarter. For 2021, you simply need to show a 20% fall in revenue, and you can claim the ERC twice if this revenue decrease occurs in both Q1 and Q2.
- Your company’s “Full or Partial” closure. Local government restrictions or mandates restricting the number of employees or customers in your workplace, disrupted operations (keeping 6 feet from clients), being forced to work from home, or completely shutting down your business operations for an extended period of time are all examples of this.
To be eligible for the ERC, your company must meet one of the limitations listed above.
To quickly find out about your eligibility, and to have one of our experts assist you with the process, click below.
|CARES Act||Consolidated Appropriations Act and Notice 2021-20||The American Rescue Plan Act of 2021|
|Timeframe of Qualified Wages||Paid from March 13, 2020, through Dec. 31, 2020||Extends CARES Act timeframe through June 30, 2021||July 1, 2021 – Dec. 31, 2021|
Businesses with operations that were either fully or partially suspended by a COVID-19 governmental order and only during the period the order is in force, or Gross receipts were less than 50% of gross receipts for the same quarter in 2019 until such quarter as gross receipts are 80% of the same quarter in 2019.
Businesses that were not in existence in 2019 could use a comparison to 2020 for purposes of the credit.
Government entities were not eligible.
Businesses with operations that are either fully or partially suspended by COVID – 19 governmental order and only during the period the order is in force, or
Gross receipts are less than 80% of gross receipts for the same quarter in 2019.
Businesses that were not in existence in 2019 may use a comparison to 2020 for purposes of the credit.
All in the Consolidated Appropriations Act/Notice 2021-20, plus:
-Recovery startup business
-Severely financially distressed employers
|ERC Amount||50% of qualified wages||70% of qualified wages||70% of qualified wages|
|Maximum Credit Allowed||$5,000/year per employee||$7,000/quarter per employee (up to $14,000 through June 30, 2021)||$7,000/ quarter per employee (up to $14,000 from July 1-Dec.31, 2021); or
$50,000/quarter for recovery startup business (total, not per employee)
|Recipients of PPP Loans||Eligible as of Dec. 27, 2020||Eligible, but credit cannot be claimed for costs covered by forgiven PPP loan amounts||Eligible, but credit cannot be claimed for costs covered by forgiven PPP loan amounts|
|Taxes offset by ERC||Employer share of social security tax only||Employer share of social security tax only||Employer share of Medicare tax only|