What is ERTC?

The Employee Retention Tax Credit was offered through the CARES act in 2020. Originally, businesses were not eligible if they received a PPP loan, so almost no one took advantage of it. However, with the updated Consolidated Appropriations Act that passed in December 2020, the government will allow businesses who received PPP loan funds to also apply for the ERTC. These credits are available for wages paid in both 2020 and 2021 for businesses that qualify…see below for eligibility in both 2020 and 2021 as the qualifications and credit maximums differ.

2020

The maximum credit through the ERTC is 50% of wages up to $10,000 with a maximum credit of $5000 per employee for the year.

Eligibility

• Businesses who paid under 100 employees in 2019.
• If during COVID the company had partial or total business closure due to federal, state or local COVID order,
• OR more than 50% reduced gross revenue as compared to the same quarter in 2019. Businesses are eligible until the end of the first quarter where their revenues go back up over 80% compared to the same quarter in 2019.
• New businesses who don’t have 2019 revenue can compare to prior quarters.

Getting the Refund

Per-employee calculations and allowance for the PPP loan amounts must be amended on the 941x form to report corrected information and request for credit.

For 2020, businesses can’t request the ERTC for the same wages used in the calculation for forgiveness on the PPP. Calculations must be made per employee, per quarter to include the applicable wages to the proper dates.

2021

For 2021, the maximum credit is 70% of wages up to $10,000 for a maximum credit of $7,000 per employee per quarter – so a total maximum credit of $28,000 per employee for 2021.

Eligibility

• Businesses who paid under 500 employees in 2019.
• Partial or total business closure due to federal, state or local COVID order.
• OR more than 20% reduced gross revenue as compared to the same quarter in 2019.

Getting the Refund

Businesses can take the credit against their current payroll taxes as they run payroll, submit a 2021 IRS Form 7200, OR request a refund at the end of the first and second quarters. There’s no guidance yet on the 2nd round of PPP loans or how they will interact with the ERTC.

Click here for the FAQs from the IRS.

Updated Change to the ERTC

The American Rescue Plan has broadened the ERTC qualifications to include new businesses in 2020. A new business started after February 15, 2020 and whose annual gross receipts were less than $1mm and did not previously qualify under above qualifications, now qualify for up to $50,000 tax credits on wages paid during this time.