The CARES Act and Consolidated Appropriations Act, 2021 allows eligible businesses to claim an Employee Retention Credit (ERC) to encourage businesses to keep employees on their payroll. Subsequent legislation, like the Taxpayer Certainty and Disaster Tax Relief Act of 2020, amends and extends the benefits of the ERC (along with the availability of advance payments), has provided more opportunity for businesses to capitalize on the relief funding being provided.
The original CARES act was written to reimburse 50% of the first $10k in employee wages and qualified health plan expenses that were earned between March 12th and January 1st 2021. These limits, starting in the first quarter of 2021 have increased to be 70% of the first $10k in employee wages and qualified health plan expenses earned in each of the first and second quarters. This means that you could receive a total ERC credit (over the course of 2020 and 2021) in the amount of $19,000 per eligible employee.
There are definitions of “qualified wages” that depend on average number of full-time employees in 2019, and the time those wages were earned, as well as a comparison between the company’s gross receipts from 2019 and 2020. If you have fewer than 100 full-time employees in 2019, qualified wages are wages paid to any employee during a calendar quarter that the business experienced a significant decline in gross receipts. As long as the company’s gross receipts significantly declined compared to the same calendar quarter in 2019, all employee wages can be considered qualified. Companies that averaged over 100 full-time employees are afforded the same comparison, but additionally, these companies can qualify their wages without a significant decrease in gross receipts if the business operations were fully or partially shut down due to a governmental order and employees were being paid even without rendering services. These comparisons can be nuanced, so be careful.
Defining qualifying wages is not the only area where everything is not cut and dry. If you’re careful, these credits can be taken along with other credits like WOTC, but you need to be specific about which earnings you’re calculating ERC credits on to avoid double-dipping. Receiving a Paycheck Protection Program (PPP) loan can also alter which wages need to be considered, as you may not claim ERC for wages included in payroll costs counted towards PPP loan forgiveness.
It makes sense to pay attention to the experts when it comes to making sure you’re interpreting the regulations correctly, especially as they have changed significantly since the legislation passed. There is always the potential for additional changes that can change the way these credits need to be accounted for, so partnering with a company like EmployerIncentives makes sense, especially if they will work proactively to find you more money to save.