Section 2031 of the CARES Act originally provided for an employee retention credit (ERC) to employers paying qualified wages to employees in 2020. Since its original enactment, that section of the CARES Act has been amended several times and the Treasury has provided guidance through corresponding Notices. This short Article provides some basic information about the ERC.
What is New
The ERC is now available for all four quarters of 2021 and has been increases to 70% (from 50%) of the first $10,000.00 in wages per employee – that is up to $7,000.00 per quarter. $28,000.00 per year for each employee. If the amount of the tax credit for an employee exceeds the employer’s contributions to the payroll taxes for that employee, the excess is refunded!
Eligibility
In order to qualify for the ERC, the business must:
1. Have 500 or fewer employees;
2. Was either:
a. partially closed down due to a government order during any part of the quarter; or
b. the businesses gross revenue declines more than 20% in a quarter compared to either (1) the same quarter in 2019, or (2) the immediately preceding quarter in 2020 or 2021
3. The business must have maintained employees on the payroll.
PPP Loan Forgiveness and the ERC
Businesses that received PPP Loans in 2020 or 2021 can still claim the ERC, but any amounts that were forgiven are ineligible for the credit.
Small Business Startups
Small businesses that opened after February 15, 2020 may be able to claim the ERC of up to $50,000.00 per quarter for the last two quarters of 2021 if they have less than $1 million in annual gross receipts even if they did not shut down or experience a decline in revenue.
What are Qualified Wages
Qualified wages are those subject to FICA taxes and includes some health plan expenses – specifically contributions made by the employer and employee. Paid leave wages do not qualify for the ERC.
How to file
You can claim the ERC by filing form 941. Employers that did not claim a 2020 or 2021 ERC in any qualifying quarter, can file an amended return using form 944-X or form 943-X.
To learn more qualifying for the ERC contact VAdam Law and schedule a free consultation by visiting our online scheduling portal or by phone 24 hours a day at (954) 451-0792.
