Your Business is Probably Eligible for the Employee Retention Credit
We've written about the Employee Retention Credit (ERC) expansion in the American Rescue Plan Act of 2020, but our experience is that most small businesses don't realize they are probably eligible for large refunds. Eligible businesses can receive up to $14,000 PER EMPLOYEE, so it is worth revisiting to see if your business is eligible.
Employee Retention Credit 2020
The rules are different for 2020 and 2021, so will start with last year's, which is less generous. In order to receive the credit, you must be an Eligible Business and paid Qualifying Wages.
Eligible Business
You have an eligible business if you 1) a government order caused a full or partial shutdown during 2020 because of COVID-19 OR 2) your revenue was reduced 50% in any quarter of 2020 over the same quarter in 2019. It is important to note that most businesses were subject to some order during 2020 and therefore qualify. Even businesses deemed "essential" by their state or local government can be eligible depending on the facts and circumstances.
Qualifying Wages
For employers with 100 or fewer employees then the qualifying wages are the ones paid during the order OR for the entire quarter that your revenue was below 50% of the prior year. Up to $10,000 in wages per employee (including group health plan expenses) for each applicable quarter are eligible.
Coordination with Paycheck Protection Program (PPP Loans)
Wages paid by forgiven PPP loan proceeds can not be used to take the Employee Retention Credit for 2020 OR 2021. If for some reason you didn't have your PPP loan forgiven, you can use those wages for calculation the ERC. In 2020, since the ERC is effective for wages paid from March 13, 2020 through December 31, 2020, it is highly likely that you have wages that were not paid with forgiven PPP proceeds. For example, the wages prior to receiving a PPP loan are probably eligible for the ERC.
Credit Amount
The credit amount is 50% of the eligible wages. You can obtain the credit by filing form 941-x for each eligible quarter of 2020. For example, if you had one employee you paid $10,000 from April 1, 2020 through June 30, 2020, and did not use PPP loan proceeds to pay them, then you are eligible for $5,000 in Employee Retention Credit.
Employee Retention Credit 2021
For 2021 you must be an Eligible Business and paid Qualifying Wages. Wages paid during from January 1st through December 31, 2021 are eligible.
Eligible Business
You have an eligible business if you 1) a government order caused a full or partial shutdown during 2021 because of COVID-19 OR 2) your revenue was reduced 20% in any quarter of 2021 over the same quarter in 2019, or 2020 if the businesses that did not exist in 2019. In addition, you are able to calculate the reduction in revenue by comparing the immediately preceding calendar quarter to the same calendar quarter in 2019. For example, to determine if your business is eligible for the second quarter of 2021, you can calculate your reduction in revenue using the first quarter of 2021 compared to the first quarter of 2019.
Qualifying Wages
For employers with 100 or fewer employees then the qualifying wages are the ones paid during the order OR for the entire quarter that your revenue was below 20% of the prior year. Up to $10,000 in wages (including group health plan expenses) per employee for each applicable quarter are eligible through June 30, 2021.
Credit Amount
The credit amount is 70% of the eligible wages. You can obtain the credit directly on your form 941 or file form 941-x if you have already filed the quarter's returns.
More than likely you are leaving money on the table by not applying for the Employee Retention Credit for 2020 and 2021. Schedule a call with us to see if your business is eligible!
