Meet the Employee Retention Credit
If the CARES Act was an event, then the Paycheck Protection Program (PPP) loan would be the headliner, capturing everyone’s attention with a potential forgivable loan. However, there is another performer, the Employee Retention Credit (ERC), and here is your chance to learn more about it.
What is the ERC? The ERC is a fully refundable tax credit for employers equal to 50% of qualified wages (including health plan expenses) paid to employees between March 12, 2020 and December 31, 2020. The credit considers up to $10,000 of wages per employee, for a credit of up to $5,000 per employee.
Who qualifies for the ERC? The ERC is for businesses impacted by COVID-19 that did not receive a PPP loan. The IRS defines eligibility as businesses that either fully or partially suspended operations as a result of government orders or a significant decline in gross receipts as compared to the same quarter in 2019.
What are qualified wages? There is a distinction between businesses that averaged more than 100 employees in 2019 and those who averaged 100 or fewer. For businesses that averaged more than 100 employees, qualified wages are wages paid to an employee for a time the employee was not providing services due to an economic hardship as outlined above. For businesses with 100 or fewer employees, qualified wages are wages paid to any employee during any period of economic hardship as outlined above.
If you did not get a PPP loan, were impacted by COVID-19, and could benefit from a tax credit up to $5,000 per employee, the ERC might be your new favorite dance partner. Of course, there are some nuances to the ERC, which are important to understand to determine if it is right for your business.
If you have questions, please don’t hesitate to contact the Sherwood Tax team.