Is your business eligible for the Employee Retention Credit?

Sam Brizgis

Jan 21, 2021

What is the Employee Retention Credit?

Under the Consolidated Appropriations Act, 2021, employers negatively impacted by the pandemic can offset the employer portion of payroll taxes through the Employee Retention Credit (ERC). The ERC can be claimed against 50 percent of qualified wages paid between March 13 and Dec. 31, 2020, for a max credit of $5,000 per employee during 2020 and up to 70% of wages paid for a maximum credit of $7,000 per employee, per quarter, through June 30, 2020.

Which Employers Qualify for the Employee Retention Credit?

Most employers, including tax-exempt organizations, can qualify for the credit. Two factors determine eligibility for employers:

1. A trade or business that was fully or partially suspended or had to reduce business hours due to a government order (this does not include a business that was able to move to remote work), or

2. An employer had a significant decline in gross receipts in a calendar quarter when compared to the same quarter in the prior year. See below for the definition of significant decline.

If you started business operations in 2020, the IRS allows the credit to be based on gross receipts for the quarter in which you started business as a reference for any quarter which they do not have 2019 figures.

What wages qualify when calculating the retention credit?

The qualifications and credit amounts vary from 2020 to 2021.

2020 Qualifying Wages

For any quarter of 2020, if the business had a qualifying quarter, the retention credit would be 50% of gross wages paid during a qualifying quarter up to $10,000 of wages or a credit of $5,000 per employee for all of 2020. A qualifying quarter is either:

1. The business had a decline in gross receipts of 50% compared to the same quarter prior year, or

2. The business was fully or partially suspended due to a government order. A partial suspension is one that had more than a nominal effect on operations. Wages only qualify during the period where operations were suspended, not the entire quarter where a closure happened.

If the business has fewer than 100 employees, all wages during a qualifying quarter eligible. For employers with OVER 100 employees, wages only qualify if they are paid to employees that were NOT providing services. For example, the business had to close or suspend operations, but they continued to pay their employees.

2021 Employee Retention Credit Qualifications

For the first two quarters of 2021, if the business had a qualifying quarter, the retention credit would be 70% of gross wages paid during a qualifying quarter up to $10,000 of wages, or a credit of $7,000 per employee per quarter for a max credit of $14,000 per employee for 2021. A qualifying quarter is either:

1.The employer had a decline in gross receipts of 20% compared to the same quarter prior year, or

2.Operations were fully or partially suspended due to government order. A partial suspension is one that had more than a nominal effect on operations. Wages only qualify during the period where operations were suspended, not the entire quarter where a closure happened.

For 2021, if the business has fewer than 500 employees, all wages during a qualifying quarter are eligible. For employers with OVER 500 employees, wages only qualify if they are paid to employees that were NOT providing services. For example, the business had to close or suspend operations, but they continued to pay their employees.

	2020	2021
Timeframe	Through Dec 31, 2020	Through June 30, 2021
Qualifying Wages	Up to $10,000/employee for an entire year	Up to $10,000/employee per quarter
Amount of Credit	50% of qualified wages, or max of $5,000/employee for entire year	70% of qualified wages, or max of $7,000/employee per quarter
Eligibility based on the decline in gross receipts	50% in a calendar quarter compared to the same quarter in the prior year	20% in a calendar quarter compared to the same quarter in the prior year
Eligibility based on the impact of Government order	Full or partial suspension of operations	Full or partial suspension of operations

How do I apply?

At this time, we are awaiting additional guidance from the IRS as to how to apply.

Do I qualify if I received a PPP loan?

Yes – under the Consolidated Appropriations Act employers can receive both a PPP loan and an ERC credit. However, you cannot “double-dip” and use receive an ERC on wages that were paid for with PPP funds.

If employers have questions or need more information, contact Kirsch CPA Group at 513-858-6040. We can help you determine your employee retention credit or ascertain if your partial suspension has more than a nominal effect on operations.