Employee Retention Credits (ERC)

 

 

 

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What is the Employee Retention Credit?

The CARES Act of 2020 created the Employee Retention Credit (ERC) at the same time it enacted the Paycheck Protection Program. This lesser-known incentive has proven to be a significant opportunity for businesses of all sizes. The ERC allows businesses to recover costs associated with keeping employees on payroll during hardships related to COVID-19.

ERC Credit Amount

The ERC allows qualified employers to recover wages and health plan expenses incurred during COVID-19.

• For 2020 periods, businesses can recover 50% of qualified costs, up to $5,000 per employee
• For 2021 periods, businesses can recover 70% of qualified costs, up to $7,000 per employee, per quarter

Employers are eligible to claim up to:

                                  $33,000 per employee

 

Key Insights

• Businesses who took PPP can also claim the ERC for both 2020 and 2021
• A partial suspension can be related to specific departments, service offerings, programs, etc.
• Additional rules apply for businesses with over 100 (2020) or 500 (2021) full-time employees
• Some affiliated organizations are required to aggregate for gross receipt and full-time employee
determinations
• Tax-exempt organizations can be eligible for the ERC

Learn how your business can recover wages paid during COVID-19

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Two ways your business can qualify for the Employee Retention Credit

1. Significant Decline in Gross Receipts

The employer’s gross receipts for a 2020 calendar quarter were below 50% of the comparable quarter in 2019, or for a 2021 calendar quarter were below 80% of the comparable quarter in 2019. Once the employer’s gross receipts rise above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.

2. Full or Partial Suspension by Government Order

The employer’s business has been fully or partially suspended by government order due to COVID-19 during the calendar quarter 

 

 

How do you claim the ERC?

The Employee Retention Credit allows multiple ways for businesses to quickly receive the benefit. Here are three methods used to claim the benefit:

METHOD 1: Advance Credit Request (Form 7200) 

Small businesses are permitted to request an advance credit based on wages paid in 2019 and anticipated wages for the current calendar quarter.

METHOD 2: Immediately Reduce Federal Deposits (Form 941) 

Qualified businesses that anticipate an ERC in the current calendar quarter can immediately monetize the credit benefit by reducing federal payroll tax deposits (EFTPS) up to the amount of the anticipated credit. When the quarter closes, Form 941 will be used to reconcile credits and tax liabilities.

METHOD 3: Amend Withholding Tax Returns (Form 941-X)

The most common way that businesses have received the ERC benefit is by amending a previously filed Form 941 using Form 941-X Taxpayers typically have a three-year statute of limitations to file a Form 941-X. Once the withholding return has been amended, the IRS will process the credit and apply it as an overpayment on the account. Taxpayers can elect to utilize the credit against future withholding returns or request a refund check for the overpayment

Penalties Waived

Understanding that the Employee Retention Credit was a new program with rules and regulations were slow to come out, Congress waived penalties associated with reducing federal tax deposits for the purpose of claiming the ERC. 

Businesses

Verity works with companies of all sizes and industries to claim the credits and incentives that they have been missing

CPA Firms

Whether working directly with your clients, or white-labeling, Verity has a solution to fit your needs

 

Payroll Companies

Add tax credit compliance services to your product offering as a value-add to your clients

 

Schedule a 20 minute call to discuss your tax credit situation

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