Maximizing the Employee Retention Credit

Back in March 2020, the CARES Act created many pandemic relief programs: the Paycheck Protection Program (PPP), the first round of Economic Impact Payments (stimulus checks), and the Employee Retention Credit (ERC). When the ERC was first introduced, it could not be combined with PPP, but the Consolidated Appropriations Act, 2021 (“the Act”) signed into law in the final days of 2020 retroactively changed that. The Act also extended the ERC through the first two quarters of 2021, and increased the credits available under the program.

The ERC is a refundable payroll tax credit for qualified wages paid to employees of businesses dealing with a significant decline in gross receipts and/or closed or running limited operations because of government-mandated pandemic restrictions.

While the Act retroactively made employers who took PPP funds eligible to also take advantage of the ERC, companies cannot “double-dip” on the wages used for these programs. For example, wages used for a PPP loan forgiveness application cannot be used for the ERC. With careful planning, employers who want to take advantage of both programs can maximize their PPP loan forgiveness and ERC.

The ERC credit rate for the first two quarters of 2021 increased from 50% to 70% of qualified wages. Further, the limit on per-employee wages was modified to $10,000 per quarter, rather than per year. Under the Act, employers can receive a maximum credit of $14,000 per employee for the first two quarters of 2021.

For the first two quarters of 2021, employers can be automatically eligible for the Employee Retention Credit if gross receipts have declined at least 20% compared to the corresponding quarter in 2019. Further, employers who are impacted by a government shutdown order (full or partial) are eligible for the credit even if they do not meet the gross receipts test.

Schreiber Accounting and Advisory can help you understand whether you qualify for the Employee Retention Credit and file the appropriate payroll tax returns to claim it. Contact the firm for more information.

Material discussed is for informational purposes only. It is not to be interpreted as investment, tax, or legal advice. Individual situations vary, and this information should only be relied upon when coordinated with individual professional advice. Not all taxpayers will receive a refund.