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What is the ERC?
The Employee Retention Credit (ERC) was created to incentivize
business owners to retain their employees amidst the COVID-19
pandemic.
Through this payroll tax credit, eligible employers have the
opportunity to receive up to $26,000 per employee.
The ERC was established as a part of the Coronavirus Aid, Relief,
and Economic Security (CARES) Act, which was enacted by Congress
to assist small and medium-sized businesses.
The American Rescue Plan Act of 2021 allows for a credit of 70% of
qualified wages up to a limit of $10,000 per quarter, or a maximum
of $7,000 per employee per quarter. This means that employers
could potentially claim up to $21,000 per employee for 2021.
The Infrastructure Investment and Jobs Act extended the
program's end date for most businesses to September 30, 2021, but
Recovery Startup Businesses are still eligible for the ERC until
the end of the year. Recovery Startup Businesses are defined as
businesses that started after February 15, 2020, and generally had
an average gross receipt of $1 million or less. They may qualify
for a credit of up to $50,000 for the third and fourth quarters of
2021.
Under the Consolidated Appropriations Act of 2021, employers who
meet the qualifications, including those who received PPP loans,
may claim a credit against 70% of qualified wages paid, with the
amount of qualifying wages now increased to $10,000 per employee
per quarter for the first two quarters of 2021.
Business owners can receive both the ERC and PPP loan.
However, wages funded by a PPP loan cannot be included in
the ERC calculation. PPP loans only cover eight to ten weeks of
wage expenses, while ERC eligibility periods are longer. PPP loans
may also fund non-wage expenses, and for ERC purposes, PPP funding
may be allocated to wages that would not generate any ERC. For
instance, it could be allocated to owners of the company or wages
that exceed $10,000 in one of the four ERC credit-generating
periods.
Time Restrictions Apply!