Due to the coronavirus negatively affecting businesses nationwide, there are a number of coronavirus payroll tax credits available to help employers out. One option for employers is the Employee Retention Credit (ERC).
There are two main questions that you should be asking of your organization. First, did your business suspend operations, either fully or partially, because of a governmental mandate? And secondly, did your revenue decline? If you answered yes to either of these questions, it’s time to dig in further to determine your eligibility.
There have been so many changes to ERC, it may be difficult to keep straight, so we put together this table for you:
|
2020 |
2021- Q1 &Q2 |
2021- Q3 & Q4 |
|
|
Time Period |
March 13, 2020, to December 31, 2020 |
January 1, 2021, to June 30, 2021 (credit computed for each quarter) |
July 1, 2021, to December 31, 2021 (credit computed for each quarter) |
|
Credit Rate |
50% |
70% |
|
|
Qualified Wages |
Can qualify up to $10,000 per employee |
Can qualify up to $10,000 per employee |
|
|
Maximum Credit per Employee |
$5,000 aggregate |
$7,000 per quarter |
|
|
Eligible Small Employer |
Less than or equal to 100 full-time employees |
Less than or equal to 500 full-time employees |
|
|
Eligibility Requirements: Decline in Gross Receipts |
Gross receipts decline of greater than 50% in any quarter in 2020 vs. 2019 |
Gross receipts decline of greater than 20% in any quarter in 2021 vs. 2019 |
|
|
Or Eligibility Requirements: Government Shut Down
|
The full or partial suspension of the business’s operation during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19. |
The full or partial suspension of the business’s operation during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19.
|
|
|
Lookback Provision for Gross Receipts |
Not applicable |
Look back to the preceding quarter to meet qualification criteria |
|
|
Governmental Instrumentalities Eligible |
No |
Public colleges, universities, organizations whose principal purpose is providing medical or hospital care, certain federal instrumentalities like credit unions |
|
|
Recovery Start-up Business |
Not Applicable |
New category of qualified business that started 2/15/2020 or later and limited to $50,000 in credit per quarter |
|
|
Severely Financially Distressed Employer |
Not Applicable |
Gross receipts down over 90% in Q3 or Q4 vs. 2019 and eligible small employer rules ignored |
|
|
Overlapping Provisions – No Double Dipping! |
PPP, FFCRA, WOTC, FMLA |
PPP, FFCRA, WOTC, FMLA, R&D, Indian Employment, Veterans, Empowerment Zone |
PPP, FFCRA, WOTC, FMLA, R&D, Indian Employment, Veterans, Empowerment Zone, SVO Grants, Restaurant Revitalization Grants |
***Please note this chart is not all the provisions of ERC and only highlights the major provisions.
Am I eligible if I received a PPP loan?
Yes. The new legislation allows businesses that received a loan under the Paycheck Protection Program (PPP) to qualify for the ERC tax credit. However, the credit can only be applied to wages that are not forgiven or expected to be forgiven under PPP.
How do I determine if my business is eligible?
We’ve created two flowcharts that will guide you through the process. Click here to download the 2020 ERTC Flow Chart, or here to download the 2021 ERTC Flow Chart.
How do I claim the Employee Retention Credit?
There is no Employee Retention Credit application. Instead, employers can claim the Employee Retention Credit on their federal employment tax returns. In most cases, this means claiming the credits on Form 941, Employer’s Quarterly Federal Tax Return.
An employer can amend their Form 941 via a 941x if they determine later that they qualified for the credit.
Depending on your business, you might also claim the credit on Form 944, Employer’s Annual Federal Tax Return, or Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees.
More Guidance Still to Come on the Employee Retention Credit
The ERC enhancements follow the recently released IRS Notice 2021-20 that provided formal guidance for the 2020 ERC, including the interaction between wages used for PPP forgiveness and the ERC. The IRS is expected to release additional guidance soon to provide additional details on the 2021 ERC.
More Questions? Let’s Talk
If you have additional questions, we are here to help! Please reach out to us at tax@highflyerpayroll.com to discuss how we can help you navigate your potential tax credits.
Additional Resources
On April 7th, 2021 we hosted a webinar on this topic, and you can view the webinar recording and additional resources now.
{{cta(‘1af2bfa2-f343-4be7-85d5-df07561cf55f’,’justifycenter’)}}
{{cta(‘e4a0beef-64b4-4609-ac69-fc9e9d13bc33′,’justifycenter’)}}
