Sumit Credits - Federal Employee Retention Tax Credit - Covid

WHAT IS THE ERC?

The employee Retention Credit (ERC) was authorized under the CARES Act and encourages businesses to keep employees on the payroll.

The 2020 ERC Program is a refundable tax credit of 50% of up to $10,000 in wages paid per employee from 3/13/2020 – 12/31/2020 by an eligible employer.  THAT’S UP TO $5,000 PER EMPLOYEE!

The 2021 ERC Program has increased to 70% o fup to $10,000 in wages paid per employee per quarter for the first 3 quarters of 2021.  THAT’S UP TO $21,000 PER EMPLOYEE?

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Retain your employees - Receive a 50% or 70% payroll tax credit

We wanted to make you aware of a potentially BIG opportunity, even for companies with only 5 employees. The Consolidation Appropriations Act, 2021 provides tax credit relief and extends several valuable Federal Tax Credit programs. One of which is the Federal COVID Employee Retention Tax Credit which was loosened and greatly enhanced. It’s now available to PPP loan recipients with under 500 “full-time employees” and is refundable against the company’s portion of Social Security Tax.

Employee Retention Tax Credit End Date Changed Retroactively to Sept. 30, 2021, by Law

It is important to act now to see if you can obtain the Employee Retention Tax Credit.  The signing of the Infrastructure Investment and Jobs Act impacts the Employee Retention Tax Credit, eliminated Q4 2021 for most businesses, except Economic Recovery Start-up Businesses (those businesses that began operations after February 15, 2020).

erc tax credit - how much is the tax credit?

The COVID Employee Retention Credit is a refundable tax credit available to Eligible Employers against certain employment taxes equal to:

  • For qualifying wages after March 12, 2020 through December 31, 2020 = 50% of the qualified wages per employee (including certain health plan costs) up to $10,000 for the year (max $5,000); and
  • For qualifying wages on or after January 1, 2021 through June 30, 2021 = 70% of the qualified wages per employee (including certain health plan costs) up to $10,000 per QUARTER (max $14,000).

erc - which wages are ineligible?

  • Wages paid under for sick and family leave under the Families First Coronavirus Response Act;
  • Wages claimed for the Federal Work Opportunity Tax Credit; and
  • Payroll Costs claimed for PPP loan forgiveness.

Previously this credit was not available to those employers that received benefits under the Payroll Protection Program (PPP), however, under the Consolidated Appropriations Act, 2021, the credit was retroactively expanded to include recipients of PPP loans.

How is the ERC Tax Credit Claimed?

This credit is claimed on the Quarterly 941 or on an amended Quarterly 941 against the employer’s
share of Social Security taxes, with the remainder refunded back to the company.

erc tax credit - how much is the tax credit?

Eligible Employers, including tax-exempt organizations, are those companies that were operating a trade or business during the calendar year 2020 through September 30, 2021, and experienced either:

  1. the full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID, OR
  2. experienced a decline in gross receipts of 50% or more within a 2020 calendar quarter as compared to the same calendar quarter in 2019, OR
  3. experienced a decline in gross receipts of 20% in Q1 through Q3 2021 as compared to the same quarter in 2019.

The credit applies to qualified wages (including certain health plan expenses) paid during the “full or partial suspension period” or the full calendar quarter in which the decline in gross receipts test was met.

erc - which wages are ineligible?

The definition of qualified wages depends on how many employees an eligible employer had during 2019 and depends on the qualifying period.

  • For wages paid in 2020, if an employer averaged less than 100 full-time employees during 2019, qualifying wages for 2020 qualifying periods are those wages, including certain health care costs (up to $10,000 per employee) paid to ALL employees for ALL wages paid during a period of being fully or partially suspended or due to a decline in gross receipts.
  • For wages paid in 2021, if an employer averaged less than 500 full-time employees during 2019, qualifying wages for 2020 qualifying periods are those wages, including certain health care costs (up to $10,000 per employee) PER QUARTER, paid to ALL employees for ALL wages paid during a period of being fully or partially suspended or due to a decline in gross receipts.

Qualifying wages for employees with more than 100 employees (for 2020) and 500 employees (for 2021) includes ONLY those wages paid to employee while not performing service.