Important changes were made to the Employee Retention Credit

Important changes were made to the Employee Retention Credit (ERC) that increases its availability and benefit. The most important factors are that the credit is now available for those businesses that availed themselves of the Payroll Protection Program (PPP) and extended the credit through the second quarter of 2021. In order for a business to qualify for the ERC they needed to incur a significant decline in revenue for a quarter compared to the similar quarter in 2019. As this procedure may sound simple it becomes more complex when combined the PPP forgiveness.

To summarize if your business had the following, they should be eligible for the ERC

  1. They had payroll and filed the quarterly form 941’s in 2020
  2. If the 2020 quarterly revenue decreased greater than 50% from the corresponding 2019 quarter you become eligible. For the subsequent quarters you must have at least a 20% reduction when compared to the similar 2019 quarter

Once eligible, important points are:

  1. Their PPP forgiveness, from the 1st round, has to be properly calculated in order to maximize the ERC.

2)    The maximum credit allowed for 2020 is 50% of the 1st $10,000 each employee earns.

  1. In order to claim the credit, the appropriate quarterly Form 941 for 2020 must be amended.
  2. Wages reported on the 2020 business tax return must equal the wages paid less the ERC, even through the credit will be received in 2021. 

For tax year 2021 to claim the credit the 2021 quarterly revenue has to decrease by greater than 20% (instead of 50%) from the corresponding 2019 quarter and the maximum credit allowed is equal to 70% of the first $10,000 each employee earns during the quarter.