Don’t Leave Money on the Table: FAQs About Employee Retention Credits
Many businesses have been hit hard since the start of the pandemic. Recent legislation explicitly provides a retroactive amendment to March 27, 2020, and clarifies that businesses that received PPP loans through the SBA could still be eligible to receive the Employee Retention Credit. To date, we have helped clients recover more than $19 million dollars in Employee Retention Credits. In this post, I’m going to review some FAQs we’re fielding from clients to help you understand the opportunities with Retention Credits and outline your options. It’s not too late! We can still help clients determine eligibility and apply. We’ve also partnered with ERC Today to help new clients apply online to determine ERC eligibility.
1. What is the employee retention credit?
The Employee Retention Credit (ERC) was defined in the creation of the Coronavirus Aid Relief and Economic Security (CARES) Act. This was signed into effect in March 2020 to encourage you as employers to keep your employees on payroll as you're navigating through the COVID-19 pandemic. The purpose of the retention credits is to have a method to pay your employees or get payroll tax reimbursements for paying your employees. Organizations look at their eligible wages paid to their employees and in turn receive a payroll tax credit based on those eligible wages.
So, if you know you're eligible, we can assist in entering those credits in for the applicable payrolls. Additionally, our isolved application provides reporting and auditing tools for later down the road if needed. Many of our clients are retroactively reviewing their eligibility in both 2020 and 2021 and finding that they are eligible. Employee Retention Credits are available to clients to claim as far back as March of 2021 through the third quarter of 2021.
2. Can I get a PPP loan and ERC?
Originally, employers were not allowed to obtain a PPP loan and ERC. However, now clients can get Employee Retention Credits, even if you received the PPP, thanks to the Consolidated Appropriations Act (CAA). The CAA modified the Cares Act by allowing eligible employers to claim the ERC, as long as you are not using the same wages that were paid with the PPP. There is no “double-dipping” for eligible wages allowed. Our team will work with you to confirm some eligible parameters including the payrolls that are eligible or need to be excluded. Sample questions include: When did you get your PPP loan (for both 2020 and 2021)? When did you exhaust your PPP loan (for both 2020 and 2021)? Once we clarify this information, we will provide reporting that defines the applicable pay periods that can be included in your Retention Credits.
3. What businesses are eligible for ERC credits?
Qualification for the ERC Credits is determined by one of two factors. Employers, including tax-exempt organizations, are eligible for the credit if they operate a trade or business and experience either:
- the full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, or travel/group meetings due to COVID-19, or
- a significant decline in gross receipts
Another factor that impacts the amount of the ERC is the average count of full-time employees in 2019.
- 2020: 100 or fewer full-time employees in 2019, employers can include qualified wages paid to all employees
- 2021: 500 or fewer full-time employees in 2019, employers can include qualified wages paid to all employees
For more information, click here for specific FAQs.
4. What is a “significant decline in gross receipts”?
To confirm the significant decline in gross receipts, businesses will review their quarterly revenue and gross receipts and compare that to the same quarter in 2019. In 2020, if your business shows a decline of more than 50% of gross receipts compared to the same quarter in 2019, you qualify for the ERC for that quarter. For 2021, the loss of gross receipts must show a decline of more than 20% of gross receipt loss in the same quarter of 2019.
5. How can I make sure I am not “double dipping”?
First, you are eligible to receive ERCs if you received a PPP Loan or a Second Draw PPP Loan (2021), but you must make sure that you're not double dipping. For example, if you got the PPP loan in April of 2020 and used it for payroll wages paid in April, May, and June, you cannot claim wages for retention credits during that time frame, but you certainly can pick it up in July, August, September, and onward. Remember, you still need to qualify for eligibility (partial shutdown or loss of gross receipts) to claim the credits.
6. Which employees am I allowed to claim this credit for?
The number of employees that you have doesn't affect whether you're eligible or not. Basically, when they say that they have ERCs, they say, "Any client is eligible for ERCs." But it still will affect the number of credits that you get. If you are over the threshold of 100 full-time employees in 2020 or 500 full-time employees in 2021, you are only eligible to claim credits for the employees you paid who were not working (i.e. furloughed employees or employees you paid to keep on the payroll but were not actively working).
7. How long can you claim the credit for?
If you are qualifying for Retention Credits because you are under a partial or full suspension of operations, you can claim the credits during the period where the full or partial shutdown was in effect. Once the government order is lifted and normal business resumes, that's when the ERCs can no longer be claimed.
FAQs for Partial Suspension
For significant decline in gross receipts, once an employer is eligible for the ERC as a result of a significant decline in quarterly gross receipts, it will remain eligible until the calendar quarter following the quarter in which quarterly gross receipts are greater than 80% of its gross receipts for the same quarter in 2019 (or the end of 2020).
FAQ from IRS for Gross Receipts
8. How do I know the number of credits that I can get?
You can work with your CPA/Legal Advisor to identify the eligibility and wages that you can submit.
If you are a Payroll Network client, we have a dedicated team who can support you with detailed reports for the applicable years and quarters. As part of our ERC services, we run the needed credit reports and share the applicable credit amounts you are allowed to submit.
It is important to note that employees who fall to ownership may not be eligible, and credits already received for FFCRA Sick, WOTC, etc. need to be excluded.
9. What is the maximum amount you can receive in 2021 for ERC credits for each employee?
- For 2020, you are allowed a total of 50% up to $10,0000 for qualified wages per year, therefore a maximum of $5,000 per employee for the entire year.
- For 2021, you are allowed a total of 70% up to $10,0000 for qualified wages per quarter ($7,000), therefore a maximum of $21,000 per employee for the calendar year.
10. What's a recovery startup business?
While ERCs have ended for many businesses as of the 3rd quarter. based on the recently signed Infrastructure Bill, a “recovery startup business” may continue to claim the ERC for the remainder of the fourth quarter.
A Recovery Startup Business (RSB) refers to businesses that started after February 15, 2020 and maintain average gross receipts of $1 million or less. The maximum an RSB can claim for retention credits is $50,000 per calendar quarter. For example, a business can receive up to $7,000 per employee, per quarter, capped at $50,000, for the final 2 quarters of 2021 to a maximum of $100,000.
Do you need help with the ERC? Contact us today!
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