The Employee Retention Credit (ERC) was created as part of the CARES Act. At that point, the credit could only be claimed if a paycheck protection program (PPP) loan was not received. However, the Consolidated Appropriations Act signed into law on December 27, 2020 made several changes to the ERC. The biggest change was allowing the ERC to be claimed even if a PPP loan had been received. It should be noted that the ERC cannot be claimed for the same wages that are used for PPP forgiveness.
Due to these changes, your business may qualify for the employee retention credit. Essentially, there are two different time periods for the credit.
For 2020 the rules to be eligible are:
- 100 or fewer full-time employees
- A decrease in gross receipts of 50% or more for any quarter in 2020 compared to 2019 income per quarter OR
- Your operations were fully or partially suspended by government order
For 2021 the rules to be eligible are:
- 500 or fewer full-time employees
- a decrease of 20% or more in a quarter compared to the same quarter in 2019 OR
- Your operations were fully or partially suspended by government order
For 2020, the maximum credit per employee is $5,000 (based on 50% of wages including health benefits).
For 2021, the maximum credit per employee increases to $7,000 per quarter (increased to 70% for 2021).
These are some of the basic rules regarding the credit. The credit is claimed on your quarterly payroll tax returns. Note that amended payroll tax returns may be filed to claim any refunds due for 2020.
Please reach out to us if you have any questions.
This article was published on March 25, 2021
This article is intended for educational purposes only and is not a substitute for obtaining competent accounting, tax, legal, or financial advice from a certified public accountant, attorney, or other business advisors. You should not act upon any of the information in this article without first seeking qualified professional guidance from your business advisors on your specific circumstances. The information presented should not be construed as advice or guidance from BFBA.