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Don’t underestimate the value of broadened Employee Retention Credits

Posted by Shivali Anand

August 31, 2021    |     3-minute read (509 words)

The Employee Retention Credit was initially established in March 2020 as part of the CARES Act, with the goal of keeping employees on employers' payrolls during the COVID-19 epidemic. It has subsequently gone through a few revisions.

These iterations were introduced in the American Rescue Plan Act of 2021, which extends the ERC until December 31, 2021. Some firms that did not qualify in 2020 may still be eligible in 2021, according to accountants.

Summary of the ERC

Companies should engage with a professional to claim the credit on their employment taxes because it's a complex program whose rules have changed from 2020 to 2021. Check out the table below for a general overview of the ERC for 2020 and 2021.

    ERTC 2020 ERTC 2021
Availability  Applies to qualified wages paid by eligible employers after March 12, 2020, and before Jan. 1, 2021. Applies to qualified wages paid by eligible employers from Jan. 1, 2021, to Dec. 31, 2021.
Eligible employers The ERTC is available to any employer that:
• Had operations fully or partially suspended under government orders due to COVID-19, or
• Had a decline of at least 50% in gross receipts.
 
The ERTC is available to any employer that:
• Had operations fully or partially suspended under government orders due to COVID-19, or
• Any business with a decline in gross receipts of more than 20% compared to the same calendar quarter in 2019. Note that state and local governments are now eligible; and employers who did not exist in 2019 can use the corresponding quarter in 2020 to measure the decline in their gross receipts.  
What wages qualify? For employers averaging over 100 full-time employees: Only wages for those retained who are not working may be claimed.   For employers with over 500 full-time employees: They can only claim the ERTC for those who aren’t providing services.
For employers averaging 100 or fewer workers: Wages for all employees regardless of whether they are working can be claimed.   For employers with 500 or fewer full-time employees: They can claim the ERTC for all of them, regardless of whether they are working.
Eligible employers can claim 50 percent of qualified wages paid up to $10,000 per employee between March 13 to Dec. 31, 2020.   70 percent of qualified wages paid up to $10,000 per quarter from Jan. 1 to Dec. 31, 2021
Maximum credit amount per employee is $5,000 for the year.   Maximum credit amount per employee of $7,000 per quarter, total of $14,000 per employee  
PPP loans and eligibility Small businesses that took a PPP loan ineligible for the credit. Small businesses that took a PPP loan are now eligible and may retroactively claim the credit to March 2020.    


The IRS defines eligible employee earnings as salaries, commissions, gratuities, or other comparable remuneration subject to FICA tax and specific health costs for the ERTC.

Also, you can check out IRS' dedicated advice at COVID-19-Related Employee Retention Credits: How to Claim the Employee Retention Credit FAQs for the most up-to-date and accurate information on the ERTC.

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