By Sarah Huang, CPA
MST Clark Nuber, P.S.
With the Paycheck Protection Program (PPP) now closed as of May 31, 2021, employers are looking for other assistance programs as they work to get back on track. For these employers, the Employee Retention Credit (ERC) may be the next best thing.
The ERC is a refundable payroll tax credit that can yield up to $33,000 per employee in 2020 and 2021. Originally, employers had to choose between the PPP loan program and the ERC. However, the law was retroactively changed in December 2020. Now employers can claim both; they just can’t double dip on the same wages.
Who Qualifies for the Employee Retention Credit?
Employers are eligible for the Employee Retention Credit if they meet one of the following criteria during 2020 or 2021:
- Experience a significant decline in gross receipts during a calendar quarter (50% in 2020; 20% in 2021); or
- Have a full or partial suspension of operations during a calendar quarter due to a government order that limits their ability to operate.
How Much is the Employee Retention Credit?
The credit is calculated on a per employee basis. Therefore, the more employees on your payroll, the greater the credit may be. In 2020, employers can claim a credit of up to $5,000 per employee. In 2021, the credit can be as much as $28,000 per employee.
To claim the credit, you need to pay wages to your employees. Wages include salaries, hourly wages, tips, commissions, etc., as well as employer-paid health insurance. Amounts paid to employees are capped at $10,000 (per year for 2020; per quarter for 2021). The wage amount is then multiplied by the credit percentage (50% in 2020; 70% in 2021) to arrive at your refundable payroll tax credit.
A restaurant has 25 employees paid at least $10,000 per quarter in 2020 and 2021.
The restaurant is eligible for a $125,000 refundable tax credit in 2020:
$10,000 per quarter x 25 employees = $250,000 for all of 2020
$250,000 x 50% credit = $125,000 credit for 2020
The dollars add up even faster in 2021, yielding a refundable credit of $700,000:
$10,000 per quarter x 25 employees = $250,000 per quarter in 2021
$250,000 x 70% credit = $175,000 per quarter in 2021 ($700,000 annually)
In the end, the restaurant may be eligible for a total refundable credit of $825,000.
How Long is the Employee Retention Credit Available?
The Employee Retention Credit is available through December 31, 2021 to employers that meet the eligibility requirements. As we watch social distancing restrictions ease, many employers are still suffering. The ERC is available to help eligible businesses as they work to get back on track.
Additionally, if you discover that you were eligible for the ERC in a prior quarter, you can amend your previous payroll tax filings and receive a cash refund for the credit.
If you think you are eligible for the ERC or simply want to learn more about the credit, please click here or contact Samantha Paxton at OneEastside (email@example.com). Through the new OneEastside Spark program, organizations can receive up to 2 free hours of CPA services to navigate various COVID-19 relief options. The Employee Retention Credit can yield sizeable dollars to those who qualify so don’t miss out on this opportunity!