Employee Retention Credit: Potential Refund for Qualifying Businesses
The recent Consolidated Appropriations Act signed into law on December 27, 2020 made significant changes to the Employee Retention Credit (ERC) which could result in tax refunds for qualifying businesses.
In order to claim the ERC employers must meet one of the following criteria:
- Your business operations were either fully or partially suspended due to a government order at any time during 2020 or January 1 through June 30, 2021.
- Your business experienced a decrease in gross receipts of 50% in any 2020 calendar quarter compared to the same calendar quarter of 2019.
- Your business experienced a decrease in gross receipts of 20% in 2021 Quarter 1 or 2021 Quarter 2 compared to the same quarter in 2020.
- You may elect to use prior quarter gross receipts to qualify for Quarter 1 or Quarter 2 of 2021.
Highlights of some of the significant changes to the Employee Retention Credit by the Consolidated Appropriations Act follow:
- Extension of the credit to include Quarter 1 and Quarter 2 of 2021.
- The maximum credit was increased from $5,000 per employee for 2020 to $14,000 per employee for 2021.
- Employers who receive or received a PPP loan will qualify for the credit with respect to qualified wages that are not paid for with forgiven PPP loan proceeds. This was made retroactive to 2020 when the CARES Act became law.
- The applicable number of employees has increased from 100 to 500 employees for the tax year 2021. This will permit eligible employers who had 500 or fewer full-time employees in 2019 to claim the credit for wages paid to employees who continue to perform services for Quarter 1 and Quarter 2 of 2021. The 100 employee limit continues to apply for the tax year 2020.
- Allowance for an advance refund of the credit for 2021 Quarter 1 and Quarter 2.
- Employers who were not in existence for all or part of 2019 will be allowed to claim the credit.
- Clarification that qualified health expenses can be eligible for the credit even if no wages are paid.
Please contact your Gettry Marcus Advisor or Andrew Moore, the author of this article if you would like assistance in determining your eligibility for this tax credit, or quantifying the credit.