Did you know that your business may qualify for the Employee Retention Credit (ERC) in 2020 and 2021 whether or not you received a Paycheck Protection Program (PPP) loan? The ERC provides relief in the form of a refundable tax credit to businesses that kept their employees on payroll and/or incurred health plan expenses during the COVID-19 pandemic.
What is the Employee Retention Credit (ERC)?
The Employee Retention Credit is a fully refundable tax credit available to businesses that were impacted by COVID-19. The refundable credit is applied toward payroll taxes on the quarterly Form 941/941-X. The ERC is available and eligible to employers for wages paid through September 30, 2021. Businesses generally have 3 years from the end of any eligible period to file amended Forms 941-X to claim the ERC.
Is my business eligible for the ERC?
Businesses can be eligible in two ways:
- Your business was partially or fully suspended due to a government order limiting commerce, travel, or group meetings related to COVID-19.
- Your business experienced a significant decline in gross receipts, as defined below.
If your business experienced a significant decline in gross receipts, you may be eligible for the entire applicable quarter and potentially the following quarter.
An employer is considered to have experienced a decline in revenue if:
- Gross receipts in a 2020 calendar quarter were less than 50% compared to the same calendar quarter in 2019
- Gross receipts in a 2021 calendar quarter were less than 20% compared to the same calendar quarter in 2019
Example: In 2021, an employer had a 20% decline in gross receipts for Q1 and Q2 as compared to those quarters in 2019.The employer qualifies for ERC and could receive up to $7,000 per employee for Q1 and Q2. Additionally, eligibility for the credit ends the quarter after qualification. Therefore, the employer would also be able to take advantage of ERC in Q3 as well. Note that the credit may be reduced if the employer also received PPP funds.
If my business received a PPP loan, is it eligible for the ERC?
Initially, when the Employee Retention Credit was first introduced in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a business that received a PPP loan was not eligible for the ERC. Since, the enactment of the Consolidated Appropriations Act, 2021 (CAA) in December 2020, PPP recipients can claim the ERC retroactive to March 13th, 2020, on qualified wages that are not paid for with forgiven PPP loans.
Content provided by LBMC tax professionals, Art Van Buren and Leigh Ann Vernich.
LBMC tax tips are provided as an informational and educational service for clients and friends of the firm. The communication is high-level and should not be considered as legal or tax advice to take any specific action. Individuals should consult with their personal tax or legal advisors before making any tax or legal-related decisions. In addition, the information and data presented are based on sources believed to be reliable, but we do not guarantee their accuracy or completeness. The information is current as of the date indicated and is subject to change without notice.