Although the Employee Retention Credit (ERC) is expiring at the end of 2021, there’s still time for eligible businesses, including tax-exempt organizations, to claim this very beneficial tax credit.
What is this “ERC” You Speak Of?
In March 2020 legislation was passed to provide immediate relief to individuals, businesses, and exempt organizations, in response to the COVID-19 pandemic.
This relief included the ERC, which is a fully refundable payroll tax credit that applies to certain wages paid to full-time employees from March 13, 2020 through the end of 2021.
Do I Qualify For The ERC?
Maybe! There are 2 ways to qualify for the ERC:
The first is to have the requisite decline in revenue for any eligible quarter in 2020 or 2021.
The revenue decline test differs for 2020 and 2021:
- For 2020 the revenue decline must be 50% as compared to revenue for the same quarter in 2019.
- For 2021 the revenue decline must be 20% for any quarter as compared to the same quarter in 2019.
Note for the 2021 credit, you can qualify with a 20% drop in either the current or prior quarter, again, as compared to the same quarter in 2019.
The second way to qualify for the ERC is if your business has a full or partial suspension based on a government order.
This is a more complex determination; An organization needs to examine the government orders for all locations they operate in and determine if their business was fully or partially suspended.
This can be based on either a direct order suspending the organizations operations, such as an order closing a school, or an indirect order, such as one limiting gathering, that precludes the organization from running its programs.
Note that the IRS provides a safe harbor where an organization qualifies as “Partially Suspended” if the organization had a reduction of more than:
- 10% of gross receipts (determined using same calendar quarter in 2019), or
- 10% of total hours of service performed by all employees in the business (determined using same calendar quarter in 2019)
How Much Money Are We Talking?
The 2020 credit is equal to 50% of qualified wages of up to $10,000 per employee for all calendar quarters; potentially a $5,000 credit per employee for 2020.
The 2021 credit is even more beneficial and increases the credit to 70% of qualified wages of up to $10,000 per quarter, raising the potential credit for each employee to $28,000 for 2021.
What If I Got Other CARES Act Funding, Such As The Paycheck Protection Program (“PPP”)?
You can still receive the ERC!
Although not originally permitted, under updated legislation an employer is eligible claim the ERC even if it received a Loan under the PPP.
Note that each dollar of wages can be counted toward either the ERC or PPP loan forgiveness, but not both.
What Is The Deadline For Claiming These Credits?
There is no immediate deadline for claiming the ERC.
The ERC is claimed by filing an amended payroll tax return, and employers have three years from the date the original return was filed, or two years from the date the taxes were paid, to file an IRS Form 941-X.
How Can Withum Help Me?
Our dedicated team of Withum COVID relief experts have helped hundreds of tax-exempt organizations determine eligibility, calculate the ERC, document that there is no duplicative use of wages, and ensure they are getting the maximum credit your organization is eligible for!
Contact Withum’s team of professionals if you have any questions or concerns.