The Employee Retention Tax Credit is one of our Employer Incentives. The most current version of the tax credit was signed into law as a result of the COVID-19 crisis with the CARES Act in 2020. It was then updated by the CAA and then again by ARPA. However, there is a previous version of the Employee Retention Tax Credit that focuses on Disaster Relief. To clarify the differences between the two, we call the current version COVID ERC or C-ERC and the previous version Disaster ERC or D-ERC.
COVID-ERC
The Coronavirus Aid, Relief, and Economic Security (CARES) Act created a new employee retention tax credit for employers who closed, partially or fully, and experienced significant revenue losses resulting from COVID-19. The purpose of the tax credit is to keep workers on the payroll during the pandemic. The Employee Retention Tax Credit is an offset to payroll taxes, not an income tax credit. The original credit began March 12, 2020, and its original expiration date was the end of 2020. The Consolidated Appropriations Act of 2021 extended ERC through the first half of 2021, and then the American Rescue Plan (ARPA) extended it through the end of 2021. The Infrastructure Investment and Jobs Act repealed fourth quarter 2021 making the end date September 30, 2021.
Who Is Eligible 2020:
Private employers, including non-profits, carrying on a trade or business in 2020 that:
Who Is Eligible 2021:
Private employers, including non-profits, carrying on a trade or business in 2020 or 2021 that:
How Much Is The Tax Credit?
C-ERC is a 70% tax credit for the first $10,000 of earnings paid each quarter between January 1, 2021, and September 30, 2021, per eligible employee. This amount can include the employer portion of health benefits. Basically, for every eligible employee during this period, an employer would receive a $7,000 tax credit per quarter, totaling $21,000 for 2021.
Additionally, an employer can claim a 50% tax credit for the first $10,000 of earnings paid to an employee between March 12, 2020, and December 31, 2020. Claiming both 2020 and 2021 ERC would maximize the C-ERC for an employer at $26,000 per eligible employee.
How Is The Credit Taken?
The COVID ERC is applied against the employer portion of payroll taxes. The ERC is "fully refundable" because if the credit exceeds the employer's share of payroll taxes, then the excess is treated as an overpayment and refunded to the employer.
The tax credit is claimed on the employer's quarterly return Form 941.
Can an employer take both PPP and ERC?
As of December 21, 2020, and the passing of the Consolidated Appropriations Act of 2021, employers can take both PPP and ERC. Congress will allow employers to claim both, but not for the same dollars of payroll costs. The tax credits can be stacked for the highest benefit to the employer.
Key Takeaways
DISASTER-ERC
The Further Consolidated Appropriations Act, signed on December 20, 2019, included an extension to the existing Employee Retention Credit for employers affected by qualified disasters during 2018 and 2019. ERC or ERTC is a tax credit that has been around for years, specifically focused on disaster areas.
Who Is Eligible?
Employers who operated in a qualified disaster zone and became inoperable due to the disaster continued to pay or incur wages for eligible employees. Currently (as of June 2, 2020), these areas were predefined by President Trump and included 282 counties in the following states:
Alabama, Alaska, Arkansas, California, Florida, Georgia, Hawaii, Indiana, Iowa, Mississippi, Missouri, Nebraska, North Carolina, Ohio, Oklahoma, South Carolina, South Dakota, Texas, and Wisconsin.
How Much Is The Tax Credit?
D-ERC is a 40% tax credit for up to $6,000 of earnings paid to each eligible employee (making the maximum credit $2,400 per eligible employee).
How Is The Credit Taken?
The Disaster ERC is a Federal income tax credit and should be filed with the employer's tax return.
Most clients want to know "what do I qualify for." Legislation related to Hiring Incentives is constantly changing due to the COVID-19 crisis. We stay informed and educated about these constant changes and ensure that our clients get the highest tax incentives possible. Reach out to us to find out what you'd qualify for now.
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ABOUT GERALD MCADOO:
Gerald is Director of Snapshot Business Services and has spent 15 years in Wealth Management, Commercial Realty, and Energy Consulting. His purpose is to help your business grow by increasing your cash flow. With a network of 500 team members in 40 states, he can provide the most up-to-date, current information on available programs across a wide array of industries that helps you find the money, and then we help you get the money.