The Employee Retention Credit (“ERC”) continues to be available through December 31, 2021, for qualifying employers impacted by COVID-19. Additionally, qualifying Paycheck Protection Program (PPP) participants are retroactively eligible to claim the ERC for 2020 and may also claim it for 2021. Below is a summary of the rules for both years.
Baseline Rules for the ERC for 2020
- Applies to qualifying wages paid after March 12, 2020
- Eligible employers must have either –
- Had operations fully or partially suspended as a result of an appropriate government mandate or
- Experienced a greater than 50% reduction in gross receipts when compared to the same calendar quarter in 2019.
In the case of 1 (above), qualification will continue until the mandate ends or December 31, 2020, whichever is earlier.
In the case of 2, (above), qualification will continue until the last day of the first calendar quarter in which gross receipts exceed 80% of the same calendar quarter in 2019 or December 31, 2020, whichever is earlier.
- The credit is a 50% credit on up to $10,000 of qualified wages paid to qualifying employees
- Using 2019 as the reference year, employers with 100 or fewer average full‐time employees can take the credit on wages paid to all employees. Employers with >100 average full‐time employees can only take the credit on wages paid to employees paid not to work.
- Credit is applied against payroll taxes and reported on Form 941
Retroactive changes to the 2020 ERC
- PPP participants are now eligible for the ERC
- Employers may not use the same payroll costs for both PPP and ERC
- Employers may elect for retroactively qualifying wages paid during the first three quarters of 2020 be deemed paid in the fourth quarter of 2020
New Rules and extended ERC for 2021
- Eligible employers must have either –
- Had operations fully or partially suspended as a result of an appropriate government mandate or
- Experienced a greater than 20% reduction in gross receipts when compared to the same calendar quarter in 2019. Employers can choose to compare the immediate prior quarter to the same quarter in 2019.
In the case of 1 (above), qualification will continue until the mandate ends or December 31, 2021, whichever is earlier.
In the case of 2, (above), qualification will continue until the last day of the first calendar quarter in which gross receipts exceed 80% of the same calendar quarter in 2019 or December 31, 2020, whichever is earlier.
- The credit is a 70% credit on up to $10,000 of qualified wages paid to qualifying employees during any calendar quarter
- Using 2019 as the reference year, employers with 500 or fewer average full‐time employees can take the credit on wages paid to all employees. Employers with >500 average full‐time employees can only take the credit on wages paid to employees paid not to work.
- The credit is extended through December 31, 2021
- Credit is applied against payroll taxes and reported on Form 941
- The 30‐day lookback rule no longer applies regarding employee wages
Click here for a comparison chart of the old law, 2020 changes, and 2021 updates.
The Cole Gavlas, PC team is here to offer sound advice and assistance as employers evaluate qualification for the ERC, gather necessary documentation, and determine eligible employee wages.
All information is based on our current understanding as of the date that it is posted. Please keep in mind this information is changing rapidly – it can and likely will change. Some information becomes outdated the same date it posted. Although we will monitor and update this page as new information becomes available, please do not rely solely on this page. We encourage you to contact your Cole Gavlas, PC advisor for the latest information.
