The Taxpayer Certainty and Disaster Tax Relief Act of 2020 enhanced and extended the Employee Retention Credit (ERC) for 2020 and 2021. Eligible employers may request a refundable tax credit for up to $5,000 per employee in 2020 and up to $21,000 per employee in 2021.
The information provided below is intended to give you a quick overview of the credit available and how to determine if your business is eligible.
How much is the credit worth?
2020 – Up to $5,000 per employee (50% of qualified wages up to $10,000 for the year).
2021 – Up to $21,000 per employee (70% of qualified wages up to $10,000 per quarter through 9/30/2021).
How do I know if my business is eligible?
- the full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel or group meetings due to COVID-19, or
- a significant decline in gross receipts.
A significant decline in gross receipts begins:
- on the first day of the first calendar quarter of 2020
- for which an employer’s gross receipts are less than 50% of its gross receipts
- for the same calendar quarter in 2019.
The significant decline in gross receipts ends:
- on the first day of the first calendar quarter following the calendar quarter
- in which gross receipts are more than of 80% of its gross receipts
- for the same calendar quarter in 2019.
In 2021, eligibility is determined when an employer experiences either:
- A full or partial suspension of the operation of their trade or business during this period because of governmental orders limiting commerce, travel or group meetings due to COVID-19, or
- A decline in gross receipts in a calendar quarter in 2021 where the gross receipts of that calendar quarter are less than 80% of the gross receipts in the same calendar quarter in 2019.
For the first and second calendar quarters in 2021, employers may elect to measure the decline in their gross receipts using the immediately preceding calendar quarter (i.e., the fourth calendar quarter of 2020 and first calendar quarter of 2021, respectively) compared to the same calendar quarter in 2019.
** Please contact your accountant, attorney, or/and financial advisor to assist you with determining ERC eligibility.
What are qualified wages?
Small Employers
A small employer is a company that averaged less than 100 full time employees in 2019 (for 2020 qualified wages) and less than 500 full time employees in 2019 (for 2021 qualified wages). Qualified wages are generally those wages paid to all employees during a period when:
- Operations were fully or partially suspended; or
- During the quarter that the employer had a decline in gross receipts regardless of whether the employees are providing services.
Large Employers
A large employer is a company that averaged more than 100 full time employees in 2019 (for 2020 qualified wages) and more than 500 full time employees in 2019 (for 2021 qualified wages). Qualified wages are generally those wages paid to employees that are not providing services because operations were fully or partially suspended or due to the decline in gross receipts.
What if we had a PPP Loan?
Employers that received a Paycheck Protection Program (PPP) loan are now eligible to take the ERC as well, retroactive to 2020. However, you can’t claim the ERC for wages that are also treated as payroll costs for PPP forgiveness because the IRS considers that a double-dipping of tax benefits.
CheckWise can help determine how much credit you can claim even if you are eligible for the ERC during a quarter that overlaps with your PPP covered period.
If my business is eligible, how do we claim the credit?
The Employee Retention Credit is claimed and reconciled on your 941 quarterly payroll tax return.
For current quarter eligibility in 2021, your payroll tax payments may be reduced to take a portion of the credit immediately. Any remaining credit will be refunded by the IRS after your 941 tax return has been filed. Also, IRS form 7200 may be used to claim an advance of the credit under certain circumstances. For any eligible quarter that has already passed (including 2020), an amended 941 tax return may be used to request an IRS refund.
CheckWise will do the heavy lifting here, but we’ll need you to provide some details so we can help. Please send an email to payroll@checkwisepayroll.com and your representative will reach out to help guide you through the next steps.
How do I get more information?
- https://www.irs.gov/newsroom/new-law-extends-covid-tax-credit-for-employers-who-keep-workers-on-payroll
- IRS Guidance on the Employee Retention Credit
- https://www.irs.gov/coronavirus/employee-retention-credit * Please note that the IRS has not updated their FAQs with the most recent information as of the time this article was published.
- Contact CheckWise. We’re here to help!
Legal Disclaimer: CheckWise Payroll LLC is not engaged in the practice of law. The content in this article should not be construed as legal advice, and does not create an attorney-client relationship. If you have legal questions concerning your situation or the information you have obtained, you should consult with a licensed attorney. CheckWise Payroll LLC cannot be held legally accountable for actions related to its content.
