Looking to save big in 2021 or find the cash to offset recent hiring costs? Thanks to the Employee Retention Credit and other tax savings opportunities, many employers of all sizes can do so.
What Is the Employee Retention Credit?
The Employee Retention Credit (ERC) is a refundable payroll tax credit available through the CARES Act to businesses impacted by COVID-19. A qualified company can receive up to a maximum amount of $33,000 per employee. In 2020, 50% of $10,000 in gross wages per year. In 2021, 70% of $10,000 in gross wages per quarter.
Initially, the ERC was not available to businesses that had received PPP loans, but more employers are eligible due to recent changes. The Taxpayer Certainty and Disaster Relief Act of 2020 and the American Rescue Plan Act of 2021 expanded both eligibility and the amount of credit available. The ERC is now available through December 2021, with retroactive implications in 2020.
The ERC is intended to encourage employers that keep employees on their payroll even if they have not been working due to the COVID-19 outbreak. These tax credits can make a major impact on your business’s bottom line.
Do You Qualify for the Employee Retention Credit?
To be eligible, your business must have been either: a) fully or partially suspended by business orders, or b) have experienced a reduction in year over year gross receipts of 50% in 2020 or 20% in 2021. There are many definitions on what suspended means. We can help you navigate these important questions. One of our partner companies, who consults with the House Finance Committee, co-authored the ERC and we are aware of all the intricate nuances.
LG Resources can help you determine your eligibility level based on either full/partial suspension or a gross receipts test. Businesses of all sizes can be eligible for the ERC, although the amount of credit available is determined differently for large and small employers. For employers with 500 employees or less, all wages may qualify for the ERC; for employers with more than 500 employees, we would look at qualifying wages to determine the ERC amount.
Learn More About Your ERC Eligibility
Employee Retention Credit and PPP
In late December 2020, Congress expanded the ERC to create opportunities for PPP recipients who were previously excluded and extend credit opportunities into 2021. PPP recipients can qualify for ERC with respect to wages that are not paid for with PPP proceeds.
According to IRS guidance, group health plan expenses can be considered qualified wages even when no other wages are paid to the employee.
How to Claim Your Employee Retention Credit
Employers can claim the ERC by reporting their total qualified wages and related health insurance costs for each quarter on their quarter employment tax returns, or Form 941 for most employers. Eligible employers also have the option of requesting an advance of the ERC through Form 7200.
LG Resources can help you determine how large of a tax credit you are eligible for based on full/partial suspension or a gross receipts test, review required payroll information and PPP wages, deliver an audit-ready package, and look for other credit opportunities. We can also provide detailed instructions on how to file an amended 941 and claim your credit going forward for 2021.
More Employee Retention Credit FAQs
How does the employee retention tax credit work?
The ERC allows employers to get money for wages paid through the end of 2021 and retroactive payments for 2020 wages. Eligible employers can claim up to 70% back on up to $10,000 in wages paid per employee per quarter (up to $7,000 for each quarter) for 2021, plus up to 50% back on up to $10,000 in wages paid per employee per annum (up to $5,000 for the year) for 2020.
Does employee retention credit have to be paid back?
No, you are not required to pay the employee retention credit back. However, if you use Form 7200 to receive an advance, you must account for that amount later when you file your federal employment tax return.
How long does it take to get an employee retention credit refund?
For ERC that is processed for past returns, we will give you written instructions on how to amend your 941’s and those returns are coming back to you in a 3-5 month waiting period. For future 941’s we have been seeing returns coming within 30 day. We will provide all instructions on how to maximize your speed of processing.