COVID-19 Employer Resources: Employee Retention Credit
The Employee Retention Credit (ERC) that came out of the CARES Act back in March 2020, received some important, and potentially very valuable, modifications in the COVID-19 Relief package signed into law on December 27, 2020.
The changes impact the credit going forward in 2021, as well as how it is calculated retroactively for 2020.
First, the ability to use the ERC credit program has been expanded dramatically because PPP loan forgiveness is no longer a disqualifier for the ERC credit, and employers who previously were disqualified because of PPP can now even go back retroactively to 2020 and claim the ERC. This change alone makes the ERC credit available and valuable to many more employers than previously and merits careful consideration by any employer who may now qualify. So let’s talk about some of the additional details and changes that came about in this latest relief package from Congress.
For 2021, the ERC has been extended until July 1, 2021, and expanded to cover 70% of qualified wages up to $10,000 per employee, giving employers up to $7,000 per employee per quarter. The employer size has been updated to be anyone smaller than 500 employees (it was limited to 100 in 2020) and the qualifications have been modified a bit. You can qualify for the 2021 ERC credit in one of two ways:
- Your business was partially or fully shut down due to government orders
- Your business suffered a decline of 20% or more in gross receipts when compared to the same quarter of 2019. For 2021 only, you can use the receipts from the prior quarter compared to the current quarter of 2019. For example, if Q4 2020 (the prior quarter at the time of this post) gross receipts are less than 80% of Q1 2019 (“current quarter” of this post is Q1) then you would qualify for ERC in Q1 2021.
Employers who qualified for but did not claim the ERC in 2020 because they took a PPP loan instead, can now go back and request the ERC credit for 2020. There are a lot of moving parts used to calculate the retroactive ERC amount. For example, no wages paid via the PPP loan proceeds can be used to calculate ERC Credit, and the work status of the employees during the time of shutdown or revenue drop affects the calculation of credit eligibility. Also, wages that qualify for the credit depend on whether your business is over or under 100 employees. It is best to work with your accountant or financial advisor to determine what, if any, ERC credit you can claim for 2020.
Receive Employee Retention Credit (ERC) According to the CARES Act
The CARES Act provides a payroll tax credit equal to 50% of up to $10,000 of qualified wages per employee paid from March 13, 2020, through December 31, 2020. Read the Act’s full text.
Employers are eligible for the credit for any quarter in which they have either had to fully or partially suspend the operation of business because of governmental orders due to COVID-19, or if they have had more than a 50% decline in gross receipts as compared to the same quarter a year ago.
To receive the credit, please notify PayNW of your eligibility. We’ll ask you for some details and the credit will be applied on your next payroll. Please note that you must notify us every time a payroll is affected by ERC so that we can correctly apply for the credit.
PayNW can calculate your ERC on your behalf for a fee, or you can send us your ERC amount, which will be applied to your payroll at no cost.