Podcast: Employee Retention Credit

Employee Retention Credit (ERC)

Written by Jeff Dvorachek

February 16, 2021

Many employers continue to feel the impact of the pandemic. As the effects have continued into 2021, the government has issued new legislation to help businesses. As part of the tax bill signed in December, significant changes have been made to the Employee Retention Credit (ERC). This episode provides an overview of everything you need to know about the Employee Retention Credit.

 

Many employers continue to feel the impact of the COVID 19 pandemic. As the effects have continued into 2021, the President now says that it may be fall before many of us have the opportunity to get vaccinated. To help businesses, the government has issued new legislation. As part of the tax bill signed in December, significant changes have been made to the Employee Retention Credit.

 

This is a credit that we have not talked about right?

  • We have not.
  • This is a credit which really helps small businesses that have kept their employees on the payroll.
  • And with the changes made, it can really make a difference. (1:15)

When did the credit start?

  • It actually started in March 2020 when the pandemic started and has been extended to June 30, 2021.
  • Last year, it was not very beneficial because if you received PPP funds, you were not eligible for it.
  • But that changed with the new legislation. Now those who took the PPP funds can also take advantage of the credit as long as the same wages were not used for both. (no double dipping) This change was retroactive to March 2020.

What’s the Maximum amount of the credit?

  • For 2020, the credit is based on 50% of qualifying wages up to $10,000. So the max credit is $5k per EE per year.
  • In 2021, the credit is based on 70% of qualifying wages up to $10,000. So the max credit is $7k per EE per quarter. If they qualify for the first and second quarter – the max credit is $14,000!

How does an employer qualify?

  • They have to meet one of two tests-
  • Their operations were fully or partially suspended due to government orders OR
  • In 2020, they had a 50% reduction in gross receipts compared to the same quarter in the previous year.

Did that change in 2021?

  • Yes it did. In 2021 you are eligible if the business only had a 20% reduction in gross receipts compared to the same quarter in the previous year.

Is this a quarter by quarter calculation?

  • Yes, unlike some programs, a business can only take the credit in the quarter of the reduction.
  • But, they can qualify in multiple quarters.
  • Just remember there is a per employee maximum of $5k in 2020 and $14k in 2021 ($7k per quarter)

Anything else we should know before we go?

  • Yes depending the size of your business, the qualifying wages are calculated differently.
  • For example, in 2021 if you have 500 or less employees, then the credit is based on all wages paid. If you have more than 500 employees, then the credit is based on only those employees who were paid not to work.
  • In 2020, the 500 employee threshold was only 100.
  • Lastly, this credit is taken on the employers quarterly tax form (form 941) and if they later determine that they could have taken it for 2020, they can amend the return to get it.
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Jeff Dvorachek
I joined Hawkins Ash CPAs in 1998. I am the partner-in-charge of the Manitowoc, WI, office and tax director for the firm. I have thorough experience providing tax services to individuals, commercial businesses, nonprofit entities and estates and trusts. I also provide compilation and review services. I lead the Tax Committee and am a member of the Information Technology Advisory Committee.

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