COVID Relief Update: Employment Retention Credit (ERC) Changes

Among the provisions of the Consolidated Appropriations Act, the COVID relief package signed into law last month, are key changes to the Employment Retention Credit. As the ERC offers significant benefits to so many of our small business clients, Weiss CPA and tax expert Jeremy Morgan put together the following “Top 10” list of points every business should know about the ERC.

1. Introduced under the CARES Act last March, the ERC is a refundable tax credit equal to 50% of up to $10,000 in qualified wages (i.e., a total of $5,000 per employee) paid by an eligible employer whose business has been financially impacted by COVID-19. This credit is claimed on the payroll tax returns.
2. Employers who are eligible for ERC benefits include those whose operations are or were suspended due to a COVID-19-related governmental order.
3. Also eligible under the original CARES Act were employers who experienced a 50% decline in gross receipts for any quarter of 2020 compared to the same calendar quarter in 2019.
4. Under the terms of the new legislation, the 2021 credit rate is 70% of qualified wages per-employee of $10,000 per quarter.
5. Companies have the option to actively code their qualified wages as ERC wages with their third party payroll provider to receive the credit immediately.
6. The new legislation ERC eligibility to companies whose quarterly gross receipts for 2021 show a 20% decline compared to the same calendar quarter in 2019. A safe harbor is provided allowing employers to use prior quarter gross receipts to determine eligibility.
7. The ERC is now available to companies that also have a PPP loan; the two benefits are no longer mutually exclusive.
8. Payroll expenses that were paid with forgiven PPP funds are not considered to be qualified wages for purposes of the ERC.
9. Under the terms of the CARES Act, “qualified wages” for businesses with over 100 employees included only those wages paid to employees who were not working – in other words, not providing services. For 2021, this threshold is raised to 500 employees.
10. Employers can now retroactively claim the ERC using an amended 941 form.

As always, we continue to parse COVID-related legislation for information of relevance to our clients and will publish future posts as necessary. In the meantime, if you have specific questions about the ERC or any other aspect of COVID-related benefits, please feel free to contact your Weiss tax professional directly.