What Wages Qualify for the Employee Retention Credit?

The Employee Retention Credit (ERC) is a refundable payroll tax credit that is worth up to $26,000 per W-2 employee for employers. Available through the CARES Act to businesses impacted by COVID-19, the credit has been seen as a saving grace for many businesses across the country. Many employers to this day are either not aware of the credit or simply believe that they do not qualify. One common misconception is "we don't qualify since we took the PPP." This is far from the reality of the situation. If you received the PPP (either round), you may still qualify for the ERC but will not be able to double-dip on those wages when computing the credit. More here regarding the credit.

The definition of qualified wages comes down to how many employees an eligible employer has on payroll.

For 2019, if an employer averaged more than 100 full-time employees (not to be confused with full-time equivalent or FTE), qualified wages are those wages paid to employers that are not providing services because of operations being suspended or due to the decline in gross receipts. Employers that fall under this criteria are only able to count wages up to the amount that the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period of economic hardship.

If an employer averaged 100 or fewer full-time employees during 2019, qualified wages consist of those wages paid to any employee during the period operations were suspended or the period of the decline in gross receipts (quarterly); regardless of whether or not its employees provided services. Qualified wages are capped at $10,000 per employee for 2020 and $10,000 per employee per quarter for 2021.

In 2021, the full-time employee threshold required to apply for the ERC increased. If an employer averaged 500 or fewer full-time employees during 2019 and their operations were partially disrupted or they met the gross receipts test, they would meet the eligibility criteria to apply for the credit.

For example, Loewy Enterprises LLC had a total of 10 full-time employees during 2019. They qualified for the ERC for Q2 2020; there were a total of 10 employees who all had wages of at least $10,000 at quarter-end. Loewy Enterprises LLC would be able to claim a credit of $50,000 ($5,000 x 10 employees).

ERT Credit has calculated the ERC credit for hundreds of employers across the country and continues to actively process both computations and amended returns for employers. Click here to reach out to us for more information.