The Newly Expanded Employee Retention Credit provides immediate cash-flow relief to eligible employers that have been impacted by the COVID-19 pandemic. Employers can receive as much as $5,000 per impacted employee for 2020 and up to $28,000 per impacted employee for 2021!
Wondering what it means for you and how to take advantage of it? We have all the information you need.
What is the Employee Retention Credit?
The American Rescue Plan Act of 2021 (“ARPA”) extends and expands the Employee Retention Credit (“ERC”) through December 31, 2021. The ERC was originally enacted in March of 2020 as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
The Consolidated Appropriations Act of 2021 (CAA) previously extended and enhanced the ERC, most notably by retroactively allowing employers to claim the ERC even if they took a PPP loan. Under the CARES Act, you could take a PPP loan or claim the ERC, but not both. Eligibility for the ERC is based on a significant decline in gross receipts (further explained below), or fully or partially suspended operations due to a government order related to COVID-19.
What you Need to Know
The enhanced ERC under ARPA follows the more favorable 2021 rules originally enacted as part of the CAA. These rules include:
- Lowering the threshold for meeting the “eligible employer” standard under the gross receipts test (requiring only a 20% decline in gross receipts compared to a 50% decline required for the 2020 ERC);
- Raising the credit rate to 70% (from 50% in 2020);
- Raising the maximum qualified wages to $10,000 per quarter (from $10,000 aggregate for all of 2020);
- Raising the “small employer” limit to 500 full-time employees (compared to 100 full-time employees for the 2020 ERC)—a small employer is allowed to claim all wages paid during the eligibility period; while large employers can only claim the ERC for wages paid to employees not providing services.
As a result, the maximum ERC per employee for 2021 is now $28,000, compared to $5,000 for the 2020 version of the ERC.
Plus: New in 2021
ARPA provides additional expanded benefits for the ERC—these two changes are only applicable to the third and fourth calendar quarters of 2021.
First, the ERC is now available for “Recovery Startup Businesses.” This provision is applicable to startup companies that opened a trade or business after February 15, 2020, and have average annual gross receipts that do not exceed $1M. Start-up companies that meet these criteria are eligible to claim the ERC even if they don’t meet the significant decline in gross receipts or suspension of operations tests outlined above. The amount of ERC available per employer under this provision is capped at $50,000 per quarter.
Secondly, ARPA also provides an expanded ERC benefit to “Severely Financially Distressed Employers.” To qualify under this provision, an employer must suffer at least a decline of 90% gross receipts in the quarter compared to the same quarter in 2019. Large employers (over 500 full time employees) that meet this threshold are eligible to claim the ERC for all wages paid (not limited to wages being paid when no services are being provided).
How we can help you
There’s a lot of pieces involved in the ERC. To make sure you get the maximum benefit possible while staying compliant, we can help you with:
Analysis. Help you collect payroll information, gross receipts, partial suspension facts, and qualifying PPP expense data.
Monetization. Provide you with an estimate of your ERC benefits and work with your payroll personnel to obtain your benefits quickly.
Documentation. Prepare a detailed ERC tax study to support your ERC claim. This will include technical documentation of your specific qualification and ERC calculation.
We also provide a complete spectrum of services from the computation of the ERC, assistance with realization of benefit through your payroll tax filing process, documentation of your ERC in a detailed tax credit study and IRS audit representation if necessary.
Need help with claiming your ERC benefits? Get in touch - we’re here to help.