Everything you need to know to apply for the Employee Retention Credit (ERC) in 2021

You may not have heard of Employee Retention Credit (ERC) until recently. If so, you are not alone! This is because businesses that applied for the 2020 Paycheck Protection Program (PPP) loan were not eligible to apply for the ERC. In 2021, although that has everything change. Now companies that applied for the PPP loan are eligible for the Employee Retention Credit both retroactively and in 2021, which is HUGE! This news was released in December 2020 with the approval of the Consolidated Allowances Law.

So what does this all mean? What exactly is the Employee Retention Credit and how do you qualify to receive it? In this article, we’ll break it all down so you have a good understanding of what it is and how you can get the most out of your Employee Retention Credit.

First, what is the employee retention credit?

To understand the Employee Retention Credit, we’ll take a time machine through March 2020 (don’t worry, we’ll make sure to quickly get back to the present).

In March 2020, the US federal government signed a $ 2 trillion relief law, known in the CARES Act, that was intended to provide relief to individuals, businesses, and government organizations. As part of the CARES Act, if your company was severely affected by the effects of COVID-19, you were eligible to apply for one of two incentives that would help companies keep employees on their workforce during the pandemic. These incentives were known as the Pay Check Protection Program (PPP) and the Employee Retention Credit (ERC).

The PPP loan was the more notable of the two, making forgivable loans to companies with fewer than 500 employees. If you applied for the PPP loan, you were prohibited from applying for the Employee Retention Credit. The Employee Retention Credit is not limited by the number of employees and is a refundable payroll tax credit. The credit was available to taxpayers who totally or partially suspended their business during a 2020 quarter or had a drastic drop in gross income compared to the 2019 quarters. If they qualified, they could receive a credit of up to $ 5,000 per employee who received a qualifying salary.

Ok, that was a quick and fun synopsis of where we came from. Now let’s go back to the future and talk about what has changed in the present!

New law expands opportunity to claim employee retention credit

In December 2020, a new aid law, the Consolidated Allowances Law, was passed. This law extends the date of the Employee Retention Credit and also changes who is eligible to receive it. Originally, the ERC date was supposed to end in late 2020, however it is extended until June 2021.

Besides the extension date, the biggest change in eligibility is that everyone who borrowed a PPP loan can Not only apply for the ERC in 2021, but you can come back and apply in 2020. YES, this can mean a lot to businesses! However, the amount you received from the PPP loan will be different from that of the ERC. The PPP loan must be spent primarily on payroll, where the ERC is based on qualifying wages, including health care costs.

So how do you rate?

To be eligible for the Employee Retention Credit, companies must demonstrate one of the following circumstances:

1. That the operations were totally or partially suspended due to government orders.
2. If you apply for the credit in 2020, you must show a 50% or more decrease in gross income from the same quarter of the previous year.
   1. Or if you are applying for the credit in 2021, you must show a decrease of 20% or more in gross income for the same quarter of 2019

What salaries qualify?

If you meet one of the above criteria, then the wages below will qualify for the time period you are applying for:

From March 13^th – December 31^{S t} 2020, if you have less than or equal to 100 full-time employees in 2019, all salaries qualify. If you have more than 100 full-time employees in 2019, only qualify the salaries of employees who do not render services.

From January 1^{S t} – June 30th^th, 2021, if you have less than or equal to 500 full-time employees in 2019, all salaries qualify. If you have more than 500 full-time employees in 2019, only qualify the salaries of employees who do not render services.

* To determine how many full-time employees you had in 2019, use Form 1094-C. On page 2 of column B, enter the number of full-time employees you had each month. Add up the 12 numbers and divide by 12. That will give you the number of full-time employees you had in 2019.

How much credit can you receive?

For credits requested between March 13^th – December 31^{S t}, Range 2020, a credit of up to 50% of the first $ 10,000 in total qualified wages paid and health care costs can be claimed. This equates to $ 5,000 per employee.

For credits requested between January 1^{S t} – June 30th^th, 2021, A credit of up to 70% of the first $ 10,000 in total qualified wages paid and health care costs can be claimed. per room. This equates to $ 7,000 per employee. for each trimester.

How do you receive it and how do you send it?

Well, we just dove into a LOT of detailed information! Feel free to take a break if you need to. * DEEP BREATHING *

Now in the final stretch!

As you read the above, you may already have a ton of numbers running around in your head trying to figure out how much credit you could receive. Once you sit down and put all the numbers together, you will report your 2020 total qualified salary and related health insurance costs on the Quarterly Adjusted Federal Tax Return, Form 941-X. For 2021, you will report your total qualified salary and health insurance costs on your quarterly employment tax return on Form 941. Please note that this form is currently in draft mode and cannot be used. The final form for 2021 has yet to be published.

Over time, the credit will be deducted from your quarterly payroll tax bill against your employee’s share of FICA. If your tax credits exceed your tax bill, you will receive a check from the IRS.

Do you have questions about how to maximize your credits?

Now you know the basics and if you are eligible to receive the ERC. It’s time to start the process of claiming your credits!

As you can see, figuring out how much is eligible for the Employee Withholding Credit can be tricky. If you’re not sure where to start or have questions, work with your accountant or payroll specialist. In addition, there are external consultants who specialize in maximizing tax credits. If you want to make sure you get the most out of your CKD, it may be worth seeking out an outside specialist.