Amid the turmoil caused by the ongoing pandemic, it has been difficult for business owners to stay on top of the government incentive opportunities while maintaining a modified standard of operations. Navigating the processes of filing for PPP loans flooded the business conversation in 2020 and 2021, leaving other great governmental programs underutilized and overlooked.
Of particular note is the Employee Retention Credit (ERC), which can offer a significant 6 to 7 figure credit back for eligible businesses. In speaking with numerous CFO colleagues on this topic, it has become abundantly clear that a large number of business owners have either not heard of this program or just don’t think they qualify because they received the PPP loans. By doing so, they may be leaving some serious money on the table.
How Does It Work?
ERC Employer Eligibility is based on businesses that carried on active trade or business with continued payment to employees in 2020 or 2021, that either:
- Were forced to fully or partially suspend operations due to a Covid-19 related governmental order.
- Experienced a 50% or greater year-over-year decline in gross receipts in 2020 when compared to 2019, or at least 20% year-over-year decline in 2021 when compared to 2019, as measured on a quarterly basis
How Much Can I Get?
ERC Credit Amount is a refundable credit against payroll taxes based on qualified wages equal to:
- 50% of qualified wages, including some health plan costs, to a maximum of $10,000 of qualified wages per employee in 2020.
- 70% of qualified wages, including some health plan costs, to a maximum of $10,000 of qualified wages per employee per quarter in 2021, ending on September 30, 2021.
ERC Qualified Wages are determined by the size of eligible companies depending on year of credit:
- Claiming the credit in 2020 – If eligible employer had a monthly average of less than 100 employees in 2019, all wages paid to all employees may qualify.
- Claiming the credit in 2021 – If eligible employer had a monthly average of less than 500 employees in 2019, all wages paid to all employees may qualify.
- For eligible employers who are not considered a small employer in 2020 and/or 2021, qualified wages are limited to wages paid to employees for not providing services.
The number of employees for this purpose is based on all employees in the employer’s “controlled group.”
What Could My Potential Credit Look Like?
80 Employees Example:
x $26,000 (Potential credit per employee*)
$2,080,000 Total potential credit
*Assumes employer is an eligible employer in 2020 and Q1, Q2 and Q3 2021.
480 Employees Example:
x $21,000 (Potential credit per employee*)
$10,080,000 Total potential credit
*Assumes employer is an eligible employer in applicable periods. Employer is considered a small employer in 2021 but a large employer in 2020. Additional credit may be available in 2020 equal to 50% of up to $10,000 of qualified wages associated with employees being paid for not providing services.
Though the period to apply for the ERC has technically ended in Q3 of 2021, it is still possible to apply for the credit by amending your quarterly payroll tax returns for 2020 and 2021. If your company is eligible, you will quickly see that a small investment to have a professional look into this for you may be well worth it!
It is important to note that if your company received a PPP Loan, it may affect the ERC options but NOT disqualify participation. Larger companies with more than 500 employees that may have had only select individuals or departments that couldn’t work due to COVID-19 related governmental restrictive orders may still qualify for an ERC credit as well. Once applied for, it is typical to receive your check from the government within 6 to 9 months after filing your amended payroll returns.
What Should You Do?
You should review your company’s financial information to see if you satisfy the gross receipts test in any quarter for 2020 or first 3 quarters of 2021. If your company does not meet the year-over-year quarterly gross receipts decline, then you may want to consider investigating the impact of the COVID-19 related government orders and determine if your operations were partially or fully suspended.
Unlike the PPP loans process, this was not a widely publicized program, your credit amounts are not public information and it isn’t too late to take advantage of these significant tax credits. If you are unsure whether you qualify, you should contact a professional to do a credit analysis. If you feel you need help determining your eligibility, Sapers & Wallack would be more than happy to put you in contact with one of our CPA or Attorney partners who specialize in documenting and applying for these credits.