With the advent of the CARES Act on March 27, 2020, most employers were so caught up in deciphering the details of the PPP program that they overlooked another payroll replacement program: The Employee Retention Credit (ERC).
The ERC was intended to encourage employers to retain their employees despite a downturn in business by providing aid to employers who experienced a significant decline in gross receipts during any quarter in calendar year 2020.
Originally the ERC applied only to qualified wages paid after March 12, 2020, and before January 1, 2021, and was limited to employers who did not accept PPP funds but with changes made in the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act), enacted December 27, 2020, and the American Rescue Plan Act of 2021 (ARP Act), enacted March 11, 2021, eligibility was extended through December 31, 2021, and made available to employers who had also received a PPP loan.
How does it work?
As originally constructed, the ERC provided a payroll tax credit of up to 50% of qualified wages (up to $10,000 per employee) that an eligible employer paid in a calendar quarter. Eligible employers were those who experienced a 50% decline in any quarter in 2020 over the same calendar quarter in 2019.
Under subsequent legislation implemented for 2021, employers who experienced a reduction in gross receipts of 20% in any calendar quarter over the same quarter in 2019 are eligible to receive 70% of the first $10,000 of qualified wages paid per employee in a qualifying quarter. This includes employers who experienced a full or partial shutdown of operations as a result of a government order limiting commerce due to COVID-19.
If you think you may be eligible for an ERC credit, please contact your CPA and Marathon HR Services, LLC at 678-208-2802 to discuss an application.