Trying to understand the connection between the Employer Retention Credit (where an employer would get 50% of the first $10,000 they pay someone to keep them on payroll), the Work Opportunity Tax Credit (up to 40% of the person’s first year wages, depending on the category), and the Payroll Protection Program which provides small business loans to employers to keep their employees on the payroll can be a daunting task. Good news though, we have the best minds on it and have found that WOTC and ERC can work together, provided you don’t use the same earnings.
Example: John started 2/1/20 and has qualified for WOTC as a food stamp recipient. The company is entitled to a credit of up to 40% of John’s first year wages to a maximum of $2,400 in credits. The company has also kept John employed through this pandemic and would like to claim the payroll tax credit for ERC on John as well. The company would claim WOTC on earnings up to when they start claiming ERC and then start claiming WOTC again on earnings after the ERC period ends. The company then can continue claiming WOTC until John maxes out either the dollar amount or time period of his certification. Should John max out the time period of his certification or is terminated during the ERC period, WOTC ends there as well.
As for the Payroll Protection Program, you cannot claim ERC if you take out a Payroll Protection Program loan, and vice-versa. But the Payroll Protection Program has no effect on WOTC. You can continue using WOTC as you always have.
It is important to keep employee earnings separate for these credits so that there is no ‘double dipping.’ As an EmployerIncentives.com client, our monthly worksheets will be revised so we can track your WOTC separately from ERC so there is no confusion.
Please call us at 888-236-7339 ext. 703 or 704 if you have any questions.