As the days continue to roll by, more and more employers are becoming aware of the Employee Retention Credit (ERC). Have you taken advantage of the credit? The ERC is a refundable payroll tax credit that is worth up to $26,000 per W-2 employee. Available through the CARES Act, the ERC has been a gamechanger for many employers. This is yet another injection of cash for businesses across the country similar to the Paycheck Protection Program (PPP) loans that you may have received in 2020 and/or 2021 respectively.
For each employee, wages up to $10,000 for 2020 can be counted to determine the amount of the 50% credit. For 2021, the Federal Government boosted the credit to 70% against the first $10,000 in wages per quarter (quarters 1, 2, 3). Having said that, each employee is worth up to $5,000 for 2020 and $21,000 for 2021. Because this credit can apply to wages paid after March 12, 2020, many employers who are/were struggling can get access to said credit and gain much-needed relief.
Employers, including organizations that are tax-exempt, are eligible for the credit if they were in operation during calendar year 2020 and experienced either:
- a full or partial disruption of their operation during any calendar quarter due to governmental orders that limited capacity, commerce, travel, of group meetings due to COVID-19, or
- a significant decline in gross receipts
A significant decline in gross receipts for 2020 is classified as a 50% decline for the quarter in question compared to the same quarter in 2019. For example, if your gross receipts for Q2 2019 were $975,000 and for Q2 2020 they were $300,000, your business would have met the gross receipts test (down 70%).
A significant decline in gross receipts for 2021 is classified as a 20% decline for the quarter in question compared to the same quarter in 2019. For example, if your gross receipts for Q2 2019 were $975,000 and for Q2 2021 they were $650,000, your business would have met the gross receipts test (down 34%).
The credit applies to qualified wages paid during this period or any calendar quarter in which operations were disrupted.