The Employee Retention Credit (“ERC”) was originally enacted as part of the first wave of pandemic relief in March of 2020. Since then, it has been modified and expanded to make many small businesses eligible. Many business owners think they are only eligible if their business was shut down. If your business operations were impacted by a government order, for example, inability to get necessary materials or required to limit capacity to maintain social distancing or many other applicable situations, this credit is a substantial opportunity for your business to review.

What is the Employee Retention Credit?

The ERC is a refundable payroll tax credit that is available to employers. Businesses that were operating on February 16, 2020, have fewer than 500 full-time employees and meet additional certain criteria for 2020 or 2021.

How much is the credit?

2020: Eligible employers can receive a refundable payroll tax credit of 50% of W-2 wages, up to $5,000 per employee for the year.
2021: Eligible employers can receive a refundable payroll tax credit of 70% of W-2 wages, up to $7,000 per employee, per quarter.

Who is Eligible?

To qualify, employers must have either:

1) had a decline in revenue of 50% or more for any quarter of 2020 when compared to the same quarter in 2019, or

2) had a decline in revenue of 20% or more for any quarter of 2021 when compared to the same quarter in 2019, or a 20% decline in Q4 of 2020 compared to Q4 of 2019, or

3) been subject to a full or partial suspension of operations by a governmental authority that had more than a nominal impact. An example of a governmental order would include…

  • An order from the city’s mayor stating that all non-essential businesses must close for a specified period.
  • A state’s emergency proclamation that residents must shelter in place for a specified period unless employed by an essential business.
  • An order that imposes a curfew and impacts the operating hours of a trade or business for a specified period.
  • An order that limits the capacity of a facility resulting that has more than a nominal effect. Ex. a restaurant limited to outdoor dining only.
  • An order that mandates businesses close for cleaning and disinfecting. Ex. a food processing plant is required to close one day a week for thorough cleaning and disinfecting.
  • Employees telecommuted but were unable to provide the same level of service. Ex. chiropractor or physical therapy practices providing tele-visits would be limited in what they can do for their patients remotely.
  • Operations were limited because of supplier closures and the business was unable to get essential goods and materials. Ex. a construction company was unable to get permits due to government buildings being closed and could not perform work.

4) Am I eligible if I received PPP funds?
Yes. The Consolidated Appropriations Act of 2021 retroactively expanded the requirements to allow employers to qualify for the ERC even if they had received PPP funds. You can not use the same dollar of wages to qualify for both programs, but to the extent you have payroll costs above and beyond the amount of the PPP loan, those costs would be eligible wages for purposes of the ERC.

What you should do now:

If you think you are eligible for the ERC, gather your documents, reconcile the attribution between the PPP and the ERC payroll wages, calculate your credits, prepare, and file with the IRS. Navigating the different stimulus packages and ensuring you are compliant may be a complicated process. If you would like help, contact G-Tax and we can help you file the appropriate credits.