What is the ERC?
The Employee Retention Credit (ERC) is a refundable payroll tax credit your organization might be eligible to claim for “qualified wages”. Wages paid to full-time employees who were not active due to the pandemic could fall under part of the Coronavirus Aid, Relief, and Economic Security Act (CARES). The ERC encourages employers to retain employees on payroll despite being laid off due to the pandemic.
Is the ERC Expired in 2023?
The ERC expired in late 2021 but employers are still able to file for the credit through 2023 via amended tax filing. Amended tax filings can be submitted for up to three years after the original filing.
What Are the Details of the ERC?
The ERC allows employers to claim a refundable credit of up to $5,000 for every full-time equivalent employee they kept on payroll between March 13, 2020, to Dec. 31, 2020. It also provides up to $14,000 for employees retained between Jan. 1, 2021, to June 30, 2021.
How to Qualify for the ERC
If your organization was ordered to either fully or partially close due to pandemic restrictions or your gross receipts dropped under 50% for the same quarter in 2019 (for 2020) and below 80% (for 2021) you can qualify for the ERC. As well, if you weren’t in business in 2019 the corresponding quarters from 2020 can be used. However, it also depends on the period you wish to claim the employee retention credit:
ERC Claims in 2020
For claims between March 13, 2020, through Dec. 31, 2020, your organization must:
- Have a governmental authority either partially or fully suspend your services due to COVID-19
- Have COVID related gross receipt decline of less than 50% of gross receipts for the same calendar quarter in 2019
You don’t qualify for the Employee Retention Credit if:
- You are a government or state entity, or a political subdivision
- You are self-employed (unless you paid employees)
ERC Claims in 2021
For claims between January 1, 2021, and December 31, 2021:
- Have a governmental authority either partially or fully suspend your services due to COVID-19
- Have COVID-related gross receipt decline of less than 80% of gross receipts for the same calendar quarter in 2019
- You can use 2020 as your comparison year if you weren’t in business in 2019
- You can also qualify if are a tax-exempt public college, university, or hospital
ERC Claims in 2022 and Beyond
Although the ERC program expired in late 2021, the statute of limitations allows employers to claim the credit in 2023 through amended payroll tax returns for previous years. The statute of limitation allows amended filing through the remainder of 2023.
How Do You Claim the ERC?
Organizations can reduce their payroll taxes sent to the IRS right away to claim employee retention credits. In the cases where ERC credits are more than payroll taxes, you are allowed to request a direct refund from the IRS. You can hold onto the amount of employment taxes you would have deposited including:
- Federal income tax withholding
- Employees’ share of Social Security and Medicare taxes
- Your share of Social Security and Medicare taxes
The amount you retain can only be up to the amount of the credit to which you are entitled and cannot include any wages excluded from the ERC.
What Updates Have Been Introduced for the ERC?
According to the Taxpayer Certainty and Disaster Tax Relief Act (TCDTR) of 2020, the following retroactive updates were applied to the Consolidated Appropriations Act (CAA) of 2021 between March 13, 2020, to Dec. 31, 2020:
- Organizations that received a PPP loan are eligible for the ERC for all wages that weren’t paid with proceeds from the forgiven portion of the PPP loan.
- You can include group healthcare expenses in your “qualified wages” even in cases where employees weren’t paid other wages.
Between January 1, 2021, to June 30, 2021, the ERC rate increased from 50% to 70% of qualified wages for each employee with a per-employee wage limit increase from $10,000 a year to $10,000 a quarter for 2021.
How Do Updates Impact Eligibility for the ERC?
Eligibility for employers is determined by gross receipts which have risen from below 50% to below 80% compared to the same quarter in 2019. So if your gross receipts decreased over 20% in 2021, you qualify for the credit. You can also now base eligibility on the immediately preceding calendar quarter instead of Q1 and Q2 2021, compared to the same quarter in 2019. For companies that weren’t yet operating in 2019, you are allowed to compare 2021 quarterly gross receipts to the same 2020 quarters to see if you qualify.
What Organizations Can Claim the ERC?
Eligible organizations in 2021 include:
- Public colleges
- Universities
- Organizations providing medical or hospital care
- Some organizations chartered by Congress
As well, the government redefined what they consider to be “large employers” from over 100 employees to over 500. As a result, more organizations might find they can qualify for credits and include the wages paid to those not working and those who are.
What Else Affects Qualified Wages For Employee Retention Credit?
As mentioned, under the new updates, even if your organization just paid healthcare coverage, you could claim this under the ERC. You can also include wages that aren’t more than what an employee would have received in the 30 days before the qualifying period, so bonuses paid to essential workers for example could be claimed. You can’t receive the ERC for the following wages:
- Paid sick and family leave under the Families First Coronavirus Response Act (Phase II) where you already received a tax credit
- Part of the credit for paid family and medical leave under section 45S of the Internal Revenue Code
- Paid for certain related individuals
As well, for employees granted a Work Opportunity Tax Credit under section 51 of the Internal Revenue Code, their wages don’t qualify.
Advanced ERC Payments 2021
For employers with less than 500 full-time equivalent employees, or that are part-time or seasonal employers you can receive advanced ERC payments for the quarter where the wages were paid to those employees. This includes employers not yet existing in 2019. Employers must complete Form 7200, Advance of Employer Credits Due to COVID-19.
Conclusion
While the ERC expired in late 2021, it’s not too late to submit amended tax returns through 2023 if you have employees who stayed on payroll in 2020-2021 despite being laid off due to the pandemic. For every full time employee retained on payroll, you can earn money back via tax credits and it is highly recommended to do so!
About The Author
Ingrid is the Content Marketing Manager at Paypro, managing both inbound and outbound marketing initiatives for the company. She has 15+ years’ of extensive marketing communications experience, leveraging brand awareness and strategic partnerships to increase sales revenue for a diverse group of B2B brands.