The Infrastructure Investment and Jobs Act was passed by Congress and signed into law today. One of the provisions of the law is that the Employee Retention Credit (ERC) concluded as of September 30, 2021. The good news is that it’s not too late for qualifying businesses to take advantage of the substantial ERC credits available on wages paid through Q3. And if you qualify as a recovery startup business, the ERC runs through the end of the year.
If you haven’t applied for ERC, the most important thing to note is that it’s a credit the taxpayer receives in cash and does not have to repay.
As a refresher, the following table summarizes the criteria for qualification of the ERC:
Why haven’t businesses taken advantage of this benefit? Simply put, it’s complicated. The intricacies, nuances, and exceptions leave business owners and the people in roles responsible for claiming the credit (CFOs, controllers, HR executives) exasperated with one more thing on their plate. Some companies’ payroll service providers are assisting them with the ERC, but many are not. The rules can be highly technical and difficult to navigate, but the rewards can be well worth the effort. We are glad to help, so please make sure to reach out to your BKMSH team contact, or email me directly by clicking here.
Below is an ERC Business Case Study for reference.
Company Business Consulting firm
Number of Employees 150
Average salary ~$100,000/year
This consulting firm did not qualify for ERC in 2020 because their employee count exceeded 100. In Q1 2021 their revenue was down more than 20% compared to Q1 2019, and they had less than 500 employees in 2019. They received a check from the IRS for over $1.0M for the first quarter alone. They originally thought the credit was a credit against their payroll taxes only, so were expecting less than $65k.
Background – Summary of ERC
The ERC was created in the Coronavirus Aid and Relief Act (CARES Act) and then expanded in the Consolidated Appropriations Act, 2021 (CAA) and the American Rescue Plan of 2021 (ARP). Small businesses can claim credits of up to $5,000 per employee in 2020 and $21,000 per employee in 2021 if they meet certain criteria.
The following table summarizes the criteria for qualification of the ERC:
- The measurement of full-time employees is based on 2019 census. A full-time employee is one who works an average of 30 hours or more per week or 130 hours or more per month. This is different than full time equivalents which would include part time employees as a fraction of a full-time employee and increase the overall count. For the purposes of ERC only full-time employees are considered. The average monthly full-time employees for 2019 is compared to the 100 employees for 2020 and 500 employees for 2021 to determine ERC qualification.
- Qualified wages cannot be used for both Paycheck Protection Loan forgiveness and the ERC. This can get tricky – just because you included wages on your PPP loan forgiveness application doesn’t mean they can’t be used for ERC if there were more wages on the application than were necessary to achieve full forgiveness.