What is the Employee Retention Credit (ERC)?
The Employee Retention Credit is a refundable tax credit equal to 50% of qualified wages an eligible employer pays to employees from March 12, 2020 to December 31, 2020, AND equal to 70% of qualified wages an eligible employer pays to employees for the first three quarters of 2021.
Between 2020 and 2021, the credit is worth up to $26,000 per employee.
Employers are eligible if they operated a trade or business during the pandemic and experienced either a decline in gross receipts or a full or partial suspension of business operations (to include changes in operations due to government and industry-wide mandates and their effects on day-to-day operations). Therefore, even if a business did not see a decline in revenue or experience an actual shutdown, it may still qualify.
Brief History of the Employee Retention Credit Cares Act
The first major legislation to help businesses during the pandemic saw the introduction of the Payment Protection Program (PPP) and the Employee Retention Credit (ERC) when the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed on March 25, 2020.
The PPP received immediate traction as it was easier to understand, more accessible, and less restrictive than its ERC counterpart. Businesses were allowed to only participate in one of the programs and the vast majority chose the PPP over the ERC.
“Original” ERC (2020)
- 50% of wages back per employee in 2020, for qualifying businesses, up to a $10,000 wage threshold (maximum $5k credit per employee for the year)
- Business must show a 50% drop in gross revenue when comparing a quarter in 2020 v same quarter in 2019 -OR- meet government mandate qualification
Consolidated Appropriations Act & American Rescue Plan
By the end of 2020, the pandemic had continued taking its toll on American businesses and Congress acted by passing the Consolidated Appropriations Act on December 27, 2020 and, a few months later, the American Rescue Plan in March of 2021. They realized that the ERC had been severely underutilized and made some drastic changes to the program in order to expand eligibility and “supercharge” the amount of credits available to qualifying businesses.
“Expanded” ERC (2021)
- Businesses that received the PPP are now eligible to qualify for the ERC
- 70% of wages back per employee up to a $10,000 wage threshold (maximum $7k credit, per employee, PER QUARTER for the first three quarters of 2021)
- Business must show a 20% drop in gross revenue when comparing a quarter in 2021 v same quarter in 2019 -OR- meet government mandate qualification
Claiming the Credit
Contact us for a free consultation to discuss your business, the ways in which you might qualify, and how we can assist you in claiming your retention credits