Assisting economically impacted companies to keep employees on the payroll.
The Employee Retention Credit (ERC) is a refundable tax credit that was established as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020. Its purpose was to encourage businesses to keep employees on their payroll during the economic hardships brought on by the COVID-19 pandemic.
The CARES Act introduced the latest ERC to encourage companies to maintain their payroll. This ERC is a refundable credit that businesses can claim on qualified wages paid to employees during 2020 and 2021.
The ERC provides a refundable employment tax credit, up to $5,000 per employee for 2020 and up to $21,000 per employee for 2021.
In 2020, it entitled employers to a 50% credit (maximum of $5,000 per employee) of the qualified wages paid to employees. This amount increased to 70% (maximum of $7,000 per employee, per quarter) for 2021 with the American Rescue Plan Act (ARPA).
Under the recently enacted American Rescue Plan Act (ARPA – Mar.2021) and previously under the Consolidated Appropriations Act, 2021, the employee retention credit, a provision of the CARES Act, is extended and expanded. With the signing of the Infrastructure Bill in November 2021, the ERC program was cancelled for Q4 of 2021. The ERC can be claimed through September 30, 2021 by eligible employers who retained employees.
On September 15, 2023, the IRS issued an immediate moratorium on the processing of ERC claims filed on or after that date, effective through at least December 31, 2023. Additionally, the IRS warned that the processing of existing claims (those filed prior to September 15, 2023) will continue, but at a slower pace. This moratorium is a reaction to an increase in fraudulent claims promoted by ERC mills, particularly under unsupported claims of partial shutdown orders or supply chain disruptions. If you experienced a qualifying reduction in sales or were fully or partially shutdown due to government orders, you are still eligible for and should claim ERC.
< 100 FTEs
< 500 FTEs
50% credit on first $10,000 of wages
70% credit on first $10,000 of wages each quarter
50% or greater relative to same quarter in 2019
20% or greater relative to same quarter in 2019 or relative to the prior calendar quarter
the ERC requires a 50% or greater decline in gross receipts to the comparable quarter in 2019
the ERC requires a 20% or greater decline in gross receipts to the comparable quarter in 2019
Many employers, including not-for-profits, qualify for the ERC. Eligible employers includes businesses, tax-exempt organizations, and certain self-employed individuals. Eligibility is determined on a quarter-by-quarter basis. To be eligible the employer has to show they either:
For 2020 and 2021 Employers that received a Paycheck Protection Program (“PPP”) loan may still be able to claim the ERC. (the two benefits cannot be related to the same wages)
For 2020 you can receive a credit equal to 50% of the first $10,000 of Qualified Wages paid per employee in the aggregate for all eligible quarters. The maximum ERC for all of 2020 is $5,000 per employee.
For 2021, you can receive 70% of the first $10,000 of Qualified Wages paid per employee in each of the first 3 quarters in 2021. The maximum ERC for each quarter is $7,000 per employee. The maximum ERC for 2021 is $21,000 per employee.
Source Advisors takes a thorough and comprehensive approach to evaluating and documenting your companies ERC credits. ERC technical leaders are available to help you navigate the nuances of the employee retention tax credit. This assessment is complimentary. We get paid only if your company moves forward in successfully claiming the ERC. Our approach will provide the necessary documentation to properly claim and sustain the ERC credits you are due.