With the first quarter of 2020 coming to a close, businesses should consider the Employee Retention Credit (ERC) as they begin to prepare their quarterly payroll tax filing (Form 941). As a reminder, the ERC is a refundable payroll tax credit and is now available even if the business took a Paycheck Protection Program (PPP) loan as long as they meet the eligibility requirements. If eligible, the credit can be claimed on 70% of qualified wages on up to $10,000 per employee, per quarter (maximum $7,000 credit per employee, per quarter).
Employee Retention Credit Eligibility
To be eligible for the Employee Retention Credit, a trade or business must meet one of two tests:
- The “Government Order” Test – operations were fully or partially suspended during any calendar quarter in 2021 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19. Under this test, the credit is only available for the period of time that the applicable government order is in place.
- The “Gross Receipts” Test – 2021 quarterly gross receipts must have declined more than 20% when compared to gross receipts for the same calendar quarter in 2019. There is also an option to use the preceding quarter to determine eligibility under this test (i.e. compare 2020 Q4 to 2019 Q4 gross receipts)
For more in-depth clarification on ERC eligibility, check out our webinar “Revamped Eligibility Rules for COVID-19 Relief Provisions: PPP Loans & Employee Retention Credit” (Access Passcode: &p6H2$Xb).
ARPA Change to ERC Availability
The recently enacted American Rescue Plan Act of 2021 (ARPA) extended the availability of the ERC to the end of 2021, previously only available for Q1 and Q2 of 2021. Check out our blog post “Business Tax Provisions of ARPA” to learn more about the changes to the Employee Retention Credit, and other important business provisions in the new legislation.
If you need assistance in determining whether your business qualifies for this credit, please contact us to be connected with an experienced CPA who can evaluate your unique circumstances.