Have you ever heard of the Employee retention credit?

When Congress passed the CARES Act in March 2020, most businesses took advantage of the Paycheck Protection Program (PPP) loan to help keep them afloat. Congress also authorized a second option to help employers—an employee retention credit fully refundable against the business’s payroll tax liabilities. However, congress made business choose between the two, since the PPP is more profitable for businesses. The employee retention credit almost went the way of the Dodo!

However, Congress is now looking at the economic impact of the pandemic in the long term. In other words, Covid-19 has left an indelible mark on the economy and they need a way to keep this economy afloat. In the revised CARES act of Dec 27, 2020, Congress took steps toward that goal by making the Employee Retention credit (ERC) not just a choose betwwen but incentivined and strengthened the program to make it more appealing and usable by employers.

Thanks to the new COVID-19 relief law, an employer who has or had the PPP in hand can do both the PPP loan and the employee retention credit. (Yay Congress!)

Looking forward to 2021, Congress made the ERC easier to claim and increased the dollar amount of your cash benefits. READ THIS to find out how you can claim prior quarter tax credits, saving you possibly thousands of dollars! (Dollar Dollar bills Y’all) This year, you will find that the new law multiplies your possible ERC tax credits by 2.8.

ERC 101

If eligible, a refundable tax credit against the employer portion of the Social Security tax equal to 50 percent of wages paid to your employees on or after March 13, 2020, through December 31, 2020.

Your eligibility is based on:

a government order fully or partially suspended your operations during a calendar quarter due to COVID-19 (you have a high likelihood that you suffered this problem), or

your gross receipts for a calendar quarter are less than 50 percent of gross receipts from the same quarter in tax year 2019,
- in which case your credit ends in the quarter when gross receipts exceed 80 percent of gross receipts from the same quarter in the prior year.

Business size is also a determining factor:

If you had more than 100 full-time employees in 2019, then you can take a credit for wages paid to your employees when they are not providing services due to either the suspension or decreased business.
If you had 100 or fewer full-time employees in 2019, then all your employee wages qualify for the credit during the period of the suspension order or if you are using the gross receipts test, for the entire quarter.
The maximum creditable wage amount is $10,000 per employee for all calendar quarters in tax year 2020,
- This includes the value of the health benefits you pay on your employee’s behalf.

Change to the care act in December

Before: Businesses that selected the PPP option could not claim the ERC.

After: retroactive change

PPP loan recipients can use the ERC for wages not paid with forgiven PPP loan proceeds.

Group health plan expenses are now considered qualified wages even if no other wages were paid to the employee.

Since the change is retroactive you may have unclaimed ERC amounts all the way back to the first quarter of 2020. To claim those missed credits, you will need to amend your payroll tax returns using IRS Form 941-X. (For your convenience, or your bookkeepers a link to the form!)

IRS troubles? If you have unpaid payroll tax bills from prior quarters, your amended returns could reduce penalty and interest charges on those quarters, granting you even more cash. (Whoo Hoo IRS!)

Tax Year 2021 Changes

First, and most important, Congress extended the ERC credit to wages paid through June 30, 2021.

For the two quarters in 2021, Congress increased the credit amount and made it easier claim with the following changes:

The relaxed requirements for qualifying wages apply to businesses with 500 or fewer full-time employees in 2019.

There is one new wrinkle: an employer cannot receive advance payments of the ERC credit unless the employer has 500 or fewer employees.

Something to note: The changes listed in this section apply to the 2021 quarters only.

For more informative articles like this check out our archives: Blog