The Employee Retention Credit (ERC) was first enacted as part of the CARES Act, then further enhanced and extended by the Taxpayer Certainty and Disaster Relief Act. Through this program, eligible employers can generate maximum tax credits of $5,000 per employee in 2020 and $14,000 ($7,000 per quarter) per employee in 2021. Currently, the ERC is only available through June 30, 2021, which is why maximum funding equates to $14,000 for 2021. Credits will offset payroll taxes reported on quarterly payroll filings (i.e. Federal income tax deposits withheld on behalf of employees’ Social Security, and Medicare taxes).
Below is a brief summary of who can qualify for this credit in 2020 and/or 2021:
Qualifications for the 2020 Credit:
- Employer of any size, with the exception of government entities
- Must be engaged in a trade or business
- Must have qualified wages in a calendar quarter in which either of the situations described below occurred:
- Business operations were fully or partially shut down due to COVID-19 restrictions issued by government order
- The business must prove they have a significant decline in gross receipts (does not need to be COVID-19 related)
- The business is eligible for the credit starting with the first calendar quarter they had a >50% decline in gross receipts compared to the same calendar quarter in 2019
- The business continues to be eligible for the credit until the end of the calendar quarter where gross receipts rebound to >80% of 2019 receipts for the same calendar quarter or until December 31, 2020 if gross receipts fail to rebound
- Related employers need to aggregate their gross receipts to prove eligibility for this credit
- Wages used to calculate the credit must have been paid between March 13, 2020 and December 31, 2020
- The credit rate is 50% of qualified wages up to $10,000 per employee during the year
- Wages used for Paycheck Protection Program loan forgiveness calculations or family and sick leave credits under the Families First Coronavirus Response Act cannot be reused in this credit calculation
- For employers with 100 or fewer full-time employees, all qualifying wages are eligible for the credit. For employers with over 100 full-time employees, only wages paid to individuals not rendering services qualify for the credit.
Qualifications for the 2021 Credit:
- Employer of any size, including certain government employers
- Must be engaged in a trade or business
- Must have qualified wages in a calendar quarter in which either of the situations described below occurred:
- Business operations were fully or partially shut down due to COVID-19 restrictions issued by government order
- Decline in gross receipts of at least 20% when comparing a 2021 calendar quarter to the same 2019 calendar quarter
- if you were not in business in 2019 you may still qualify for the credit
- Related employers need to aggregate their gross receipts to prove eligibility for this credit
- The credit rate is 70% of qualified wages up to $10,000 per employee, per quarter
- Wages used for Paycheck Protection Program loan forgiveness calculations or sick leave credits under the Families First Coronavirus Response Act cannot be reused in this credit calculation
- For employers with 500 or fewer full-time employees, all qualifying wages are eligible for the credit. For employers with over 500 full-time employees, only wages paid to individuals not rendering services qualify for the credit.
More Information
If you have any questions regarding the ERC, or guidance on your specific situation, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form.