Beginning in 2020, the federal government implemented the Employee Retention Credit (ERC) in order to incentivize businesses to retain employees by offsetting costs in the form of a tax credit. Recent extensions and changes allow for more businesses to qualify for and take advantage of the credit.
What is the ERC program?
First implemented as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the ERC is a tax credit against federal payroll taxes. Originally, the ERC was equal to 50% of the qualified wages, up to $10,000 per eligible employee in 2020. In 2021, modifications were enacted as part of the Consolidated Appropriation Act (CAA21) and extensions were added as part of the American Rescue Plan (ARP) to extend the ERC benefits through December 2021. Additional changes were also implemented as part of the Infrastructure Investment and Jobs Act (IIJA), also known as the Bipartisan Infrastructure Bill (BIB). The updated refundable tax credit increased to 70% of up to $10,000 of qualified wages per quarter for 2021 per eligible employee. Today, the ERC is available to any business that experienced a financial decline, was forced to limit capacity, or was forced to temporarily shut down during the pandemic due to government mandates as part of COVID-19.
Who qualifies for the ERC?
A wide range of employers across industries are eligible for the ERC including education, government contractors, healthcare, hospitality, retail, non-profit, industrial, professional services, real estate, construction, and technology, among others. In order to be eligible for the 2020 ERC, the employer must have experienced one of the following:
- A 50% or more decline in a 2020 calendar quarter’s gross receipts compared to the same quarter in 2019, or
- Full or partial suspension of operations due to a government order during 2020.
In order to be eligible for the 2021 ERC, the employer must have experienced one of the following:
- A 20% or more decline in a 2021 calendar quarter’s gross receipts compared to the same quarter in 2019. An added election is available to use the immediately preceding calendar quarter to compare to the same calendar quarter in 2019 for determination of gross decline in receipts, or
- Full or partial suspension of operation due to a government order in 2021.
For both 2020 and 2021, qualifications may vary dependent on the number of employees and the types of services employees provided. Additional qualifications may apply for recovery startup businesses as laid out in the American Rescue Plan Act (ARP) of 2021 and the Infrastructure Investment and Jobs Act (IIJA), also known as the Bipartisan Infrastructure Bill (BIB).
How do I claim my ERC?
With qualifications met, you can claim the ERC with use of the Form 941-X. In order to expertly navigate the complex qualifications and maximize your credit, working with qualified advisors is imperative. Our team of experts is ready to help you today.
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Maximizing your ERC will greatly impact your business’ bottom line. It is essential to take advantage of this program before it is discontinued. Leave it to the team at Percipio Business Advisors.
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