For Business owners, it means that for every employee on your payroll costs in 2020, you can receive up to $5,000 tax credit, whether you received PPP funds or not.

And it gets better. New provisions increased the credit amount to $7,000 for the first three quarters in 2021, for a total of $21,000 per employee! 

We’ve found that most businesses meet the qualification criteria for the ERC. 

Qualifying wage is one thing. Who are eligible employees that qualify for the ERC for 2020 and 2021?

Businesses and tax-exempt organizations operating in any calendar quarter of 2020 or 2021 can claim this credit, but only if they meet certain criteria listed below.

• Had to fully or partially suspend business activities on account of a pandemic-related government order limiting commerce, travel, or group meetings due to COVID-19, but only during enforcement of the order.
• Any forced closures or quarantines resulted in a 20% or more significant decline in gross receipts for the business, compared to the same calendar quarter in 2019.

The credit is calculated differently for 2020 and 2021: For 2020, the tax credit equals 50% of qualified wages that eligible employers pay their full-time employees in a calendar quarter, and qualified employers can receive a maximum credit of $5,000 per employee. 

For 2021, the tax credit is equal to 70% of qualified wages that an eligible employer pays their full-time employees, and qualified employers can earn a maximum credit of $7,000 per employee per quarter (or $21,000 per employee for the first three quarters of the year).

Yes, you do qualify. Before the CAA passed in December 2020, businesses couldn’t claim the ERC if they took out a PPP loan. With the CAA changes, you are eligible for ERC in 2021 even if you took out a PPP loan.

The amount of wages eligible largely depends on how the qualified wages were reflected on the PPP loan forgiveness application.

Employers who qualify for the ERC in 2021, including those with a PPP loan, can claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after Dec. 31, 2020, through June 30, 2021.

You need to pay qualified wages in order to be eligible for employee tax retention credit. The ERC defines qualified wages as wages, and compensation employees received during the allotted time frame. Qualified wages also include any health plan costs associated with the wages paid out during the year.

Yet another factor determining qualified wages is how many full-time equivalent (FTE) employees you had in 2019.

Back in 2020, businesses with fewer than 100 FTE employees could claim the ERC on all wages paid to employees during a qualifying period. The qualifying period was when business was shuttered due to the pandemic.

The Consolidated Appropriations Act changed the threshold for FTE employees — from 100 to 500, meaning that businesses with up to 500 FTE employees in 2019 could claim the ERC to IRS in 2021 for wages paid out during working and non-working or shutdown periods.

What about businesses with more than 500 FTE employees in 2019? They could claim the credit, but only for wages paid out while the employee wasn’t performing work for the company.

Say you’ve got one employee whose wages could qualify your business for the ERC. You paid them 10K in qualified wages for Q1 of 2021. So you’d get a tax credit of 7K.

You paid one employee 3K in qualified wages. But, you also provided them with $500 in health insurance for Q1, 2021.

In this case, you’d add the qualified wages and the health insurance, then multiply by 70%. The total credit would be $2,450.

You employ three people and paid two of them 10K in qualified wages during Q1. The third employee was paid 20K in qualified wages during the same quarter. But remember, the max you can claim in qualified wages per worker per quarter is 10K.

So, your credit in this scenario would be 21K.