Employee Retention Credit

Posted on Wednesday, March 17, 2021

Have you taken advantage of the employee retention credit yet? Your opportunity has just been extended.

The employee retention credit (ERC) is a payroll tax credit to encourage organizations to retain employees during the pandemic. The credit was scheduled to expire on December 31, 2020 but was extended to June 30, 2021. The American Rescue Plan (ARAP) which was signed into law on March 11, extends the ERC through the end of 2021.

During 2020, employers that received a Paycheck Protection Program (PPP) loan were not eligible to take the ERC; however, PPP borrowers are now eligible for the credit. Of course, the same costs cannot be used for both the PPP loan and the ERC. The credit is obtained through quarterly Form 941 payroll tax returns. In order to claim the credit for 2020, employers need to amend their 2020 941s.

Although the credit is available for both 2020 and 2021, there are a few differences between the two years as summarized below.

Eligibility

2020 Employers that had operations fully or partially suspended under government orders due to COVID-19, or had a decline of at least 50% in gross receipts
2021 Employers that had operations fully or partially suspended under government orders due to COVID-19, or had a decline in gross receipts of more than 20% compared to same calendar quarter in 2019 (or in the immediately preceding calendar quarter)

Credit Amount

2020 50% of qualifying wages paid up to $10,000 per employee for all quarters for wages paid in 2020 (maximum of $5,000 per employee)
2021 70% of qualifying wages paid up to $10,000 per employee paid during each of quarter of 2021 (maximum of $28,000 per employee)

Qualified Wages

2020 More than 100 employees, credit is for wages paid to employees that did not provide services during the suspended operations. 100 or less employees, credit is for wages paid to any employee during the suspended operations, regardless of whether they provided services
2021 More than 500 employees, credit is for wages paid to employees that did not provide services during the suspended operations. 500 or less employees, credit is for wages paid to any employee during the suspended operations, regardless of whether they provided services.

Severally Financially Distressed Employers

2021 Beginning in the third quarter of 2021, employers that have experienced at least a 90% decline in gross receipts compared to the same quarter in 2019, may take all wages paid during those quarters in account for ERTC rather than being limited to wages paid to employees who were not providing services

Recovery Startup Businesses

2021 Any employer that began operations after February 15, 2020 with an average annual gross receipt amount up to $1,000,000, is eligible for a $50,000 credit per calendar quarter (not required to meet gross receipts test nor have been subject to suspended operations

Contributed By: Kim Grote | Payroll Manager | DWD CPAs & Advisors

Posted in Tax And Accounting Topics For Business

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.