The employee retention credit is a tax credit that Congress created as a part of the CARES act in 2020. It is an attractive credit because you can use it to offset income and payroll taxes. Additionally, even if you do not have enough tax to take advantage of the credit the IRS will write you a check.
The program was not popular in 2020 because initially companies could either apply for a PPP loan or take the employee retention credit. The PPP loan was generally a better deal, so not many companies opted for the loan instead of the credit.
The rules changed with the Omnibus COVID Relief Bill that Congress passed in December. The bill allows companies to take advantage of BOTH the PPP funding AND the employee retention credit. So this has quickly become a very interesting opportunity for many small businesses.
What the employee retention credit is worth:
- For 2020 the credit is worth up to 50% of “qualified wages” up to $5,000 credit per employee.
- For 2021 the credit is worth up to 70% of “qualified wages” up to $7,000 credit per quarter or $14,000 for the year, per employee.
If you have not yet received the credit for 2020 you can retroactively claim that credit now.
Here is a video explanation of the employee retention credit
This table summarizes the Employee Retention Credit
|First: Are You an Eligible Employer||A greater than 50% decrease in quarterly “gross receipts” (revenue) compared to same 2019 quarter; OR Full or Partial Suspension of Operations (“FPSO”) due to COVID-related government order.||A greater than 20% decrease in quarterly gross receipts and you can use the prior quarter to qualify (use Q4 2020 to claim the credit for Q1 2021). OR Full or Partial Suspension of Operations (“FPSO”) due to COVID-related government order.|
|What Are Qualified Wages||Up to $10,000 total of wages If you had fewer than 100 employees in 2019 then All wages qualified while you are an “Eligible Employer” If you have more than 100 employees only wages paid to those employees “not providing services” qualify.||Up to $10,000 per quarter of total wages. If you had fewer than 500 employees in 2019 then wages qualified while you are an “Eligible Employer” If you have more than 500 employees only wages paid to those employees “not providing services” qualify.|
|What is the credit amount||50% of qualified wages up to $5,000 per employee.||70% of qualified wages up to $7,000 per employee per quarter for a maximum of $14,000 per employee.|
PPP Interplay: Remember: PPP recipients can claim ERC for 2020 AND 2021, but cannot use the same expenses for ERC and PPP loan forgiveness.
To sum up
There are a number of caveats and complexities, but we can help you find the resources to support you in determining whether or not you qualify for the credit and if you do qualify to help you claim it.
If you would like help, contact us here, we will connect you to the right expertise so that you can claim any credit that you qualify for.