picture of tax withholdings form

The Employee Retention Credit (ERC) was enacted in the CARES Act in March 2020 and is a tax credit applicable to employment taxes. It is a refundable credit for qualifying employee wages and was enacted to support businesses who kept employees on the payroll during the COVID-19 pandemic.

In November 2021, the Infrastructure Investment and Jobs Act was passed into law, and with that Act, the ERC qualifying end date moved from 12/31/2021 to 9/30/2021. (This change applies for businesses other than ARPA Recovery Startup Businesses.)

ERC expired 9/30/21,but your business can still apply!

The Employee Retention Credit wasn’t eliminated.  Any eligible employers can still apply for those stimulus credits based on the business’ financials between 3/13/2020 and 9/30/2021.

Eligible businesses could be entitled a maximum of 70% of each employees’ qualified wages. The credit caps out at $7,000 per employee per quarter.

Who qualifies for retention credits?

Employers qualify for the retention credits if they were doing business in 2020 and/or 2021

    • and a government order shut down its operation partially or in full,
    • or the business had a reduction in gross receipts.

For profit and non-profits are eligible for the retention credits. Also eligible are some government entities such as public universities.

2020:

For the 2020 tax year, employers can qualify for the ERC in any quarter in which gross revenue saw a 50% decline from the same time frame in 2019

2021:

Employer eligibility for the 2021 tax year is based on 2021 gross revenue compared to the same quarter in 2019. If 2021 gross revenue saw a 20% decline compared to the same time frame in 2019, your business could qualify for the credit.

What are qualified wages for the ERC?

Qualified wages are the wages and other compensation the business paid to full-time employees in each quarter being considered. Health plan expenses can be included in the wages.

Do business owner wages qualify for the credit?

For individuals who are related to an owner who owns more than 50% of the business, their wages do not qualify toward the business’ ERC.

For the owner and the owner’s spouse, their wages do qualify for the tax credit.

How can a CPA help?

The Employee Retention Tax Credit can be a potentially significant refund into the business’ cash flow but filing the retention credit tax return correctly can be tricky.

We have a practiced process to evaluate your business to get you all the tax credits you qualify for, give us a call.

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