Coronavirus (COVID-19) Economic Relief Legislation
Refundable Employee Retention Credit up to $33,000 Per Employee is Available!
Has your business been impacted by COVID-19 but still supporting your employees? You could be eligible for a refundable retention credit of up to $33,000 per employee. The Credit can offset all federal tax deposits which can be 25%-30% of payroll costs. Anything above that amount is refundable by filing the proper forms.
About the CARES Act COVID-19 Employee Retention Credit (ERC)
In December 2020 the Consolidated Appropriations Act, and in March 2021 the American Rescue Plan Act were signed by the President providing additional COVID-19 relief packages for businesses. Specifically, this new legislation amends, expands, and enhances the CARES Act Employee Retention Credit (ERC). The legislation is broken down into two segments:
Here is an overview of the credit for 2020:
The Federal government passed the CARES (Coronavirus Aid, Relief and Economic Security) Act on March 27, 2020.
Any private sector or non-profit employer, regardless of its size, is eligible for the Employee Retention Credit during calendar year 2020.
To be eligible, the business must:
- Be fully or partially suspended due to government order due to COVID-19, or
- incur a 50% decline in gross receipts from the same quarter in 2019, between 3/13/20 through 12/31/20.
The Employee Retention Credit is equal to 50% of qualified wages paid per employee. Currently, the Act places a $5,000 total cap on the credit per employee for the 2020 tax year.
“Qualified wages” varies depending on the number of employees. The credit is available for qualified wages from 3/13/20 through 12/31/20.
Here is an overview of the credit for 2021:
In December 2020 the Consolidated Appropriations Act, and in March 2021 the American Rescue Plan Act were signed providing additional COVID-19 relief packages for businesses. Specifically, this new legislation amends, expands, and enhances the CARES Act Employee Retention Credit (ERC).
The ERC was previously unavailable as an option for relief to businesses that received Paycheck Protection Program (PPP) loans through the SBA. However, the new legislation explicitly provides a retroactive amendment to March 13,2020, and clarifies these businesses are now eligible to receive the ERC—just not on wages paid with PPP loan funds.
Other important changes to the ERC include:
- Businesses that received PPP loans now eligible to receive ERC
- Extension of ERC for the entire calendar year 2021
- 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 through December 31,
- 2021; and
- Increases limit on per-employee creditable wages from $10K for the year to $10K for each quarter in ‘21
- New max = $33,000 ($5K / 2020 + $7K / 1Q21 + $7K / 2Q21 + $7K / 3Q21 + $7K / 4Q21)
- Increased benefits in 2021 for full wages for companies up to 500 employees
- Public universities and hospitals are now considered eligible employers.
The Employee Retention Credit can be claimed against the employer’s portion of employment taxes, including Social Security and Railroad Retirement. Should the credit exceed the amount due, it is treated as an over payment and is refundable.
6 Biggest Misconceptions Regarding CARES Act Employee Retention Credit (ERC) Stimulus
We took the PPP and do not qualify.
False. The new stimulus package recently signed into law allows businesses that received Paycheck Protection Program (PPP) loans to also receive the ERC. However, employers may only utilize the ERC towards wages that are not paid for with forgiven PPP proceeds.
We are an essential business and therefore we do not qualify.
False. The CARES Act does not make an “essential” versus “non-essential” employer distinction regarding ERC qualification. An essential business can qualify for the ERC either because its operations are fully or partially suspended because of a governmental order, or because gross receipts declined by 20% year-over-year.
We were not shut down and stayed open the whole time and therefore do not qualify.
False. If your business had to change operations in any way due to governmental orders OR if gross receipts declined by 20% year-over-year, your business qualifies. A change in operations means extra cleaning or sanitizing, installing/utilizing protective equipment, temperature checks, a change in job roles/functions, and more.
Our company’s year-over-year sales did not decline by 20%, therefore do not qualify.
False. Your business needs to either experience a 20% decline in gross receipts OR suspension in operations, not both. Almost every business has been impacted in some way by a national, state, or local governmental order, therefore qualifying the business.
We are profitable and therefore do not qualify.
False. We have helped many companies that were profitable in 2020 receive anywhere from thousands to millions of dollars in credits. This includes grocers, manufacturing, logistics companies, and more. If your business has been impacted in some way by the pandemic, you qualify.
We are a non-profit company, don’t pay taxes, and do not qualify.
False. Unlike past employee retention credits, this credit also applies to tax-exempt organizations if the operation of the organization is fully or partially suspended due to governmental orders related to COVID-19. Many nonprofit schools, day care centers, counseling centers, ministries, churches, and clubs closed their buildings and/or partially suspended services to comply with government orders and guidelines. This cessation of services is a suspension of operations which would qualify that organization for the ERC.