Even if You’ve Received PPP Funds, You’re Likely Eligible for the Employee Retention Tax Credit
WAYS TO QUALIFY
Certain revenue declines or qualified business disruption elements such as:
During the pandemic, we’ve documented over half a billion dollars in the ERTC claims for over 1,000 clients. Businesses trust our expertise and our ability to go above and beyond, saving you thousands on taxes.
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What is the ERC?
The employee retention credit (ERC) is a fully refundable tax credit employers can claim if they keep employees on the payroll. The goal of the ERC is to help “severely financially distressed employers” bounce back from the financial fallout of the pandemic pandemonium and regain economic security.
In March 2020, the ERC became an extension of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. When signed into law via the CARES Act, the Employee Retention Tax Credit was equal to 50% of qualified wages paid to employees from March 13, 2020, to December 31, 2020.
In December 2020, The Taxpayer Certainty and Disaster Tax Relief Act of 2020, also known as the Consolidated Appropriations Act, 2021 (CAA), expanded and extended the ERC to include employers who were previously ineligible to claim the employee retention credit (ERC) because they received Paycheck Protection Program (PPP) loans from the SBA.
What Does the ERC for 2021 Mean for Your Business?
For Business owners, it means that for every employee on your payroll costs in 2020, you can receive up to $5,000 tax credit, whether you received PPP funds or not.
And it gets better. New provisions increased the credit amount to $7,000 for the first three quarters in 2021, for a total of $21,000 per employee!
We’ve found that most businesses meet the qualification criteria for the ERC.
Who Qualifies? Employee Retention Credit Examples
Qualifying wage is one thing. Who are eligible employees that qualify for the ERC for 2020 and 2021?
Businesses and tax-exempt organizations operating in any calendar quarter of 2020 or 2021 can claim this credit, but only if they meet certain criteria listed below.
- Had to fully or partially suspend business activities on account of a pandemic-related government order limiting commerce, travel, or group meetings due to COVID-19, but only during enforcement of the order.
- Any forced closures or quarantines resulted in a 20% or more significant decline in gross receipts for the business, compared to the same calendar quarter in 2019.
The American Rescue Plan and the ERC for 2021 specifically further expanded the credit’s eligibility to:
- Any new startups founded after February 15, 2020, with annual gross receipts up to $1 million, with the credit capped at $50K per calendar quarter.
- Companies with a revenue decline of 90% or more compared to the previous year.
What about self-employed workers? Out of luck, unfortunately. The employee retention credit isn’t available for self-employment services or earnings.
Common Misconceptions about the ERC
- The business did not have a revenue decline. Revenue is only one factor. Many companies qualify for employee retention credit with little to no revenue decline.
- The business was deemed essential. Essential status has no impact on ERTC, and many essential companies qualify.
- The company received PPP1, PPP2, or both, so it can’t claim the credit. Not true. Companies that received PPP funds are also eligible for employee retention credit.
- The business did not shut down, so it doesn’t qualify. Recent guidance allows for claims for an eligible employer that experienced partial disruptions.
- The business pivoted when a particular sector was lost, and revenue went up. It doesn’t qualify. Even if the company shifted, there might be lost income or disruption in “normally serviced” sectors.
We Have a Dedicated ERC Study Team for CPAs
For CPAs, we recognize that there may be an advisory conflict or bandwidth issue.
With that in mind, C&A has formed a dedicated ERTC Study team.
Our dedicated Employee Retention Tax Credit team will:
- Calculate and document the rationale and methodology for your clients
- Submit all forms, including preparation as required
- Coordinate with payroll companies, and
- Monetize the credit
Sample of C&A Scope of Work
- Executive summary and narrative to support ERTC claims, including contemporaneous documentation
- 2019, 2020 & 2021 financial review and gross receipts test
- Detailed executive summary and supporting arguments of the client’s business segment(s) to identify partially or fully suspended conditions due to COVID-19 related to government orders
- Qualified wage computations analyzing the use of PPP funds for payment of employee wages to optimize the number of wages qualifying for the employee retention tax credit (ERTC) while preserving PPP forgiveness
- Completion of all federal tax forms and additional supporting documentation as required
- Full audit support of periods analyzed
Frequently Asked Questions Regarding Employee Retention Credits
How Much is the employee retention credit (ERC) Worth?
The credit is calculated differently for 2020 and 2021: For 2020, the tax credit equals 50% of qualified wages that eligible employers pay their full-time employees in a calendar quarter, and qualified employers can receive a maximum credit of $5,000 per employee.
For 2021, the tax credit is equal to 70% of qualified wages that an eligible employer pays their full-time employees, and qualified employers can earn a maximum credit of $7,000 per employee per quarter (or $21,000 per employee for the first three quarters of the year).
Do you still qualify for the ERC relief if you took out a loan or applied for an additional tax credit?
Yes, you do qualify. Before the CAA passed in December 2020, businesses couldn’t claim the ERC if they took out a PPP loan. With the CAA changes, you are eligible for ERC in 2021 even if you took out a PPP loan.
The amount of wages eligible largely depends on how the qualified wages were reflected on the PPP loan forgiveness application.
Is there a deadline for claiming the employee retention tax credit (ERTC)?
Employers who qualify for the ERC in 2021, including those with a PPP loan, can claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after Dec. 31, 2020, through June 30, 2021.
Employee retention credit (ERC) Qualified Wages
You need to pay qualified wages in order to be eligible for employee tax retention credit. The ERC defines qualified wages as wages, and compensation employees received during the allotted time frame. Qualified wages also include any health plan costs associated with the wages paid out during the year.
Yet another factor determining qualified wages is how many full-time equivalent (FTE) employees you had in 2019.
Back in 2020, businesses with fewer than 100 FTE employees could claim the ERC on all wages paid to employees during a qualifying period. The qualifying period was when business was shuttered due to the pandemic.
The Consolidated Appropriations Act changed the threshold for FTE employees — from 100 to 500, meaning that businesses with up to 500 FTE employees in 2019 could claim the ERC to IRS in 2021 for wages paid out during working and non-working or shutdown periods.
What about businesses with more than 500 FTE employees in 2019? They could claim the credit, but only for wages paid out while the employee wasn’t performing work for the company.
How the ERC works if you're one employee business?
Say you’ve got one employee whose wages could qualify your business for the ERC. You paid them 10K in qualified wages for Q1 of 2021. So you’d get a tax credit of 7K.
Employee Retention Credit example: One employee and healthcare expenses:
You paid one employee 3K in qualified wages. But, you also provided them with $500 in health insurance for Q1, 2021.
In this case, you’d add the qualified wages and the health insurance, then multiply by 70%. The total credit would be $2,450.
An Employee retention credit example with several employees
You employ three people and paid two of them 10K in qualified wages during Q1. The third employee was paid 20K in qualified wages during the same quarter. But remember, the max you can claim in qualified wages per worker per quarter is 10K.
So, your credit in this scenario would be 21K.
Ready to Reduce Your Tax Liability? Book a Free Consultation
Don’t leave money on the table. Take advantage of the new and improved ERC for 2021. Our tax experts are ready to dive into your ERC claim and save you money on your social security taxes.