More Businesses Now Eligible for Employee Retention Credit (ERC) – Do You Qualify?

Adams and Reese LLP

What is the ERC?

Congress introduced the Employee Retention Credit (ERC) as part of the CARES Act to encourage businesses to keep employees on their payroll during the pandemic. The ERC gives eligible employers payroll tax credits for wages and health insurance paid to employees in 2020 and 2021 – up to $5,000 per employee for 2020 and up to $7,000 per employee per quarter for Q1 - Q3 in 2021.

Similarly, the Paycheck Protection Program (PPP) was made available to assist businesses keep their workforce employed during the crisis. Originally, employers were only allowed to claim one or the other – either ERC or PPP.

Following amendments to the CARES Act, eligible employers may now claim an ERC, even if they received a PPP loan.

Are you eligible for the ERC?

If you can answer yes to any of the following questions, then it is worth evaluating your company’s eligibility for the ERC.

  1. Did your business suffer a significant decline in gross receipts for a calendar quarter in 2020 or 2021 compared to the same quarter in 2019?
  2. Did a COVID-19 order require your business to suspend or discontinue a portion of its services for a period of time?
  3. Did a COVID-19 order require your business to modify its workplace and/or operations?

You answered “yes,” so now what?

Although an ERC relates to payroll taxes paid in 2020 and 2021, employers have up to three years to amend Form 941x to initiate the ERC refund process. Even if you did not previously qualify, it is advisable to re-evaluate your eligibility now – especially for the 2021 ERC period.

The ERC process is not simple, and there are nuances and technical aspects that require specific expertise.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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