If you haven’t already taken advantage of the Employee Retention Credit (ERC), a fully refundable payroll tax credit that provides eligible employers with up to $26M per employee from March 13, 2020, through September 30, 2021, now is the time. Many companies do not think they qualify and have found out they do.
IMPORTANT UPDATE: The Infrastructure Investment and Jobs Act, which the House approved Friday, November 5 and is pending President Biden’s signature, ends the ERC program early, making wages paid after September 30, 2021, ineligible for the credit, except for wages paid by an eligible recovery startup business. While the Build Back Better legislation may bring additional changes to the program, this development makes applying for the credit today more important than ever to ensure you get the relief your business needs.
The program originally was scheduled to run through the fourth quarter of 2021. That means qualified businesses will only be able to claim a maximum of $26,000 per employee in total for 2020 and the first, second and third quarters of 2021. Previous legislation, which included the fourth quarter of 2021, afforded up to $33,000.
Because the ERC process can be complex, we recommend contacting your Janover representative to help you strategically navigate each program to maximize the total benefits you can receive. In the meantime, the Janover COVID-19 response team has compiled a high-level overview of the ERC program below:
Any businesses, including nonprofits, that carry on a trade or business that experienced one of the following events:
- A full or partial suspension in operations because of orders from the federal government, or a state government having jurisdiction over the employer, limiting commerce, travel, or group meetings related to COVID-19, or
- A significant decline in gross receipts, defined as 50% during any quarter in 2020 compared to the same quarter in 2019 or a 20% decline in 2021 compared to the same quarter in 2019.
For 2021, businesses can elect to use the previous quarter to compute whether they experience a significant decline in gross receipts.
Is there a limit on the number of employees to qualify for the ERC?
For the 2020 credit, employers who averaged fewer than 100 full-time employees in 2019 can claim the credit on all wages paid to employees during the qualified period (e.g., shutdown period or period of significant decline in gross receipt). Employers who had more than 100 full-time employees can only use the qualified wages of employees not providing services because of a suspension or decline in business.
For the 2021 credit, an employer who averaged fewer than 500 full-time employees in 2019 can claim the credit on all wages paid to employees during the qualified period. For employers who had more than 500 full-time employees can only use the qualified wages of employees not providing services due to the suspension or decline in business.
How is the ERC calculated?
For 2020, the credit is calculated as 50% on the first $10,000 of qualified wages paid to an employee. The total maximum credit per employee is $5,000 for the year.
For 2021, the credit has been increased to 70% on the first $10,000 of qualified wages paid to an employee. The total credit per employee is $7,000 per quarter, or $28,000 total for the year.
There is no limit on how much a business can claim.
Example: A business has 75 full-time employees and 1,000 part-time employees in 2019, 2020 and 2021 and meets either the significant decline in gross receipts threshold or the full or partial suspension of services for all of 2020 and 2021. All employees make more than $40,000 per year and the business did not receive a PPP loan. For 2020 and 2021, this business could potentially claim up to $35,475,000!
- 2020 Credit = 1,075 employees x $5,000 credit = $5,375,000
- 2021 Credit = 1,075 employees x $28,000 = $30,100,000
Can a business claim the ERC if it’s already received a Paycheck Protection Program (PPP) loan?
Yes. Having received a PPP loan does not affect a business’s ability to claim the ERC. However, the same wages cannot be used to both qualify for PPP loan forgiveness and the ERC. Consequently, it’s important to ensure all eligible expenses, including eligible non-payroll expenses are considered on the PPP loan forgiveness applications in order to maximize PPP forgiveness and ERC.
How does a business claim the ERC?
For the 2020 credit, an eligible employer can file an amended payroll tax return (Form 941-X) for the eligible quarter.
For the 2021 credit, eligible employers claim the credit by reporting the qualified wages paid for each calendar quarter on their payroll tax returns (Form 941 for most taxpayers). The employer can reduce its payroll tax deposits by the amount of its anticipated credit. If the anticipated credit amount exceeds the funds available for deposit, the employer can request a refund/advanced payment using Form 7200. Form 7200 must be filed by the earlier of:
- the date the employer files Form 941 for the relevant quarter or
- the due date for filing the quarterly employment tax return.
ERC Assistance from Janover
Janover has helped businesses claim more than $50 million in ERCs to date, and we’re ready to help get your share. Please contact us today by clicking here so we can help determine your eligibility, calculate the credit, and get your filing process started!