What is in the Employee Retention Credit Act, and what should you do about it?
Congress enacted the Employee Retention Credit (ERC) as part of the CARES Act to help businesses retain employees. The ERC is a refundable tax credit claimed against certain payroll taxes. The original ERC law did not allow businesses to qualify for the ERC if that business also received a Paycheck Protection Program (PPP) loan. However, the Consolidated Appropriations Act, 2021 (CAA, 2021) has removed the PPP loan restriction. Additionally, the American Rescue Plan Act of 2021 (Rescue Act) was signed into law on March 11, 2021 and has extended employee retention credit through September 30, 2021.
For an employer to take advantage of this law change, it must meet one of the following requirements:
- Operations were fully or partially suspended due to an order from an appropriate governmental authority;
- Experiences a significant decline in gross receipts:
- For 2021 – a 20% for decline in a 2021 quarter compared to same calendar quarter in 2019
- For 2020 – a 50% decline in a 2020 quarter compared to same calendar quarter in 2019
- Certain IRS provisions allow a prior quarter gross receipts decline test (compared to same calendar quarter in 2019) to determine current quarter eligibility in 2021.
Key provisions of the Employee Retention Credit Calculation:
- The ERC is based on “Qualified Wages” – these wages can also include employer paid health expenses.
- For employers with 100 or fewer full-time employees (2020) or 500 or fewer full-time employees (2021), qualified wages include wages and health plan expenses paid to all employees, whether they provided services or not.
- For employers with more than 100 full-time employees (2020) or more than 500 full-time employees (2021), qualified wages only include wages and health plan expenses paid to employees who were not providing services.
- There are additional provisions for certain start-up businesses who began business in 2020.
Potential Employee Retention Credit Benefits:
- For any calendar quarter between March 13 and Dec. 31, 2020, an employer with 100 or fewer full-time employees may be able to access ERC of up to $5,000 per employee.
- For 2021, employers with 500 or fewer full-time employees may be able to access ERC of up to $7,000 per employee per quarter (or $21,000 per employee for all three quarters, if eligible).
For a preliminary analysis of your specific opportunity, contact our tax specialist, Clint Berg at firstname.lastname@example.org.