Employee Retention Credit

Mar 01, 2021

By Kristyn Giannaccio, Karl Wolpert and Lisa Chandler

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The Employee Retention Credit (ERC), established by the CARES Act, provides a dollar-for-dollar credit against employment taxes to qualifying companies impacted.  The Consolidated Appropriations Act (CAA) passed in December 2020 expands the credit’s availability and extends it through June 2021.  The CAA also expands the availability of the ERC to companies that received PPP loans.  Below are the main provisions of the ERC:

2020 Credit:

The refundable tax credit is equal to 50% of employee compensation (inclusive of health insurance) up to $10,000 per employee per year for wages paid between March 13 and December 31, 2020. Total credit available is $5,000 per employee. 

2021 Credit:

The refundable tax credit is equal to 70% of employee compensation (inclusive of health insurance) up to $10,000 per employee per quarter through June 30, 2021. Total credit available is $14,000 per employee.

 

Determining Eligibility for 2020:

 Employers who

1. Have 100 or fewer full-time employees in 2019, and

2. Carried on a trade or business during 2020, and

a. Had business operations (fully or partially) suspended due to governmental orders limiting the entity’s commerce, travel or group meetings, OR

b. Experienced a reduction in gross receipts of more than 50% for a calendar quarter in 2020 compared to the same quarter in 2019.  (Once gross receipts exceed 80% year-over-year the credit is no longer available.)

 

Determining Eligibility for 2021:

Employers who

1. Have 500 or fewer full-time employees in 2019, and

2. Carry on a trade or business during 2021, and

a. Have business operations (fully or partially) suspended due to governmental orders limiting the entity’s commerce, travel or group meetings, OR

b. Are experiencing a reduction in gross receipts of more than 20%

i. In Q1 2021 –

1. Compare Q1 2021 to Q1 2019, or

2. Compare Q4 2020 to Q4 2019

ii.    In Q2 2021 –

1. Compare Q2 2021 to Q2 2019, or

2. Compare Q1 2021 to Q1 2019

 

Claiming the credit for 2020:

Form 941 Quarterly Employment Tax Return

Claiming the credit for 2021:

 Form 941 Quarterly Employment Tax Return

The ERC is now available even if you have a PPP loan:

Under the CAA, Companies who received a PPP loan can now also claim the Employee Retention Credit.    Previously, under the CARES Act, companies that received PPP loans were not eligible to claim the credit.   Eligible companies may claim the 2020 ERC retroactively.

Qualifying wages are used to determine the PPP loan forgiveness and ERC amounts.   The same wages cannot be used in the calculation of PPP forgiveness and ERC. 

If you already applied for PPP loan forgiveness and you qualify for ERC, you may want to consider recalculating PPP loan forgiveness and/or updating the PPP loan covered period to maximize the use of eligible wages among the ERC and a PPP loan by including qualified nonpayroll expenses to the extent possible in the loan forgiveness calculation. 

Tax Treatment:

 Tax deduction of compensation (inclusive of health insurance) expense is reduced by the amount of the credit received.

PPP Loan Reminder:  Applications are due by March 31, 2021.  Click here to view information about PPP loans and the business provisions of the CAA.

Please contact Weinstein Spira with specific questions regarding the ERC, the CAA or PPP loans.



Tags: CARES Act, PPP
Category: COVID-19