Employee Retention Credit
The CARES Act created two mutually exclusive benefits to employers, the PPP loan and the Employee Retention Credit (ERC). Prior to the Consolidated Appropriations Act, if your business received a PPP Loan, then it could not also benefit from the Employee Retention Credit.
The Consolidated Appropriations Act allows for employers to get BOTH the Employee Retention Credit & a PPP Loan. However, if wages are paid with forgiven PPP funds, these specific wages will not qualify for the ERC.
This act changed which employers can now benefit from the ERC retroactively, but it did not change the calculation of the credits for 2020 which you can read about in our article here.
This act also extended the availability of this credit through 12/31/2021 and it made substantial changes to the credit calculations for 2021.
The employee retention credit is available to employers, including non-profits, whose operations have been fully or partially suspended because of a government order limiting commerce, travel, or group meetings. The credit is also provided to employers who have experienced a greater than 20% reduction in quarterly receipts, measured against the respective 2019 quarters.
What wages qualify for ERC?
Qualified wages depend on the number of employees.
For employers who had an average number of full-time employees in 2019 of 500 or fewer, all employee wages are eligible, regardless of whether the employee is furloughed. For employers who had a greater than 500 average number of full-time employees in 2019, only the wages of employees who are furloughed or face reduced hours as a result of their employers’ closure or reduced gross receipts are eligible for the credit.
The term “wages” includes health benefits and is capped at the first $10,000 in wages paid per quarter by the employer to an eligible employee. The credit applies to wages paid after December 31, 2020 and before July 1, 2021.
The credit amount is 70% of qualified wages and could be as much as $7,000 per employee per quarter for all four quarters of 2021!
All employers should immediately review this law change to see if their 2020 payroll costs may qualify and review their situation to see if they can qualify for 2021. Refunds may be immediately available for $5,000 per employee for 2020 and potentially $28,000 per employee for 2021.