Employee Retention Credit

The Employee Retention Credit (ERC), a refundable payroll tax credit, was modified and expanded under the “Consolidated Appropriations Act, 2021,” which was signed into law on December 27, 2020. This credit originally was created as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act to encourage employers to keep employees on the payroll, even if they were not working during the covered period due to the effects of the coronavirus.

The ERC provides immediate cash-flow relief to eligible employers in the form of a refundable employment tax credit, up to $5,000 per employee for 2020 and up to $14,000 per employee for 2021.

What does the ERC offer to eligible employers?

2020	2021
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 and Q2; therefore, maximum credit is $14,000 per employee

In order to be an eligible employer 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.

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 July 1, 2021. Qualified wages include the eligible employer's qualified health plan expenses that are properly allocable to those wages.

However, whether or not wages paid by an eligible employer can be treated as qualified wages is dependent upon the year the wages were paid and the average number of full-time employees the employer had during 2019.

When is an employer considered to have a significant decline in gross receipts?

A significant decline in gross receipts begins with the first quarter in which an employer’s gross receipts for a calendar quarter in 2020 are less than 50 percent of its gross receipts for the same calendar quarter in 2019, or for 2021 that are less than 80 percent of gross receipts for the same calendar quarter in 2019. Employers can also 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.

IMPORTANT ERC UPDATE

Employers that received a Paycheck Protection Program (PPP) loan may now be eligible for the ERC for both 2020 and 2021.

Leveraging our deep knowledge of the legislation and related guidance, combined with our technical experience, Weaver can help:

Determine and document employer eligibility for the ERC
Evaluate applicable aggregation rules 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 credits and Form 7200 for advance 2021 credits
Review or perform calculations and supporting documentation
Determine proper financial statement accounting treatment for credits claimed

Weaver has produced several ERC resources, including a webinar, FAQs and a flow chart to help employers determine if they are eligible for an ERC.