There are multiple items included within the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. One of the items you will be most interested in is the Employee Retention Credit. The ERC is basically a refundable payroll tax credit for any of the qualified wages you paid out to all of your retained full-time employees for a specified timeframe. The dates included in the ERC are March 13th of 2020 through December 31st of 2020. There are also new dates of January 1st of this year through June 30th of this year.
The different dates I mentioned above are necessary because the guidelines and benefits were changed from last year to this year. Therefore, it is necessary to be aware of those changes to ensure you know whether you qualify and what you must do to apply for this credit.
Eligible Employers for the Employee Retention Credit
For dates in 2020, all employers must have had their business either partially or fully suspended by their local government. The other requirement includes having a major decline in revenue. If you received less than 50% of what you did during the same quarter of 2019, you would be eligible for the ERC.
For 2021, your business must have been partially or fully suspended by the local government once again. However, the loss of revenue must be less than 80% of what you received during the same quarter of 2019.
Those businesses that were not open in 2019 may use their revenue for the same quarter in 2020 if trying to obtain the ERC for 2021.
Wages that Qualify for the Employee Retention Credit
The ERC for 2020 can be claimed for all of your full-time employees, whether they were working or not, if you have less than one hundred employees. If you have more than one hundred full-time employees, you can only claim the credit for those who received paychecks despite not working.
The number of employees you can receive the credit for increased to five hundred for 2021.
Reasons You Cannot Receive Employee Retention Credit
There are a few reasons why you would not be able to receive ERCs for your retained full-time employees. Those reasons include:
- Receiving tax credit for any paid family and sick leave under the Families First Coronavirus Response Act
- Receiving tax credits for wages paid out under family and medical leave
- Any wages paid to related individuals
- Any employees who receive Work Opportunity Tax Credits
- Any payroll costs you covered from PPP loans
Employee Retention Credit Amounts
In 2020, you could receive a maximum of $5,000 per employee for the period. In 2021, that amount increases to a maximum of $14,000 per employee for the period.
The amount you receive is applied to your portion of the Social Security taxes for each employee. This amount is fully refunded to you and basically serves as an overpayment.
Hopefully, you understand the Employee Retention Credit a little more now, but as always, I am always here for any questions you may have. So, if ERCs are still a little confusing, contact me today, and let’s chat!