Many businesses have retained employees during the COVID-19 pandemic and enjoyed tax relief with the help of the employee retention credit (ERC).
What is the Employee Retention Credit?
Originally introduced as part of the Coronavirus Aid, Relief, & Economic Security Act to business owners during the pandemic, this credit has since been modified in the Consolidated Appropriations Act of 2020 and, most recently, under the American Rescue Plan Act of 2021. It is a refundable credit that small businesses can claim on qualified wages, including certain health insurance costs, paid to employees. For example: A qualifying employer with 20 employees could receive up to $100,000 (20 employees x $10,000 qualifying wages x 50% tax credit) for tax year 2020 and up to $140,000 per quarter for 2021 (20 employees x $10,000 qualifying wages x 70% tax credit). The rules have changed for the ERC, so even if a business took a Paycheck Protection Program (PPP) loan, they may still qualify for the ERC.
Do You Qualify for the Employee Retention Credit?
If your business was affected by the pandemic, you may qualify for the ERC. A few questions you can ask yourself to help determine if you qualify:
- Did you have a 50% or more decrease in gross receipts in any quarter in 2020, compared to the same quarter in 2019?
- Did you have a 20% or more decrease in gross receipts in any quarter in 2021, compared to the same quarter in 2019?
- Was your business subjected to a government mandated shutdown order? This could be a complete shutdown of your business or a partial shutdown of one department, division, location, etc.
- Was your business required to limit capacity, limit operating hours, or have additional cleaning staff?
- Did you encounter supply chain interruptions or were unable to get the supplies needed to continue your normal business operations?
- Do you have multiple businesses that fall under the required aggregation rules? If so, one business may qualify all entities.
- Did you receive a PPP loan, Work Opportunity Tax Credit, Restaurant Revitalization Fund Grant, or a Shuttered Venue Operators Grant? If so, these funds may affect the amount of credit allowed.
If you have questions about the ERC rules and whether you qualify, contact KPM.