The comprehensive Coronavirus Aid, Relief, and Economic Security Act (CARES Act) have been updated. New programs were introduced to provide maximum help to employers keep their employees on the payroll. Under this act, the Employee Retention Credit (ERC) was devised, a refundable tax credit for eligible employers calculated per employee on a quarterly or annual basis. Later on, more amendments were made, which extended and enhanced the ERC. Here, we cover some vital aspects related to this legislation that you must know if you own a business, organization, or trade and have employees on your payroll.

Gist of ERC 2020 & 2021

ERC 2021 2021
Credit Applicability Qualified wages paid after March 12 & on/ before December 31, 2020 Qualified wages paid after December 31, 2020 & on/before January 2022
Credit Amount 50% of qualified wages (max. $10,000 per employee per annum) 70% of qualified wages (max. $10,000 per employee per quarter)
Max Credit $5,000 $28,000

ERC Employer Eligibility:

2020 2021
Employers who faced partial or complete shuttering of their trade due to orders of government due to Covid-19. Employers who faced partial or complete shuttering of their trade due to orders of government in corresponding quarters due to Covid-19.
Employers who saw their gross receipts fall more than 50% in the same quarter as last year. Employers who saw their gross receipts must be less than 80% of what they were in the same quarter of 2019.

ERC Controlled Group

At the controlled group level, an eligible employer is defined as one having more than 50% parent-subsidiary ownership. In a brother-sister structure, the same employers (5 or fewer) should own a combined 80% of the two entities.

ERC Gross Receipts (Non-Taxable entities)

This includes all gross receipts in a taxable year and is usually inclusive of all receipts. The tax accounting method for income recognition is applicable when calculating these. All the investments and grants received are included here. However, the confusion about whether funds received in a PPP loan are to be included in revenue generated is cleared in the guidance issued by IRS on August 10th, 2021.

Advance Claim of Wages (Form 7200)

You can claim advance credit for paying wages using Form 7200. You can get an amount of up to 70% of the quarterly wages for 2019[5]. If it leads to excess, then it has to be repaid at the end of the quarter. This will be processed along with other tax returns received by the IRS. The employer can either have the credit refunded or forwarded as a credit to the next quarter.

Shuttered Venue Operator (SVO) Grants

This grant is for all movie theatres, museums, and live venue operators. Contrary to the ERC, the grant is based on revenues and not wages. Under this program, grants of up to 45% of 2019 gross receipts (maximum of $10 MM) are disbursed. It makes a special allowance for smaller entities or those that saw a reduction of 70% or 90% in revenue to apply first. The eligible expenses here are more flexible than for PPP. Additionally, there is no minimum amount for payroll.

Making the most out of your CARES benefits [7]

It is essential that you fully understand the benefits you are entitled to and work out how to apply for them with your tax professional. You need to make sure that you make optimum use of these benefits in conjunction. Here are some tips you may find helpful:

  • Coordinate wages claimed through PPP loans and grants and credits for paid sick and family medical leave, R&D credits and WOTC.
  • Spend PPP finances for employees to maximize ERC.
  • Extend PPP2 covered period across multiple quarters to maximize ERC.
  • Utilize non-wage expenses in PPP forgiveness to the maximum.
  • Apply for all programs you are eligible for!

In a nutshell, you can't claim the same wages for more than one benefit. So, if you claim wages for ERC, you can't claim for PPP forgiveness or for usage under the Restaurant Revitalization Fund, etc.

If you want to understand the ERC topic, Jason Dinesen has trained more than fifty thousand professionals on ERC and related updates on myCPE, and has received some great reviews and feedback from attendees. We recommend you to register for a Live webinar on LATEST EMPLOYEE RETENTION TAX CREDITS (ERC) UPDATES (INCL. AUG 10 - SAFE HARBOR UPDATE).

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