The Employee Retention Credit (ERC) that came out of the CARES Act back in March of 2020, received some important, and potentially very valuable, modifications in the COVID-19 Relief package signed into law December 27, 2020. The changes impact the credit going forward in 2021, as well as how it is calculated retroactively for 2020.
First, the ability to use the ERC credit program has been expanded dramatically because PPP loan forgiveness is no longer a disqualifier for the ERC credit, and employers who previously were disqualified because of PPP can now even go back retroactively to 2020 and claim the ERC. This change alone makes the ERC credit available and valuable to many more employers than previously and merits a careful consideration by any employer who may now qualify. So let’s talk about some of the additional details and changes that came about of this latest relief package from Congress.
For 2021, the ERC has been exteneded until July 1, 2021 and expanded to cover 70% of qualified wages up to $10,000 per employee, giving employers up to $7,000 per employee per quarter. The employer size has been updated to be anyone smaller than 500 employees (it was limited 100 in 2020) and the qualifications have been modified a bit. You can qualify for the 2021 ERC credit in one of two ways:
· Your business was partially or fully shut down due to government orders
· Your business suffered a decline of 20% or more in gross receipts when compared to the same quarter of 2019. For 2021 only, you can use the receipts from the prior quarter compared to current quarter 2019. For example, if Q4 2020 (prior quarter at the time of this post) gross receipts are less than 80% of Q1 2019 (“current quarter” of this post is Q1) then you would qualify for ERC in Q1 2021.
For employers who qualified for but did not claim the ERC in 2020 because they took a PPP loan instead, they can now go back and request the ERC credit for 2020. There are a lot of moving parts used to calculate the retroactive ERC amount. For example, no wages paid via the PPP loan proceeds can be used to calculate ERC Credit, and the work status of the employees during the time of shutdown or revenue drop affects the calculation of credit eligibility. Also, wages that qualify for the credit depend on whether your business is over or under 100 employees. It is best to work with your accountant or financial advisor to determine what, if any, ERC credit you can claim for 2020.
HOW CAN WE HELP?
2021 ERC – If you qualify for ERC in Q1 2021 please fill out this form and PayNorthwest will calculate the credit for the affected payroll.
2020 Retro ERC – If you qualify now that the PPP loan restriction has been lifted please work with your accountant or financial advisor to determine the amount of credit you are owed for each quarter of 2020. Once you identify those numbers send them to us via email at email@example.com and we will complete and submit the amended returns to trigger a refund from the IRS. Please note that the amended return fee of $150 per quarter will apply.
April 20, 2020
Receive Employee Retention Credit (ERC) according to the CARES Act
The CARES Act provides payroll tax credit equal to 50% of up to $10,000 of qualified wages per employee paid from March 13, 2020 through December 31, 2020. Read the Act’s full text.
Employers are eligible for the credit for any quarter in which they have either had to fully or partially suspend operation of business because of governmental orders due to COVID-19, or if they have had more than a 50% decline in gross receipts as compared to the same quarter a year ago.
To receive the credit, please notify PayNorthwest of your eligibility. We’ll ask you for some details and the credit will be applied on your next payroll. Please note that you must notify us every time a payroll is affected by ERC so that we can correctly apply the credit.
PayNorthwest can calculate your ERC on your behalf for a fee, or you can send us your ERC amount, which will be applied to your payroll at no cost.