Can I Still Claim the Employee Retention Credit?

Even though organizations can no longer pay wages to claim the Employee Retention Credit (ERC), they have up to three years from their original filing deadline to do a look back on their payroll during the pandemic and retroactively claim the credit by filing an amended tax return.

year-end tax planningEligible employers can still determine if wages paid after March 12, 2020, through the end of the program are eligible. For most employers, the credit could be claimed on wages until Sept. 30, 2021, and certain businesses have until Dec. 31, 2021.

What is the Employee Retention Credit?

Congress created the ERC in the CARES Act of 2020 to encourage businesses and nonprofits to keep their employees on payroll during the COVID-related shutdowns. The ERC is a refundable quarterly payroll tax credit to employers for each qualified employee.

Is my organization eligible?

Eligibility rules changed from 2020 to 2021, as well as the amount of wages available to claim. Eligible businesses or tax-exempt organizations that conduct a trade or business must have experienced one or both of the following criteria:

  • The business was forced to partially or fully suspend or limit operations by a federal, state, or local governmental order.
  • The business experienced a 50% decline in gross receipts during any quarter of 2020 versus the same quarter in 2019, and 20% decline in gross receipts in 2021 against the same quarter in 2019.

The credit will vary depending on whether the employer is trying to claim for payroll quarters in 2020, 2021, or both.

2020 ERC

For employers who qualify, including borrowers who took a loan under the initial PPP, the credit can be claimed against 50% of qualified wages paid, up to $10,000 per employee annually for wages paid between March 13 and Dec. 31, 2020.

2021 ERC

Eligible employers can claim a credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after December 31, 2020, through September 30, 2021 (Dec. 31, 2021, for Recovery Startup Businesses). Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum available is $7,000 per employee per calendar quarter.

Employers can’t claim the ERC for qualified wages that were also used to obtain loan forgiveness with the PPP. If an employer had PPP loans forgiven, analyzing the wages used for forgiveness of that PPP loan is important to see what may be available for the ERC.

Questions

If you have questions about the amended Employee Retention Credit, contact us to discuss your specific situation.

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