The Employee Retention Tax Credit: One of 2020’s Most Disregarded Relief Programs Entered 2021 as a Significant Opportunity for Employers

Businesses significantly impacted by COVID 19 have the opportunity for payroll tax credits (and potential refunds) of up to $33,000 per employee for the combined years of 2020 and 2021.

This new opportunity comes as several pieces of federal legislation put into place over the last 12 months amended and strengthened the original program.  Congress created the Employee Retention Tax Credit (ERC) as part of the CARES Act, one of the earliest COVID relief bills signed into law on March 27, 2020.  Another part of the same legislation is the Paycheck Protection Program (PPP).  When the CARES Act was signed into law, an employer was not able to utilize both the PPP and the ERC.  This conflict put the PPP front and center and left the ERC as a largely disregarded program.  The President signed the Consolidated Appropriations Act (CAA) on December 27, 2020.  This bill removed the restriction prohibiting an employer from using both programs and opened the door for material relief to impacted employers.

The CAA also extended the expiration date and increased the richness of the program.  After a second extension, the current expiration date is December 31, 2021.  With the PPP restriction removed, the expiration date extended, and the program richer, it only makes sense for employers to look more closely at the program to determine if there is a fit. 

The first step is eligibility.  Employers must meet one of two requirements to be eligible for the program:

The first (and easiest) way to qualify for the ERC is if your business was or currently is subject to a full or partial shutdown based on a government order limiting hours of operation, capacity, or otherwise limiting your business operations and commerce.

The second method for qualifying for ERC eligibility is a reduction in gross receipts of 50% for any quarter of 2020 as compared to 2019.  The required reduction amount for 2021 is 20% for any quarter compared to the same quarter in 2019.

Additional guidelines may impact the determination of eligibility for your business.  The credit will be applied on a quarter-by-quarter basis.  Your business may be eligible for just one quarter or you may be eligible for all eight quarters of 2020 and 2021.  The maximum amount available for 2020 is $5,000 per employee.  The maximum amount available for 2021 was increased to $28,000 per employee.  Credits are available retroactively through quarterly payroll tax return amendments.  (Form 941)

More specifics on ERC eligibility and guidelines may be found here. Please reach out to us at 830 629 0900 or drop us a note if you have additional questions or would would like to begin the ERC credit process.

HCP provides the information in this blog for general guidance only.  The content does not constitute legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other advisers. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied.