Important Employee Retention Credit Changes

At the end of December, a second Coronavirus relief package was signed into law. This new law contains significant enhancements to the Employee Retention Credit (ERC) program first enacted under the CARES Act in March 2020. Below are the new ERC requirements. Be sure to read through to see if your company’s eligibility has changed.

Eligibility for the ERC

For the final three quarters of 2020, companies are eligible for the ERC:

A) If in any quarter, their gross receipts were less than 50% of their gross receipts in the same quarter in 2019
OR
B) If they had operations that were either fully or partially suspended by a government order related to COVID-19

For the first two quarters of 2021, companies are eligible for the ERC:

A) If, in either quarter, their gross receipts were less than 20% of their gross receipts in the same quarter in 2019 or the prior quarter
OR
B) If they had operations that were either fully or partially suspended by a government order related to COVID-19

ERC is Available Even if Company Received PPP Loan

Under the CARES Act, a company that received a Paycheck Protection Program (PPP) loan was not eligible for the ERC. However, the new law states that a company that receives a PPP loan is no longer prohibited from claiming the ERC; however, an ERC may not be claimed for wages paid with the proceeds of a PPP loan that have been forgiven (no double dipping).

This change is retroactive for wages paid after March 12, 2020, which means a company that received a PPP loan in 2020 and paid qualified wages in excess of the amount of the forgiven PPP loan used to pay wages is also eligible to claim the ERC in 2020.

Period Available and Amount of ERC

The ERC is currently available for wages paid from March 12, 2020 through June 30, 2021. For 2020, the amount of the ERC is equal to 50% of the qualified wages paid to an employee and is capped at $5,000 per employee. For 2021, the ERC amount is increased to 70% of qualified wages paid to an employee and is capped at $7,000 per employee for EACH of the first two quarters. In all, companies could receive as much as $19,000 per employee for 2020 and 2021.

Contact us if you’re not sure if your company is eligible or if you need help applying for ERC.