The Employee Retention Credit (ERC) was created as a response to the COVID-19 pandemic through the Coronavirus Aid, Relief, and Economic Security (CARES) Act as a means of incentivizing employers to keep their employees on payroll. However, recent changes have occurred which will affect the first two quarters of 2021.
The most important changes to the Employee Retention Credit (ERC) are:
- Eligible employers can receive a refundable payroll tax credit up to 70% of qualifying wages paid, up to $10,000 a quarter, per employee between January 1, 2021 and December 31, 2021. The maximum ERC is $7,000 per quarter for each employee.
- The category of eligible employers has been expanded to include colleges and university entities that provide hospital or medical care.
- Employers may receive both a PPP2 loan and the Employee Retention Credit, but the same wages cannot be used to calculate the credit and forgiveness.
- Adds provisions for Recovery Startup Businesses that:
1. Began operation after February 15, 2020, and
2. Have average annual gross receipts of less than or equal to $1 million.
- Wages paid per quarter, including health benefits, are capped at the first $50,000 for Recovery Startup Businesses. Wages paid for compliance with FFCRA (paid family and medical leave) are excluded from the credit calculation.
Employers can access the Employee Retention Credit (ERC) for the first two quarters of 2021 before filing their employment tax returns. With these new changes it is important to consult a trusted advisor to see if you are eligible for the most recent tax credit.
Make sure you’re not leaving money on the table.
Complete the form below to download a free ERC infographic, breaking down the changes between the CARES Act, CAA and ARPA.