The Employee Retention Credit is a refundable tax credit against certain employment taxes of the qualified wages an eligible employer pays to employees after March 12, 2020.
Who is an Eligible Employer?
Eligible Employers for the purposes of the Employee Retention Credit are employers that carry on a trade or business during calendar year 2020, including tax-exempt organizations, that either:
- Fully or partially suspend operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or
· Experience a significant decline in gross receipts during the calendar quarter.
Is the Employee Retention Credit available to employers of any size?
Yes. The number of employees an employer has does not affect whether it is an Eligible Employer that may claim the credit.
How is the maximum amount of the Employee Retention Credit available to Eligible Employers determined?
The 2020 ERC refundable tax credit is calculated by taking 50% of the first $10,000 in qualified wages per employee in 2020. Whereas, the provision for 2021 allows for the ERC tax credit to use 70% of the first $10,000 in qualified wages per employee, for the first three quarters in 2021.
May an Eligible Employer receive both the Employee Retention Credit and a Paycheck
Protection Program (PPP) loan that is authorized under the CARES Act?
No. An Eligible Employer may not receive the Employee Retention Credit if the Eligible Employer receives a PPP loan that is authorized under the CARES Act. An Eligible Employer that receives a PPP loan should not claim Employee Retention Credits.
How to qualify as a recovery startup business to claim the employee retention credit?
In order to qualify as an RSB, there is a separate set of criteria from the regular ERTC rules that a business must meet:
- It began carrying on a trade or business after February 15, 2020
- Its average annual gross receipts for the three-tax-year period ending with the tax year that precedes the calendar quarter for which the ERTC is determined do not exceed $1,000,000
- It is not otherwise an eligible employer due to a full or partial suspension of operations or a decline in gross receipts (As discussed later in section “Not otherwise eligible,” this requirement is obsolete for fourth quarter of 2021.)
- In the case of an eligible employer that is an RSB, the amount of the credit allowed for any calendar quarter shall not exceed $50,000. The credit for RSBs may be claimed for wages paid after June 30, 2021, and before January 1, 2022.
If you have any questions about this credit or need assistance claiming it, our tax advisors are here to help. Contact us today for assistance.
