The COVID Employee Retention Credit is a refundable tax credit available to Eligible Employers against certain employment taxes equal to:

• For qualifying wages after March 12, 2020 through December 31, 2020 = 50% of the qualified wages per employee (including certain health plan costs) up to $10,000 for the year (max $5,000); and
• For qualifying wages on or after January 1, 2021 through Sep 30, 2021 – 70% of the qualified wages per employee (including certain health plan costs) up to $10,000 per QUARTER (max $21,000).

Ineligible wages are:

• Wages paid under for sick and family leave under the Families First Coronavirus Response Act;
• Wages claimed for the Federal Work Opportunity Tax Credit; and
• Payroll Costs claimed for PPP loan forgiveness.

Previously this credit was not available to those employers that received benefits under the Payroll Protection Program (PPP), however, under the Consolidated Appropriations Act, 2021, the credit was retroactively expanded to include recipients of PPP loans.

The credit is claimed on the Quarterly 941 or on an amended Quarterly 941 against the employer’s share of Social Security taxes, with the remainder refunded back to the company.

Eligible Employers, including tax-exempt organizations, are those companies that were in operating a trade or business during calendar year 2020 through Sep 30, 2021 and experienced either:

1. the full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, OR
2. experienced a decline in gross receipts of 50% or more in Q2, Q3 or Q4 of 2020 as compared to the same calendar quarter in 2019,
3. experienced a decline in gross receipts of 20% in Q4 2020 – Q3 2021 as compared to the same calendar quarter in 2019, OR
4. Is considered an Economic Recovery Startup Business

Eligible Economic Recovery Startup Business:

• Began “operations” after February 15, 2020;
• Had average annual gross receipts (of the aggregated group) of less than $1 Million for 2020 and 2021; and
• Had payroll in Q3 or Q4 of 2021 (Note: the benefit is limited to $50,000 in ERC per quarter).

The credit applies to qualified wages (including certain health plan expenses) paid during the “full or partial suspension period” or the full calendar quarter in which the decline in gross receipts test was met.

Qualified wages

The definition of qualified wages depends on how many employees an eligible employer had during 2019 and depends on the qualifying period.

• For wages paid in 2020, if an employer averaged more than 100 full-time employees during 2019, qualified wages for 2020 qualifying periods are those wages, including certain health care costs, (up to $10,000 per employee) paid to employees that are not providing services because operations were suspended or due to the decline in gross receipts.

• For wages paid in 2021, if an employer averaged more than 500 full-time employees during 2019, qualified wages for 2021 qualifying periods are those wages, including certain health care costs, (up to $10,000 per employee per quarter) paid to employees that are not providing services because operations were suspended or due to the decline in gross receipts.

Qualifying wages for employers with less than 100 employees (for 2020) and 500 employees (for 2021) includes ALL wages paid during the qualifying period, even if employees were at work, or performing services.

AGGREGATION – This credit requires companies to look at all commonly owned entities together when determining the Gross Revenue reduction test and in determining the number of full-time employees in 2019.  Fortunately, the law does not require companies to count part-time employees or their hours worked toward the 2019 headcount calculation.