Updated Employee Retention Tax Credit (ERC)

Follow

NOTE: The American Rescue Plan Act makes modifications that expand ERC eligibility. This Act was signed into law on March 11, 2021, and will go into effect on April 1, 2021. We are closely monitoring these changes and will provide you with any relevant updates on ERC eligibility impacts.

With the recent passage of the Consolidated Appropriations Act, companies no longer have to choose between the Employee Retention Tax Credit (ERC) and a PPP loan.

Please note the Employee Retention Credit cannot be taken for wages that were paid using funds from a PPP loan. This is especially important for clients that wish to apply the ERC retroactively. LinkHCM is not liable for client non-compliance when applying PPP loan funds and Employee Retention Credits to payroll costs. 

 

LinkHCM Clients: If you think your organization qualifies for the ERC, we can prepare the credit on your behalf. 

Click here and respond to our survey to confirm your ERC qualification.

In order to apply for the ERC retroactively, the process of calculating credits has several intricate steps, which are outlined below. Due to this, there will be additional fees associated with this service (listed below). You will also receive an electronic contract with signature required before work can begin.

Steps to Calculate and Apply for ERC Retroactively
  1. Importing the healthcare expense amounts per employee per quarter (if not currently being tracked in Workforce Ready).
  2. Calculating the wage and healthcare credits per employee per quarter.
  3. Calculating and tracking the rollover of credits quarter by quarter until the maximum credit has been taken.
  4. Amend and file the 941 for each quarter.

Pricing Per Quarter for 2020 and 2021

  • 10% of the credit ($250 minimum with a $7500 maximum) per quarter, to be collected 7 days after credit has been received

 

 

ERC Eligibility for 2020 and 2021

2020

Retroactive to the March 27, 2020, enactment of the CARES Act, the law now allows employers who received Paycheck Protection Program (PPP) loans to claim the ERC for qualified wages that are not treated as payroll costs in obtaining forgiveness of the PPP loan.

The ERC is a refundable payroll tax credit of up to $5,000 per employee.

Eligibility Requirements:

  • Qualification Factor: The ERC is available to employers who have 100 or fewer employees, and either (a) have been partially or fully closed by an order from a governmental authority due to COVID-19.  OR (b) whose gross revenue for a quarter in 2020 was less than 50% of what they were for the same quarter in 2019.

Eligible Dollars Used to Calculate the Credit:

  • Eligible Wages and Healthcare Expenses: Eligible employee wages refers to wages paid: (a) during the shutdown OR (b) during the quarter which experienced the decline in gross revenue, plus the following quarters, until after the quarter that your gross receipts were greater than 80% of the same quarter in 2019.
    • Example (for scenario B): In quarter 2 2020, your gross revenue was 45% compared to quarter 2 2019. In quarter 3 2020 it was 82% compared to quarter 3 2019, you are still qualified for quarter 3 2020, but you are not qualified anymore for quarter 4 2020, unless it falls back to below 50%. Which means, you can use the wages from quarter 2 2020 and quarter 3 2020 to be able to take the full $5,000.00 credit.
  • Maximum Credit: ERC is 50% of eligible employee wages and healthcare expenses, with a wage cap of $10,000.00 per employee for the year. Effectively, this caps the maximum credit at $5,000 per employee.
    • Example: If an employee’s pay and/or healthcare expenses were $20,000.00 per year total, the maximum you can count is
      $10,000.00; 50% of that is $5,000.00, so your credit will be $5,000.00.
  • FTE Limit: Wages paid by an employer with more than 100 average Full-Time Employees (FTE’s) for 2019, are only eligible if the employee was paid but did not work, either because the business was fully or partially shutdown. For those with 100 or fewer FTE’s, they can claim the credit regardless if the employee worked or not, as long they meet the above criteria. (For ERC purposes, an FTE is any employee who works 30 hours or more per week or 130 hours or more per month.)

 

2021

Eligibility Requirements:

  • Qualifying Factor: The ERC is available to employers with 500 or fewer employees who have either (a) been partially or fully closed by an order from a governmental authority due to COVID-19. OR (b) experienced a decline in gross receipts by more than 20% in any quarter of 2020 compared to the same quarter in 2019 (reduced from a 50% decline in gross receipts).
    • Tax-exempt organizations that fall under 501(c) must have partially or fully suspended all operations in 2020 or 2021 to qualify.

Eligible Dollars Used to Calculate the Credit:

  • Eligible Wages and Healthcare Expenses: The amount of the qualifying wages was increased from 50% to 70%. The annual limit was changed from $10,000 per year to $10,000 per quarter, and of that, you can calculate 70% credit.
    • Example (for scenario B): If your business is down 21% in revenue in the 3rd quarter of 2020, but you restore revenue by 81% in the 4th quarter, you will only qualify for the credit up to the 3rd quarter.
  • Maximum Credit: The maximum credit is $7,000.00 per employee per quarter, since it applies for the first 2 quarters, the maximum annual credit for 2021 is $14,000.00 per employee.
  • FTE Limit: Wages paid by an employer with more than 500 average Full-Time Employees (FTE’s) for 2019, are only eligible if the employee was paid but did not work, either because the business was fully or partially shutdown. For those with 500 or fewer FTE’s, they can claim the credit regardless if the employee worked or not, as long they meet the above criteria. (For
    ERC purposes, an FTE is any employee who works 30 hours or more per week or 130 hours or more per month.)

 

You should contact your CPA or Tax Adviser to see if you qualify for the credit. Or, you can read the FAQs here to make your own determination.