The CARES Act established two of the most crucial programs for the US population and businesses, namely the Employee Retention Credit (ERC Credit) and the Paycheck Protection Program (PPP). Following that, a number of laws have been enacted such as the Consolidated Appropriations Act, that have made these programs even more diverse.

Here, CARES Act means Coronavirus Aid, Relief and Economic Security Act.

Employee Retention Credit and PPP were designed to encourage and support employers to keep their staff on payroll. These provided financial assistance to employers so that they can cover the payroll costs of their employees even during the economic downturn. While the PPP is an SBA-guaranteed loan, the ERC is a payroll tax credit.

By claiming the Employee retention tax credit, organizations/ companies who faced difficulties due to Covid-19 restrictions, can apply for a refundable tax credit. A lot of businesses had to be completely or partially shut down causing a severe strain on their finances. Businesses that remained open faced shrinking revenue nonetheless. Along with essential businesses, they are all eligible to receive this credit. This is not a loan (like PPP) but an above-the-line, refundable payroll tax credit that adjusts a business’ taxation based on the guidelines outlined in the program. It is applicable to businesses of all sizes across industries including non-profit organizations. It has an upper limit of $19,000 per employee and is a golden opportunity to buttress your business in the post-pandemic times.

What is the criteria for the Employers to qualify for the Employee Retention Credit 2021?

Nearly all the employers, including colleges, universities, hospitals and 501(c) organizations can be eligible for the credit depending on the criteria laid down in the program. One of the following criteria determine eligibility of a business for ERC:

  • Full or partial shuttering due to a government order.
  • A significant reduction in gross receipts (this reduction is different for tax years 2020 and 2021).
  • According to the IRS, there are some businesses that may seem unlikely to be eligible under the aforementioned conditions. They are:

  • Essential businesses (unless they faced considerable disruption)
  • Businesses that continued with their operations using telework
  • But both these categories may still be eligible due to the second criteria:

  • Sizable reduction in gross receipts
  • The ERC goes even further. It encompasses those employers that applied for PPP loans. The employers can apply for the tax credit on retroactive wages. However, they cannot use the credit to pay for wages that were paid with PPP loan funds.

    There have been some other changes enacted to the ERC:

  • A prospective credit increase from 50% of up to $10,000 of qualified wages annually to 70% $10,000 of qualified wages per quarter starting January 1, 2021; and
  • Public universities and hospitals are now considered eligible employers.

How are ERC Credits calculated?

For 2021, the Employee Retention Credit is equal to 70% of qualified employee wages paid in a calendar quarter. Eligible wages per employee max out at $10,000 per calendar quarter in 2021, so the maximum credit for eligible wages paid to any employee during 2021 is $28,000.

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