The Employee Retention Credit, also referred to as ERC, is a refundable payroll tax credit that businesses can receive on qualified employee wages and certain employee benefits beginning March 13, 2020, through December 31, 2021. The program was first introduced by the Coronavirus Aid, Relief and Economic Security (CARES) Act. It was signed into law during March 2020 to assist businesses that were impacted by the COVID-19 pandemic and to encourage businesses to keep employees on their payroll. Since its inception, the program has gone through many revisions with three different acts. The first being the Consolidated Appropriations Act, 2021 (CAA), enacted in December 2020, the second is the American Rescue Plan Act (ARPA), enacted in March 2021, and the third is the Infrastructure Investment and Jobs Act (IIJA), enacted in November 2021. The last act accelerated the end of the program from the initial date of December 31, 2021, to September 30, 2021, for most businesses. However, for wages paid by a Recovery Startup Business, the expiration date remains December 31, 2021.
The ever-evolving changes in the Employee Retention Credit legislation have left many business owners wondering if they can still take advantage of the program. The good news is, it’s not too late! Although the ERC sunset date has passed, there’s still time for eligible businesses to claim the credit. The ERC can be claimed retroactively on an amended 941-X payroll tax return, if the statute of limitation remains open. Generally speaking, the statute of limitations is three years from the original filing date of the return. The ERC is calculated per employee, with a maximum of $5,000 per employee for 2020, and a maximum of $21,000 per employee for 2021.
With considerations to a few caveats of the program, an employer is considered “eligible” if they satisfy at least one of the following requirements:
- The business is fully or partially suspended due to a government COVID-19-related shut down order;
- The business experienced a significant decline in gross receipts during the calendar quarter; or
- The business qualifies as a recovery startup business.
These eligibility requirements must be satisfied EACH quarter. For 2020, a significant decline in gross receipts during the calendar quarter begins with the first quarter in which an employer’s gross receipts for a calendar quarter in 2020 are less than 50% of its gross receipts for the same calendar quarter in 2019. For 2021, the employer must experience a 20% decline in gross receipts during quarters one, two, and three, as compared to the same calendar quarter in 2019.
For a recovery startup business a different set of tests must be satisfied in order to determine eligibility.
While there’s still time to claim the ERC, as we have seen since the inception of the program, legislation can change. Don’t miss out on this lucrative payroll tax credit. Consult with one of our experienced tax credit professionals to determine if your company has been impacted and can potentially qualify.