The employee retention tax credit provides a refundable tax credit for wages paid to employees after March 12, 2020, and before December 31, 2021
A business is eligible if they suffered a "significant decline" in gross receipts or if the business was completely or partially shutdown
What is considered a Significant Decline?
For 2020 – 50% reduction in gross receipts
You will need to start with a 50% reduction in one quarter continuing the next quarter with a 20% reduction
You will automatically get the next quarter even though you don't meet a reduction in gross receipts as the eligibility extends one quarter past a qualifying quarter
For 2021 – 20% reduction in gross receipts
If you suffered a 20% reduction in the 4th quarter of 2020 you are automatically eligible to receive the ERC in the 1st quarter of 2021
Qualifying based on business being completely or partially shutdown
Employees paid while the business was completely shut down due to official government orders for a specific period
Partially shut down due to government order and this affects more than 10% of your business operation or gross receipts compared to 2019.
Example, you own a retail store that's only open for curbside pickup or your storefront is open but customers had to maintain social distancing which only allowed a minimum amount of people in the store and this affected more than 10% of your gross receipts
It is unclear if greater than 50% of owners are eligible
Spouse and other relatives are not eligible to receive the ERC
How to claim the credit
On the quarterly 941s
Requesting an advance payment with the IRS
If you are requesting for a previous quarter, you can amend the Form 941 filing. The Credit can be claimed using one of the following options;
ERTC1 for 2020 – credit 50% of wages + cost of health benefits
Capped at $5,000 per employee
ERTC2 for 2021 –credit 70% of $10,000 of wages + cost of health benefits
Capped at $7,000 for each quarter for a total of $28,000
ERC and PPP Overlap
You can now be eligible for both PPP and the ERC. This even applies retroactively to 2020
However, it is important to know that you can’t claim the same wage dollars for both ERC and PPP forgiveness. You can't be double-dipping
Questions: For $100 in wages that yields a $50 ERC How much of the above $100 in wages can be covered with PPP? $50 or $0? Answer;the consensus that we saw is that Zero. The law states that you can't use the same wage dollars to *CLAIM* the ERC and PPP forgiveness. You need $100 of ERC eligible wages to claim $50 in ERC.
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The information above pertains to companies with less than 100 employees