What is the Employee Retention Credit?
The Employee Retention Credit (ERC), which was introduced under the CARES Act in 2020 and later expanded in 2021, provides a refundable payroll tax credit to qualified small to medium-sized business owners that were adversely impacted during the COVID-19 pandemic. The ERC program expired on September 30, 2021 but qualifying companies have up to three years to claim the credit by filing an amended payroll tax return.
What does the ERC offer eligible employers?
|50% of qualified wages (including qualified health plan expenses) paid to each employee||70% of qualified wages (including qualified health plan expenses) paid to each employee|
|$10,000 in maximum wages; therefore, maximum credit is $5,000 per employee||$10,000 in maximum wages for each of calendar Q1,Q2 and Q3; therefore, maximum credit is $21,000 per employee|
To be eligible for the credit, the employer must:
- Have fully or partially suspended operations during an applicable calendar quarter in 2020 or 2021 due to orders from an appropriate government authority limiting commerce, travel, or group meetings due to COVID-19; OR
- Have experienced a significant decline in gross receipts during the calendar quarter
How many employees can the employer have?
For 2020, full-time equivalents (FTE’s) must be 100 or less. For 2021 FTE’s must be 500 or less.
What are qualified wages?
In general, qualified wages are wages and compensation paid by an eligible employer to its employees after March 12, 2020 and before November 1, 2021. Qualified wages include the eligible employer's qualified health plan expenses that are properly allocable to those wages.
When is an employer considered to have a significant decline in gross receipts?
For 2020, there must be one or more quarters where gross receipts were down more than 50% compared to the same quarter of 2019.
For 2021, the required gross receipts decline by quarter must be more than 20% (still compared to the same quarter of 2019).
Employers can substitute 2020 for 2019 as the comparison year if the employer was not in existence as of the beginning of the same calendar quarter in calendar year 2019.
What if the employer also received a loan from the Paycheck Protection Program (PPP)?
Employers that received a PPP loan may now be eligible for the ERC for both 2020 and 2021. However, it is necessary to coordinate between the two programs to maximize ERC, considering the 60/40 payroll/qualified non-payroll split, the salary covered period salary cap, and the owners’ compensation cap.
Weaver Can Help
Leveraging our knowledge of the legislation and related guidance, combined with our technical experience, our ERC team can:
- Determine and document employer eligibility for the ERC
- Calculate the number of FTE’s
- Evaluate applicable aggregation rules (for entities under common control) to determine significant decline in gross receipts and number of full-time employees
- Properly identify and document impacted employees
- Calculate and document qualified wages
- Coordinate with other CARES Act provisions and employment tax and federal tax regimes, as necessary, to help ensure no double-counting
- Assist with the procedural requirements to claim the credit including filing amended Form 941-X for 2020 and 2021 credits.
- Review or perform calculations and supporting documentation
- Determine proper financial statement accounting treatment for credits claimed
- File an amended business tax return (1120, 1120S ,1065 or 1040 Schedule C)