Payroll Tax Credit Assistance for the CARES Act Employee Retention Credit
Assisting economically impacted companies to keep employees on the payroll
What is a Payroll Tax Credit?
The CARES Act introduced the latest Employee Retention Credit (ERC) to encourage companies to maintain their payroll, also known as the payroll tax credit. This ERC is a refundable credit that businesses can claim on qualified wages paid to employees during 2020 and 2021. The goal of the payroll tax credit is to keep employees on the company payroll, regardless of whether or not they were working due to the COVID-19 pandemic.
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 – March 2021) and previously under the Consolidated Appropriations Act, 2021, the Employee Retention Credit is extended and expanded. With the signing of the Infrastructure Bill in November 2021, the ERC program was canceled for Q4 of 2021. The ERC can be claimed through September 30, 2021, by eligible employers who retained employees.
Payroll Tax Credit Cares Act Key Points to Know
| 2020 | 2021 | |
|---|---|---|
| FTE LIMITATION | < 100 FTEs | < 500 FTEs |
| *CREDIT AMOUNT | 50% of qualified wages paid to each employee | 70% of qualified wages paid to each employee |
| MAXIMUM CREDIT ALLOWED PER EMPLOYEE | $5,000 | $28,000 |
| DECLINE IN GROSS RECEIPTS THRESHOLD | 50% reduction in gross receipts to the comparable quarter in 2019 | 20% reduction in gross receipts to the comparable quarter in 2019 |
Who Qualifies as an Eligible Employer with the Payroll Tax Credit
Many employers, including not-for-profits, qualify for the ERC. Eligibility is determined on a quarter-by-quarter basis. To be eligible the employer has to show they either:
Suspended operations fully or partially due to an official COVID-19-related shutdown order
OR Experienced a significant decline in gross receipts relative to the same quarter of 2019 (for 2021, the significant decline in gross receipts can also be measured by comparison to the prior calendar quarter)
- 2020: the ERC requires a 50% or greater decline in gross receipts to the comparable quarter in 2019
- 2021: the ERC requires a 20% or greater decline in gross receipts to the comparable quarter in 2019
If you received a Paycheck Protection Program (PPP) loan, you might still be able to claim the ERC, as long as the two benefits are not related to the same wages.
Payroll Tax Credits Amount
THE SOURCE ADVISORS ERC STUDY PROCESS:
Planning
PLANNING
- Gather financial information
- Confim the company’s eligibility for the ERC
- Determine any government or local orders that would have provided
- for partial or total suspension of operations
- Review of gross receipt history
- Assess FTEs
- Review qualified wages and confirm credit potential
Credit
Calculation
CREDIT CALCULATION
- Coordinate with HR on payroll details
- Use technology-based solutions to summarize impacted employees
- Confirm FTEs and compute quarterly qualified wage payments
- Coordinate with CARES Act loan programs and other tax credits to ensure no double-counting
- Calculate quarterly ERC
- Assist with the procedural requirements to claim credit
Documentation
DOCUMENTATION
- Document project methodologies and qualifications
- Assemble final deliverable
- Audit support included
Get Your COVID Payroll Tax Credit
Source Advisors takes a thorough and comprehensive approach to evaluating and documenting your company’s payroll tax credit. Our team of experts is available to help you navigate the nuances of this tax credit and offers a complimentary assessment. We only get paid if your company moves forward in successfully claiming the payroll tax credit.
Our thorough approach will provide the necessary documentation to properly claim and sustain the payroll tax credits you are due.
Payroll Credit: Frequently Asked Questions
What is the American Rescue Plan Act of 2021?
Who is eligible for the small business payroll tax credit?
The COVID payroll tax credit for small business entities can also include tax-exempt organizations, as well as governmental employers.
What is the refundable payroll tax credit?
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 amount 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 for 2021 is $21,000 per employee.
What are Qualified Wages?
If the employer had averaged more than 100 full-time employees: Qualified Wages include wages for the time an employee was not providing services due to economic hardship, according to the IRS.
If the employer averaged less than 100 full-time employees: Qualified Wages include wages paid to any employee during the period of economic hardship, according to the IRS.
To learn more about Qualified Wages, please contact us.