Employee Retention Credits
Last year, the CARES Act introduced an Employee Retention Credit (ERC) to provide reimbursement of wages for businesses affected by the COVID-19 virus and incentivize employers to maintain a pre-pandemic level workforce. Although it was expanded and scheduled to expire at the end of the second quarter of 2021, it is ARPA now extended through the end of 2021.
The ERC shares the same goal of PPP to incentivize employers to keep employees on the payroll during Covid-related shutdowns and restrictions. ERC benefits were capped at $5,000 per employee for Q2, Q3, and Q4 of 2020 in the aggregate, which for most companies was far less than they could receive under PPP, so few used it.
|For Qualified wages up to $10,000 per year (3/13/2020 through 12/31/2020) per employee.
Credit Opportunity is 50% ($5,000) per year.
||For Qualified wages up to $10,000 per quarter (1/1/2021 through 12/31/2021) per employee.
Credit Opportunity is 70% ($7,000) per quarter.
|Average $40,000 Annual Pay. ($10,000 per quarter)
|20 Employees Fully Utilized.
$100,000 in gross benefit: 20 x $5,000
50 Employees Fully Utilized.
$250,000 in gross benefit: 50 x $5,000
100 Employees Fully Utilized.
$500,000 in gross benefit: 100 x $5,000
||20 Employees (Q1 & Q2).
$280,000 in gross benefit: 20 x ($7,000 + $7,000)
50 Employees (Q1 & Q2).
$700,000 in gross benefit: 50 x ($7,000 + $7,000)
100 Employees (Q1 & Q2).
$1,400,000 in gross benefit: 100 x ($7,000 + $7,000)
Recent legislation fixed this issue by allowing employers to take advantage of both ERC and PPP in 2021, as long as funding from both programs is not used on the same payroll period. Due to the forgiveness rules around PPP, this should not be an issue. Businesses can pick their covered period of between eight and 24 weeks during which they can use their PPP funds on payroll and other qualified expenses and still receive forgiveness. Businesses can use the ERC during different periods.
|Basic Inclusion of PPP and 2020 ERC
|20 Employees. Average Monthly Payroll of $3,333 per employee.
|$166,667 PPP Loan
(2.5 Months x 20 Employees x $3,333)
|$8,333 Per Employee Deduction
($166,667 PPP Loan / 20 Employees)
|$31,663 Per Employee ERC Opportunity
($3,333 Payroll x 9.5 Months (3/19/2020 – 12/31/2020)
|ERC After PPP Deduction: $23,330
($31,663 – $8,333)
|Since the qualified wages after the PPP deduction are greater than $10,000, this company can fully utilize the ERC credit of $5,000 per employee. The gross ERC benefit for the 20 Employees is $100,000.
Allow our team of professionals to uncover all that your business is eligible to receive. IRS Notice 2021-20 provides further guidance for determining whether a business qualifies for ERC based on full or partial shutdowns. We’ll navigate the best-fit solutions for you.