Employee Retention Credit

At the beginning of 2021, a new tax law extended the Covid-19 Employee Retention Credit (ERC) that was available in 2020. The new law continues the program through the first half of 2021. The maximum credit available for 2021 wages is $7,000 per quarter per employee, while the 2020 maximum was $5,000 per quarter per employee.

Under this pandemic-induced tax relief program, eligible small-business employers can receive a tax break for certain qualified wages paid to employees during the pandemic. Qualified wages include those paid during the full or partial suspension of business activity due to government order or because of the significant decline in gross receipts, with the rules slightly varying between businesses with less than and more than 100 employees. Eligibility for the tax benefit is based on comparing the quarterly gross receipts from March 27, 2020, through June 30, 2021, with the quarterly gross receipts of the year prior. To qualify, the quarterly gross receipts from 2020 or 2021 must-have declined by 80% or more from the gross receipts during the same quarter of the previous year.

One noteworthy change in the new 2021 expansion of the tax credit is that it now permits employers who received PPP loans to claim the ERC as well, and this expansion is retroactive to March 27, 2020, when the program was initiated. However, wages that would qualify for reimbursement under the ERC program that was treated as payroll costs when applying for PPP loan forgiveness cannot be used for ERC purposes. The professionals at The Center for Financial, Legal, and Tax Planning, Inc. are more than knowledgeable with regards to the ERC. Please contact us at (618) 997-3436 for more information.