The employee retention credit was first introduced in March 2020 in the CARES Act in an effort to keep employees on businesses’ payrolls during the COVID-19 pandemic and has undergone a few iterations since.
Now the American Rescue Plan Act of 2021 has extended the ERC through December 31, 2021. Accountants advise that some businesses that didn’t qualify in 2020 may still qualify in 2021.
ERC summary
For a broad overview of the ERC as it compares for 2020 and 2021, see the chart below. Due to the complexity of the program and the rules that changed between 2020 and 2021, businesses should make sure they’re working with an expert to claim the credit on their employment taxes.
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ERTC 2020 |
ERTC 2021 |
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Availability
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Applies to qualified wages paid by eligible employers after March 12, 2020, and before Jan. 1, 2021.
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Applies to qualified wages paid by eligible employers from Jan. 1, 2021, to Dec. 31, 2021.
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| Eligible employers |
The ERTC is available to any employer that:
-Had operations fully or partially suspended under government orders due to COVID-19, or
-Had a decline of at least 50% in gross receipts.
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The ERTC is available to any employer that:
-Had operations fully or partially suspended under government orders due to COVID-19, or -Any business with a decline in gross receipts of more than 20% compared to the same calendar quarter in 2019.
Note that state and local governments are now eligible; and employers who did not exist in 2019 can use the corresponding quarter in 2020 to measure the decline in their gross receipts.
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What wages qualify?
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For employers averaging over 100 full-time employees: Only wages for those retained who are not working may be claimed.
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For employers with over 500 full-time employees: They can only claim the ERTC for those who aren’t providing services.
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For employers averaging 100 or fewer workers: Wages for all employees regardless of whether they are working can be claimed.
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For employers with 500 or fewer full-time employees: They can claim the ERTC for all of them, regardless of whether they are working.
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Eligible employers can claim
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50 percent of qualified wages paid up to $10,000 per employee between March 13 to Dec. 31, 2020.
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70 percent of qualified wages paid up to $10,000 per quarter from Jan. 1 to Dec. 31, 2021
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Maximum credit amount per employee is $5,000 for the year.
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Maximum credit amount per employee of $7,000 per quarter, total of $14,000 per employee
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PPP loans and eligibility |
Small businesses that took a PPP loan ineligible for the credit.
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Small businesses that took a PPP loan are now eligible and may retroactively claim the credit to March 2020.
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For purposes of the ERTC, the IRS defines qualified employee wages to include salaries, commissions, tips or similar compensation that are subject to FICA tax and certain health expenses, among others.
For the most accurate and recent information on the ERTC, please visit the IRS’ dedicated guidance at COVID-19-Related Employee Retention Credits: How to Claim the Employee Retention Credit FAQs.
