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Due to the coronavirus negatively affecting businesses nationwide, there are a number of coronavirus payroll tax credits available to help employers out. One option for employers is the Employee Retention Credit (ERC).

There are two main questions that you should be asking of your organization. First, did your business suspend operations, either fully or partially, because of a governmental mandate? And secondly, did your revenue decline? If you answered yes to either of these questions, it’s time to dig in further to determine your eligibility.

There have been so many changes to ERC, it may be difficult to keep straight, so we put together this table for you:

 

2020

2021- Q1 &Q2

2021- Q3 & Q4

Time Period

March 13, 2020, to December 31, 2020

January 1, 2021, to June 30, 2021 (credit computed for each quarter)

July 1, 2021, to December 31, 2021 (credit computed for each quarter)

Credit Rate

50%

70%

Qualified Wages

Can qualify up to $10,000 per employee

Can qualify up to $10,000 per employee

Maximum Credit per Employee

$5,000 aggregate

$7,000 per quarter

Eligible Small Employer

Less than or equal to 100 full-time employees

Less than or equal to 500 full-time employees

Eligibility Requirements: Decline in Gross Receipts

Gross receipts decline of greater than 50% in any quarter in 2020 vs. 2019

Gross receipts decline of greater than 20% in any quarter in 2021 vs. 2019

Or Eligibility Requirements: Government Shut Down

 

 

The full or partial suspension of the business’s operation during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19.

The full or partial suspension of the business’s operation during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19.

 

 

Lookback Provision for Gross Receipts

Not applicable

Look back to the preceding quarter to meet qualification criteria

Governmental Instrumentalities Eligible

No

Public colleges, universities, organizations whose principal purpose is providing medical or hospital care, certain federal instrumentalities like credit unions

Recovery Start-up Business

Not Applicable

New category of qualified business that started 2/15/2020 or later and limited to $50,000 in credit per quarter

Severely Financially Distressed Employer

Not Applicable

Gross receipts down over 90% in Q3 or Q4 vs. 2019 and eligible small employer rules ignored

Overlapping Provisions – No Double Dipping!

PPP, FFCRA, WOTC, FMLA

PPP, FFCRA, WOTC, FMLA, R&D, Indian Employment, Veterans, Empowerment Zone

PPP, FFCRA, WOTC, FMLA, R&D, Indian Employment, Veterans, Empowerment Zone, SVO Grants, Restaurant Revitalization Grants

 

***Please note this chart is not all the provisions of ERC and only highlights the major provisions.

Am I eligible if I received a PPP loan?

Yes. The new legislation allows businesses that received a loan under the Paycheck Protection Program (PPP) to qualify for the ERC tax credit. However, the credit can only be applied to wages that are not forgiven or expected to be forgiven under PPP. 

How do I determine if my business is eligible?  

We've created two flowcharts that will guide you through the process. Click here to download the 2020 ERTC Flow Chart, or here to download the 2021 ERTC Flow Chart.

How do I claim the Employee Retention Credit?

There is no Employee Retention Credit application. Instead, employers can claim the Employee Retention Credit on their federal employment tax returns. In most cases, this means claiming the credits on Form 941, Employer’s Quarterly Federal Tax Return.

An employer can amend their Form 941 via a 941x if they determine later that they qualified for the credit.

Depending on your business, you might also claim the credit on Form 944, Employer’s Annual Federal Tax Return, or Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees.

More Guidance Still to Come on the Employee Retention Credit

The ERC enhancements follow the recently released IRS Notice 2021-20 that provided formal guidance for the 2020 ERC, including the interaction between wages used for PPP forgiveness and the ERC. The IRS is expected to release additional guidance soon to provide additional details on the 2021 ERC.

More Questions? Let's Talk

If you have additional questions, we are here to help! Please reach out to us at tax@highflyerpayroll.com to discuss how we can help you navigate your potential tax credits.

 

 
Additional Resources

On April 7th, 2021 we hosted a webinar on this topic, and you can view the webinar recording and additional resources now.

View Webinar

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