Employee Retention Tax Credit

 

Key Areas

Last Updated on November 9, 2021


For employers that originally did not qualify for the credit in 2020 because of a PPP loan – now is the time to revisit the credit. Under the CAA, employers who received a PPP loan are no longer precluded from taking the ERC – as long as wages used for the ERC are not also used for PPP loan forgiveness.


Eligible wages are expanded to include wages paid thru September 30, 2021. For 2021, the per employee cap on the benefit is increased, the definition of a small employer is expanded, and the gross receipts reduction threshold is reduced.


Employers that are carrying on a trade or business and meet the business suspension condition or the gross receipts condition qualify for the credit.  An employer meets the business suspension condition if the business was fully or partially suspended due to a governmental order issued in response to the coronavirus outbreak and limited commerce, travel or the size of a group meetings. The gross receipts condition is based on a significant decline in gross receipts over the same quarter in 2019.

Gross receipts condition - 2020
Eligibility begins with the quarter in which the employer experienced a significant decline in gross receipts (gross receipts less than 50% of gross receipts for the same calendar quarter in 2019). Eligibility ends on the first day of the first calendar quarter following the calendar quarter in which the employer’s gross receipts were more than 80% of its gross receipts for the same calendar quarter in 2019.

Gross receipts condition - 2021
The employer is eligible for a quarter if the employer’s gross receipts for that quarter are less than 80% of its gross receipts for the same relative quarter in 2019.


A recovery startup business is an employer who began carrying on any trade or business after February 15th, 2020 where the average annual gross receipts for that business do not exceed $1,000,000 and where the employer does not the meet the business suspension or gross receipts condition for the quarter.


Qualified wages are those wages paid while the employer satisfies either the business suspension condition, the gross receipts condition, or qualifies as a “recovery startup business”. Certain health insurance benefits are also deemed to be qualified wages. For small employers (100 or fewer employees in 2020; 500 or fewer employees in 2021), qualified wages include wages paid to employees whether or not those employees provided services. For large employers (greater than 100 employees in 2020; greater than 500 employees in 2021) qualified wages include only those amounts paid to employees who did not provide services during the qualifying period.


The 2020 credit is calculated as 50% of qualified wages applied to a maximum of $10,000 in wages for the year (from March 13th – Dec 31st), for a total maximum benefit for each employee of $5,000 for the year.

The 2021 credit is calculated as 70% of qualified wages applied to a maximum of $10,000 in wages per quarter for a total maximum benefit for each employee of $ 7,000 per quarter or $21,000 for the year.

An additional limitation applies to a qualified recovery startup business that limits the amount of the credit to $50,000 per eligible quarter.


The ERTC is claimed on the Employer’s Quarterly Federal Tax Return (IRS form 941 or 941X). The employer has the option of retaining employment tax deposits up to the value of the credit. If the payroll deposits are not enough to cover the credit, the employer may file Form 7200 to request an advance payment on the credit (not available to large employers in 2021). The credit is then reconciled on Form 941.


The IRS continues to issue guidance regarding the nuances around calculating and claiming the credit. Rehmann continually monitors the situation and is prepared to help you with the process to maximize your benefit.

 

Published in COVID-19

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