The Employee Retention Credit (“ERC”) is a fully refundable tax credit against payroll taxes originally enacted as part of the CARES Act to encourage employers to continue paying employees despite financial hardship caused by the COVID-19 pandemic. The rules surrounding the ERC are quite complex, in part because the regulatory framework stems from multiple statutes and IRS Notices and due to the lack of clear and sufficient IRS guidance. Furthermore, some of the rules have even changed since its inception. For example, the Infrastructure Investment and Jobs Act enacted on November 15, 2021, retroactively eliminated the ERC for wages paid after September 30, 2021.
Even if you have already filed your quarterly Forms 941, you may still be able to amend to take advantage of this credit!
Employers may be eligible for the ERC if they experienced any of the following:
- A “significant decline in gross receipts” (50% for quarters in 2020 and 20% for quarters in 2021, with both compared to the same quarter in 2019);
- A full or partial suspension (more than a “nominal” amount) of business operations due to a “governmental order” due to COVID-19; or
- A full or partial suspension (more than a “nominal” amount) of business operations due to the inability to obtain goods and materials from a supplier because of a “governmental order” due to COVID-19 causing the supplier to suspend operations.
AMOUNT OF THE CREDIT
For 2020: 50% of “qualified wages” up to $10,000 in wages per employee for the year (i.e., up to $5,000 per employee for the year)
For 2021: 70% of “qualified wages” up to $10,000 of wages per employee per quarter (i.e., up to $21,000 per employee for the year)
Here are some other items you will need to keep in mind when analyzing eligibility and calculating the amount of the ERC:
- What is includible in “gross receipts” and “qualified wages”
- Related party aggregation rules and the consequences of aggregation
- Limitations due to the average number of full-time employees
- Double-dipping with other credits and benefits
- Amending your income tax returns for the reduced deduction for wages
If you are interested in finding out whether you are eligible for the ERC or need assistance calculating the amount of the ERC and filing to claim your ERC, contact Maggie Simonson or your Goosmann attorney.
The tax laws discussed herein have been summarized and should not be relied upon for compliance with the Internal Revenue Code or any federal or state tax laws.