ERC Can Help Toward Paying Wages and Benefits
As discussed in our December 22 alert on the new Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA), Congress has offered employers another shot at claiming a refundable Employee Retention Credit (ERC), with even better terms for 2021. IRS guidance on the ERC for 2020 can be found here. Updates are not yet available for the ERC changes under the new law but are expected this month.
Below we provide a table to compare the 2020 ERC (Paycheck Protection Program, or PPP, compatibility updates are retroactively available and shown in maroon) alongside the newly available ERC for 2021. This is not a comprehensive analysis and you should consult with your tax counsel for assistance in properly claiming these credits.
Any ERC credits not yet taken for 2020 (especially given the retroactive PPP compatibility) can be made up on the 4th quarter Form 941 due by by the end of January. The IRS and SBA are required to begin a public awareness campaign within January to inform employers of the ERC, particularly employers that last reported having 500 or fewer employees.
This tax credit can help employers pay employees for hours lost due to being fully or partially shut down or due to reduced business, or help them pay benefits for furloughed employees even if not receiving wages. In 2021, employers with 500 or fewer employees can even claim the credit on all wages and benefits, not just those paid to make up lost hours. While in 2020 employers in the public sector could not claim this credit, in 2021 the ERC is available to public colleges/universities and public entities primarily engaged in providing medical care.
|ERC for 3/13/20 – 12/31/20||ERC for 1/1/21 – 6/30/21|
|Employer qualifies for a quarter if:||Fully or partially shut down by government order limiting commerce, travel, or group meetings due to COVID-19
Gross receipts significantly declined:
|Fully or partially shut down by government order limiting commerce, travel, or group meetings due to COVID-19
Gross receipts significantly declined:
|Does taking a PPP loan disqualify employer from ERC?||Originally a PPP loan disqualified the employer from the ERC, but now the ERC is retroactively available so long as it’s not used on wages and benefits forgiven under a PPP loan (no double benefit)||No, so long as it’s not used on wages and benefits forgiven under a PPP loan (no double benefit)|
|Wages and benefits that can be claimed||50% of wages* and benefits paid to make up an employee’s lost hours due to suspended operations or decline in gross receipts (or 50% of benefits paid during a furlough that’s otherwise unpaid)
||70% of wages and benefits paid to make up an employee’s lost hours due to suspended operations or decline in gross receipts (or 70% of benefits paid during a furlough that’s otherwise unpaid)
|Cap||$10K wages and benefits per employee for all 3 quarters combined (at 50% credit, that’s up to $5K total credit per employee for 3/13/20-12/31/20)||$10K wages and benefits per employee per quarter (at 70% credit, that’s up to $7K credit per employee 1st quarter 2021, and another $7K credit per employee 2nd quarter 2021)|
|Claiming the credit||Report via Form 941 and take credit against the employer’s share of Social Security tax.
||Report via Form 941 and take credit against the employer’s share of Social Security tax.
*For 2020, employers with more than 100 FTEs in 2019 could not claim wages in excess of what the employee would have received during the 30 days preceding the shutdown or loss of receipts (i.e., increased wages and bonuses were ineligible to be recognized, being capped at previous wage rates for ERC purposes). For 2021, this cap is removed.
IMA will continue to monitor regulator guidance and offer meaningful, practical, timely information.
This material should not be considered as a substitute for legal, tax and/or actuarial advice. Contact the appropriate professional counsel for such matters. These materials are not exhaustive and are subject to possible changes in applicable laws, rules, and regulations and their interpretations.